1st AZ Dispensaries, Generating Millions of Dollars in Revenues, Brace for More Competition

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For many businesses, it takes years to grow revenues beyond six figures and climb into the black.

But some of the first dispensaries to open in Arizona have already managed to hit those benchmarks, generating millions of dollars in sales and hitting breakeven after just a few months in business. In fact, the initial dispensary in the Phoenix metro area reportedly is on track for $8 million in revenues in its first year of operation.

Chalk it up to unusual circumstances that limited competition early on and gave the first centers – which started opening in December – a monopoly on a huge market (there are roughly 36,000 registered patients in the state).

Now, however, the landscape is changing.

Four dispensaries are slated to open in Arizona by next week – bringing the total to 11 – and dozens more will launch in the next few months, introducing competition to markets where none existed before. The initial dispensaries that opened could see their revenues and margins dip significantly, especially those located in or near larger cities where competition will be the heaviest.

The state allows only one dispensary in each of 126 pre-defined regions (called Community Health Analysis Areas, or CHAAs). So dispensaries in rural areas will be able to continue to corner the local market. But MMJ centers in Arizona’s larger cities will compete for patients. The Phoenix metro area, for example, has more than 40 CHAAs, while metro Tuscon has about a dozen.

As one would expect, simply opening your doors will no longer guarantee immediate success. Going forward, “the operations with the best patient services and the best medicine will be the ones that emerge as market leaders,” said Kris Krane, managing partner of Arizona-based MMJ consultancy 4Front Advisors.

“Typically, what we see in other states like California is that the dispensaries that have the nicest storefronts, the best-trained staff and the best medicine and those that offer great services to patients tend to do significantly better than all other dispensaries in their markets,” Krane said. “We expect that will be true in Arizona as well.”

Many cannabis entrepreneurs dream of – and expect – to see huge revenue growth and profits when starting out in the medical marijuana industry, yet in most cases it doesn’t play out this way. Competitive and regulatory challenges often get the better of MMJ businesses, and those huge expected profits never materialize.

In Arizona, however, early entrants were able to capitalize on a unique situation.

The few dispensaries already in business took on sizable risks by laying the groundwork to open despite a pending court case that could have sunk the entire program. They gambled big and won big: A judge ruled in favor of the MMJ industry in December, giving them the jump on most other would-be dispensary operators that held off on their plans until the court’s decision.

Existing dispensaries have been able to build a sizable competitive advantage over newcomers, having already developed a loyal clientele and learned what works and what doesn’t.