Flood of dispensary applications in Arizona signals keen market interest

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By John Schroyer

Arizona recently opened the door to a new wave of licensing for medical marijuana dispensaries, and got flooded with 750 applications for just 31 permits.

It is perhaps the largest ratio of applications to licenses in any market, and signals that cannabis entrepreneurs are bullish on Arizona.

The deluge comes ahead of the November elections in which Arizona residents will vote on Proposition 205 to legalize recreational marijuana.

If voters approve the initiative, licensed dispensaries would get first crack at rec licenses. Still, those in the Arizona industry say the tsunami of applications likely would have been just as big if that weren’t the case. That’s in large part thanks to the state’s sizable patient pool of almost 98,000.

“It didn’t surprise me in the least, actually,” Steve White, the CEO of Harvest of Tempe dispensary, said of the hundreds of MMJ applications. “It has been a market that has largely flown under the radar for quite some time, but that’s an acknowledgement of both the movement and Arizona as a good medical marijuana state.”

White and his partners, who already operate two dispensaries in the Phoenix metro area, submitted 30 dispensary applications for locations “all over” the state. He estimated his company probably spent between $7,000-$10,000 per application – or up to $300,000 – on the application process.

But if Proposition 205 is approved by voters this fall, that could be chump change for anyone who wins a single license from the new MMJ permitting process, which the state expects to finish sometime in October.

“It’ll be a huge payoff either way” for the winners of the 31 new dispensary licenses, said attorney Jeffrey Kaufman, who helped 21 clients put together applications.

Kaufman noted Arizona has “a lot of potential patients waiting in the wings,” because of the high cost of becoming an MMJ patient. And those individuals may be waiting to see if Prop 205 passes.

If it does, Kaufman added, those individuals are probably “hoping that the new act will be implemented immediately – and come December they’ll be able to buy marijuana without a license. So even if it fails, I think the number of patients will increase dramatically.”

Kaufman’s wife is a member of the board of directors of the White Mountain Health Center dispensary in Sun City, Arizona. Kaufman said that based on the steady increase in customer traffic that he’s witnessed at that storefront, he reckons the current patient numbers will more than double over the next year if Prop 205 fails.

The estimated sales via dispensaries in Arizona for 2016 are between $200 million and $250 million, according to the Marijuana Business Factbook 2016. And currently 93 dispensaries operate in the state, with another six licensed but not yet up and running.

Another reason Kaufman thinks the patient base will continue to expand is because he’s seeing a growing demographic in seniors. Simple acceptance of medical cannabis as a therapy for various ailments has become a burgeoning trend among those over 50, he said.

J.P. Holyoak, president of the Arizona Dispensary Association and owner of Arizona Natural Selections, a dispensary in Scottsdale, cited two more reasons the state’s industry has attracted so much attention:

  • The risk-reward ratio has gotten very low for prospective MMJ business owners.
  • There’s no longer a residency requirement for licensees.

“The reason and the rationale behind it is the risk profile has changed dramatically from back then to today,” Holyoak said. “When I first applied, people were telling me, ‘J.P., you’re crazy.’ Those same people that were cautioning me against it are the same people that were submitting applications this time. That’s the moral of the story.”

White added he expects there’s a good mix of in-state and out-of-state experienced medical cannabis businesspeople that threw their hats into the ring for this round of licenses. He’s not counting on winning a license, even though his company did everything it could.

The state also announced back in June that it will target 31 specific Community Health Analysis Areas, also known as CHAAs, where it wants dispensaries to locate. Of the 750 applications received, 630 had earmarked dispensary locations inside those CHAAs.

When asked if there was any chance an applicant with a location outside the prioritized CHAAs could still receive one of the 31 licenses, a spokesman for the Arizona Department of Health Services replied via email: “It may happen, but only if ADHS does not receive a complete and compliant application in one or more of the 31 prioritized CHAAs.”

Kaufman, interestingly enough, said three of his clients had submitted applications with dispensary locations that weren’t inside any of the 31 prioritized CHAAs, in part because they were gambling that some of those won’t allow more dispensaries.

Holyoak agreed, and pointed out that many locales – such as Gilbert, Tempe and Mesa – have enacted laws essentially prohibiting the establishment of more dispensaries.

“I wouldn’t be surprised if there were 10 or more” that were allocated outside the CHAAs prioritized by the state, Holyoak said.

Meaning any of the 750 could be winners.

John Schroyer can be reached at johns@mjbizdaily.com