Week in Review: Arizona Market Data, Vape Lounges in New England & Rec Real Estate Boom

By John Schroyer

Arizona medical marijuana sales skyrocket, vape lounges gain traction in more states and cannabis entrepreneurs trigger a real estate boom in new rec markets.

Here’s a closer look at several notable developments in the cannabis industry over the past week.

New MMJ Powerhouse

In just a few short years, Arizona has quickly become a major medical marijuana market.

Dispensaries in the state tripled their sales in 2014, posting $112 million in revenue last year. That ranks Arizona behind just a few states – such as California and Colorado – in annual medical cannabis sales.

“It’s good news. It means that more and more patients are actually using the dispensary system,” said Ryan Hurley, a Phoenix-based attorney who works with dispensaries. “We probably had another 20 or 30 dispensaries that came online last year, so that accounts for a lot of it.”

Hurley added that a lot of the increase can also be chalked up to the state’s 63,000 registered patients transitioning from the black market and caregivers to dispensaries. He also said he expects sales to increase even more in 2015, since more dispensaries are slated to open in coming months and post-traumatic stress disorder has joined the list of qualifying conditions for MMJ.

Additionally, there are still thousands of patients in Arizona that continue to get their medicine from either the black market or caregivers. If dispensaries can continue to win over that crowd, the market could continue to expand even further.

“There’s still plenty of room to grow there,” Hurley said.

Vape Up

Medical marijuana vaporizing lounges are cropping up in several MMJ states as entrepreneurs look to capitalize on patients’ need for a place to consume cannabis.

One, for example, just opened recently in Rhode Island, while vape lounges have also been sprouting up in Maine. They’ve also launched on the other side of the country, particularly in Arizona and all over Oakland, California.

An official in Seattle is also pushing for a law that would allow vape/edibles lounges for recreational marijuana consumption.

Most of these types of businesses (also called “clubs”) turn a profit – or at least cover their costs – by charging for membership, or by selling snacks or nonalcoholic beverages. Some operate in the full light of the law, others exist in the shadows.

The legality of such lounges often is unclear, as most state and local medical cannabis regulations don’t address these types of operations.

Whether or not it’s a workable business model depends largely on where the vape lounge is located, what kind of zoning restrictions there are for the clubs, and how law enforcement officials react to such establishments, said Scott Hawkins, who runs the cannabis consultancy Grun Strategic.

“It really boils down to the leniency that a given jurisdiction will grant such a club,” Hawkins said.

In Oakland, for example, Hawkins said there are roughly a dozen MMJ clubs that operate “under quasi-city oversight.” In Arizona, though, police raided an MMJ lounge just weeks after a local news outlet published its name and address.

Hawkins added that it’s very possible more entrepreneurs will follow in those clubs’ footsteps across New England and in other states, but it’ll probably take time. Rhode Island, he pointed out, has had a MMJ program for several years, and its first lounge just opened.

So don’t expect to see these anytime soon in Massachusetts, Connecticut and other new markets in the region.

Early Start

Entrepreneurs in Oregon and Alaska looking to get a jump on the upcoming recreational marijuana markets have been snatching up precious locations in both states in an effort to get ahead of the curve.

But they might want to think twice before signing on the dotted line.

Both states are just starting the process of crafting rules on the industry, so there are a ton of unknowns. And without a clear idea of what rules will emerge, those who invest in property could be in for a world of financial hurt.

Legislators at the state and local level could decide to, say, prohibit recreational stores from not only operating within 1,000 feet of schools – a common rule in many cannabis states – but also from churches, rehab facilities or liquor stores. They could put a cap on the number of stores or grow sites allowed per municipality, relegate rec businesses to industrial zones, or limit the square footage allowed for these types of operations.

While Colorado and Washington State can offer some clues as to how regulations might take shape, it’s impossible to predict what legislators in Alaska and Oregon will decide to pass into law.

That means many businesspeople in both states would be wise to scout out multiple potential sites for future businesses, but hold off on actually going through with a purchase of land or buildings until they have a better idea what real estate requirements and restrictions will look like.

John Schroyer can be reached at johns@mjbizmedia.com