Arizona Cannabis Sales Go Beyond $1.4 Billion

26 Apr Arizona Cannabis Sales Go Beyond $1.4 Billion

Arizona’s record-breaking cannabis market

In the landscape of booming and busting cannabis markets, Arizona emerges as a standout success story. A naturally beautiful state that attracts a sizeable group of tourists every year, Arizona skyrocketed past $1 billion in total cannabis sales for 2023. Unlike its northern neighbor of Nevada, Arizona has exceeded $1 billion in sales for three consecutive years, with 4.9% increase from ‘22 to ‘23 to boot. (Nevada, conversely, suffered from a nearly $115 million shortfall from FY 2022 to 2023 despite several millions more tourists than Arizona.)

Cannabis taxation and market comparisons

Compared to other states with recreationally legal cannabis, Arizona packs a considerably lower tax rate, levied as a 16% excise levy. Compare:

• Nevada levies a 25% tax rate, combining both wholesale and retail excise taxes
• Washington has an absurdly high 37% retail excise tax rate
• Montana taxes recreational cannabis sales at 20%

As of FY 2022, the per capita rate for excise taxes is also incredibly lower in Arizona than other recreationally legal states, at only $18. The only two states as of FY 2022 that had a lower per capita rate were both Maine and Michigan. Ironically, the two states with the highest per capita rate are also the first two states to legalize cannabis recreationally, Colorado and Washington, which have rates of $61 and $67 respectively.

Shift towards recreational cannabis sales

Recreational sales have become the life blood of the Arizona cannabis industry. Medical cannabis sales and the number of registered patients in the process are in decline. Whereas recreational sales accounted for only 45% of sales during the first year of retail sales in 2021, adult-use sales then increased to 70% in 2022. In 2023, recreational cannabis sales reached 72%, almost 30% larger than two years prior. Every month since July of 2022, the Arizona cannabis industry has exceeded $80 million in total retail sales.

Impact of regulatory environment on market performance

Like Nevada, Arizona cannabis retail stores benefit from rules that allow cannabis sales after midnight, and allow dispensaries to operate 24/7. Interestingly, unlike e.g. Montana or Minnesota, Arizona doesn’t benefit from any geographic advantage and is mostly surrounded by states with recreationally legal cannabis. This means that out-of-state visitors and business that Arizona receives from Utah certainly wouldn’t be as much as what Nevada draws in its two biggest cities. Yet, the Arizona cannabis industry is outperforming their northern neighbor, despite not possessing all the glitz and glamor of Las Vegas.

While cannabis professionals in the not so prosperous states of California and Oregon are watching some of the biggest juggernauts of business fully exit from their respective states, the billion-dollar Arizona market is seeing no such industry exodus. In particular, Curaleaf has become the best known example of a multi-state operator exiting a state completely, announcing their departure of “the majority of its operations” in California, Oregon and Colorado in 2023 and other East Coast states as well. Yet, that same MSO company has found thriving success in the Arizona market.

“Arizona has been a strong success story for us, and has become one of the top markets in the country for Curaleaf.” explained Curaleaf Vice President of Real Estate Luke Flood. “Uniquely, Arizona offers one of the lowest prices per gram at the retail level in the country.”

Allocation of Arizona cannabis tax revenue

Unlike other states which keep the allocations of their cannabis tax revenue vague at best, Arizona stated which causes and projects that the $172.8 million in excise tax revenue generated in 2023 will be going to. Approximately one third of the accumulated excise tax revenue will be allocated to community college and provisional community college districts, while a considerable portion of the revenue will be going to public safety, which in this case means all branches of first responders. Further excise tax revenue will be sent to the Arizona Highway User Revenue Fund and most interestingly, a worthwhile percent of the revenue will go to the Arizona Justice Reinvestment Fund, a program which focuses on providing health services and other social services as well as job training for those unfairly impacted by previous cannabis prohibition.

Arizona’s cannabis industry outlook

Arizona’s cannabis industry stands as a beacon of success, breaking records and showcasing sustainable growth. The politically diverse state’s ability to surpass the $1 billion mark in sales for three consecutive years, despite having less tourists than adjacent Nevada, demonstrates the industry’s robustness. The state’s comparatively lower tax rates have also contributed to its success, making it an attractive market for both consumers and businesses. Finally, Arizona’s strategic location and regulatory environment have allowed it to thrive, even without the glitz and glamor of Las Vegas.

As the Arizona cannabis industry continues to evolve and expand, it will be fascinating to observe its future trajectory and impact on the broader cannabis landscape. Stay tuned.