Arizona’s cannabis market, once hailed as a rising star in the industry, is currently facing significant challenges. While asset valuations remain strong, the state has witnessed a notable decrease in both medical marijuana and adult-use cannabis sales.
Between August 2022 and July 2024, the market peaked in March 2023, with sales reaching approximately $127.29 million. However, by July 2024, sales had dropped to around $90.32 million, representing a year-over-year decline of 14.5%, according to cannabis data firm Headset. This decline is evident in both the adult-use and medical marijuana sectors.
Adult-use cannabis sales, which reached $87 million in February and March of this year, fell to $71 million by June. Similarly, medical marijuana sales, which peaked at $23 million at the beginning of the year, slipped to $18 million in June.
One contributing factor to this sales decline is the growing number of dispensaries in the state. Arizona, which previously capped dispensary licenses, has seen a 13.5% increase in operating dispensaries from June 2023 to June 2024. The state now has 168 dispensaries, up from 148, intensifying competition in an already challenging market.
This increased competition has coincided with a drop in cannabis prices. Headset reports that the average item price in Arizona decreased from $20.72 in July 2023 to $18.83 in July 2024, indicating possible market saturation or a shift in consumer behavior. The oversupply of cultivators and flower products has further exacerbated the pricing issue, particularly in the wholesale market.
Vext Science Inc., a cannabis operator in Arizona, highlighted this problem in its recent quarterly earnings report. The company noted a steep decline in the average dispensary’s net sales, falling from $814,968 in May 2023 to $557,094 in May 2024 – a decrease of 31.6%. Vext attributed this to the oversupply of cultivators and flower products impacting wholesale flower pricing.
Despite these challenges, valuations of cannabis properties and assets in Arizona remain strong. Vext noted that acquisition multiples for dispensaries are still relatively high, even as some all-cash deals have seen a slight easing in price multiples.
Drew Mathews, CEO of Green Life Business Group, confirmed this, emphasizing Arizona’s unique market conditions. He stated that Arizona is still one of the best markets and retains its value due to limited licenses. Mathews further highlighted that a paper retail license in the state still sells for around $8 million, despite not being built out. He attributed this to the unique value of Arizona’s market, considering its longevity.
Verano Holdings Corp. recently announced its purchase of three Arizona subsidiaries from The Cannabist Company Holdings Inc. for $15 million in cash. This acquisition underscores the continued interest in Arizona’s cannabis market despite its current challenges.
Arizona’s cannabis market has undergone significant evolution since the legalization of medical marijuana in 2010 and adult-use cannabis in 2020. However, the market’s best month for adult-use sales, recorded in April 2023 at $108 million, now seems like a distant memory. Sales have averaged in the $80 million range since and have only recently dipped into the $70 million range, signaling a period of adjustment and uncertainty for the industry.
