As the old saying goes, if you don’t succeed at first, try again. After a heavy defeat in 2016, Arizona’s new recreational cannabis law was passed with 60% of the vote on November 3, 2020. So if you are a business owner or a weed enthusiast, what happens next and what should you do to prepare for upcoming opportunities in Arizona? In this post, we provide a brief overview of what has passed in Arizona and some key pieces of the new law to consider, as well as a brief checklist of questions to consider.
Although usually referred to as Proposition 207, the new law is called the Smart and Safe Arizona Act (“Act”). The new law legalizes possession of certain amounts of marijuana for people aged 21 and over. In some cases, people with previous (or pending) marijuana convictions may request their records be deleted. Not a bad add-on!
Don’t forget that in 2010 Arizona passed another initiative allowing the use of marijuana for medicinal purposes, and that’s still good law, too. Now both consumers and patients have access to marijuana products in Arizona, although certain differences remain between those who have a medical “card” and those who simply buy marijuana for their own pleasure. One example is the amount of cannabis a person can legally have – those with medical cards can have more cannabis than those who use recreational only. Also, licensees can now be owned by nonprofit, publicly held companies, as opposed to nonprofit organizations.
As part of the law, Arizona will now allow marijuana product manufacturers and manufacturers to have their products tested by independent laboratories in Arizona (and since labeling must be accurate, testing is essential). This is a new and exciting opportunity for those interested in science, marijuana, and ensuring safe and effective products in the Arizona marketplace. While the start-up costs of obtaining the required test equipment can be significant, the potential gains are potentially well worth the investment. There are a few incubators in the Phoenix area that could be potential start-up locations (depending on storage availability, zoning laws, etc.).
If you want to buy a new license, you may have to wait a bit. While there is an “early application period” (which runs from January 19, 2021 to March 9, 2021), this is limited, with a few other exceptions, to facilities that are currently licensed as medical pharmacies. Once the early application deadline has passed, the state will issue additional licenses at random. There are caps on the number of new licenses that Arizona can issue based on the number of pharmacies in an Arizona county.
In addition, Arizona will now have a new Social Equity Ownership program. Arizona will issue 26 additional licenses under this program. The purpose of this program is to license individuals from communities who are disproportionately affected by the enforcement of previous marijuana laws.
So what should you do if you are interested in these new opportunities? The following is a list of topics to consider when exploring potential opportunities in the Arizona cannabis industry.
- Capital. Since cannabis is illegal under federal law, traditional bank loans are very difficult, if not impossible, to find. However, for those who cannot bootstrap effectively, there are hedge funds, private equity, venture capital, and other potential sources of capital. Start-up costs include royalties paid to the state, buying inventory for sale, leasing and upgrading space for a pharmacy or other cannabis-related facility, and of course, payroll funding.
- Knowledge is power. The Smart and Safe Arizona Act is a new law and new regulations will be published soon. As with any new legal regime, there is much to learn. And since this will be a highly regulated industry, knowing the law is critical to your success.
- Experience. While the Smart and Safe Act offers many new opportunities, it can be invaluable to find and hire professionals with extensive industry experience. These people walked the path and conducted the conversation. A small investment in professional services, especially early in the process, can pay off with huge dividends later. There are finance professionals, accountants, and lawyers who specialize in cannabis. Experience is gold.
- Applications. While applications for new licenses have not yet been released, reviewing existing medical facility application forms and reviewing new laws and regulations (if they are released) should give you a good understanding of what to do to fill out the applications.
- Corporate issues. Existing medical marijuana operations, which will also receive the new licenses to sell to the public, can now be a for-profit entity (and can now be owned by public companies). It is possible to convert a nonprofit legal entity to a for profit legal entity. However, there are several steps and possible implications to consider before converting.
As with any new industry, there is great excitement in the Arizona marketplace. But there’s a lot to do and learn if you’re new to the industry. Now is the time to research and research possible cannabis opportunities. As with any other business, planning and execution are the keys to success.