Arizona’s fast-growing, roughly $750 million a year medical marijuana market was fortified by multistate operators (MSOs) that moved into the market and invigorated lackluster operations, cannabis experts say.

And now an even bigger potential prize looms: A recreational cannabis market that the state’s voters could legalize in November.

But some experts worry that the industry-backed recreational cannabis ballot initiative – the Smart and Safe Arizona Act – favors existing MMJ license holders and would shut out small businesses, which would enable large MSOs to dominate.

Mason Cave, president of the Arizona Cannabis Chamber of Commerce, put it this way: “(There’s) too much power in too few hands.”

According to news releases and securities filings, at least seven MSOs have gained or expanded footholds in Arizona’s MMJ market since February 2019, including:

Illinois-based Cresco Labs

Massachusetts-based Curaleaf

Arizona-based 4Front Holdings

Arizona-based Harvest Health & Recreation

New York-based iAnthus Capital Holdings

California-based MedMen Enterprises

Minneapolis-based Vireo Health

Harvest and Curaleaf now control one-sixth of the state’s 131 dispensaries.

Nine MSOs combined command roughly 30% of the state’s dispensaries.

MSO market share of sales likely is higher, but Arizona’s MMJ law protects owner confidentiality so those figures aren’t divulged.

“The MSOs have come in and have quite successfully turned around a number of dispensaries that were underperforming,” said cannabis attorney Janet Jackim of Sacks Tierney in the Phoenix area.

But she and others said the recreational marijuana ballot initiative – which would give priority to existing MMJ operators and offer a limited number of new licenses – is heavily restrictive.

“We’re concerned about the monopolistic effect on the industry,” Jackim said. “We think it’s important that more of the community gets an opportunity to get involved in this burgeoning business.”

The cannabis chamber in recent months lobbied state lawmakers hard to introduce a measure that would provide more licensing opportunities for small businesses, but the effort stalled and the group reluctantly decided to support Smart and Safe.

Arizona has become the country’s largest MMJ market

The Marijuana Business Factbook estimates Arizona MMJ sales reached $715 million-$730 million in 2019, which made it the country’s largest medical cannabis program.

Retail sales increased by 34% to 166,000 pounds in 2019, according to Arizona Department of Health Services reports.

The percentage of medical marijuana patients as a proportion of the state’s population is roughly 3%, one of the highest in the nation, according to Marijuana Business Daily research.

Experts characterize the Arizona market as becoming more professional as well as increasingly expensive to enter.

“We’ve moved into a second generation,” Jackim said. “While many of the earliest operators were lucky to get a license, they didn’t necessarily have the capital and skills to maximize a dispensary.”

MSOs “are usually looking to rebrand, reorganize, and infuse a lot of capital to make the product array more robust,” Jackim said.

A dispensary license in Arizona entitles the holder to open a cultivation facility on-site, as well as another one off-site. But the dispensary must operate as a nonprofit.

Because of that requirement, many dispensaries are controlled by for-profit management companies that get a fee or cut of the revenues.

Even some of the more troubled operations – such as ones in litigation or receivership – have sold for $3 million-$5 million, while ones without major issues can command prices of between $10 million-$30 million, Jackim said.

State Department of Health Services spokesman Chris Minnick said 131 dispensaries are in operation.

The following multistate companies, in anticipation of a huge, forthcoming recreational marijuana industry, recently entered Arizona’s MMJ market or expanded operations, according to news releases and filings with securities regulators:

February 2019: iAnthus Capital Holdings acquired MPX Bioceutical, and its three dispensaries – Health for Life, Soothing Options, and The Healing Center Wellness Center. The company’s website now shows four dispensaries in Arizona – three in Mesa branded under Health for Life and a fourth in Phoenix that operates under The Holistic Center.

February 2019: 4Front Holdings bought PHX Interactive, which includes the Greens Goddess dispensary.

February 2019: MedMen acquired Kannaboost Technology and CSI Solutions, which had dispensary operations in Scottsdale and Tempe.

March 2019: Vireo Health bought Elephant Head Farm, which included rights to the Arizona Natural Remedies dispensary in Phoenix, and a cultivation and processing facility.

May-June 2019: Curaleaf made three acquisitions, resulting in control of MMJ operations that included dispensaries in Gilbert, Glendale and Phoenix.

September 2019: Cresco Labs announced an agreement to acquire Tryke, which has a vertically integrated operation with two Reef dispensaries in the Phoenix area.

February 2020: Harvest acquired Arizona Natural Selections, a vertically integrated operation that includes three dispensaries with a fourth location to open. Harvest already led the MMJ market with 11 dispensaries.

In addition, New York-based Columbia Care operates two dispensaries in Arizona, while Florida-based AltMed Enterprises owns operations that include the MüV dispensary in Phoenix.

Recreational marijuana on the way?

An Arizona recreational cannabis initiative failed at the ballot box in 2016.

So what makes Smart and Safe likely to pass this year?

For one thing, public sentiment for rec MJ has strengthened and, for another, the initiative is backed by big players with big dollars.

Harvest and Curaleaf are the main financial supporters of the industry-led initiative, contributing a combined $1.185 million to the campaign through 2019, according to Arizona Secretary of State records.

The group reportedly already has collected enough signatures to get the measure on the ballot, although the signatures must be verified.

A poll published in December found that 51% of likely voters approved legalization, and 42% opposed.

While that’s close, it’s a substantial improvement compared with surveys by the same firm, Predictive Insights of Phoenix, four years ago. Those pre-election 2016 surveys showed that the majority of voters opposed legalizing recreational marijuana.

Smart and Safe also has addressed, at least somewhat, the criticisms that its initiative would reserve almost all rec licenses for existing MMJ operators.

The cannabis chamber group lobbied for an additional 100 retail licenses and 25 “craft” production licenses, as well as oversight by the state’s Liquor Board. The cannabis chamber cited an audit that found Arizona Department of Health Services hasn’t adequately inspected MMJ businesses.

In response, Smart and Safe added 26 social equity licenses.

Cave, president of the cannabis chamber, is concerned the initiative doesn’t describe how the social equity licensing would work. He remains disappointed the Legislature isn’t considering the chamber’s proposal to open up rec licensing to more new businesses.

But Cave, like the cannabis chamber as a whole, said he will support Smart and Safe in order to advance Arizona into rec cannabis.

“It appears at this point that nothing will be taken up by the Legislature,” Cave said, so “I am for Smart and Safe if that’s the only choice on the ballot.”

Jeff Smith can be reached at [email protected]