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  1. Home
  2. / Investing
  3. / Cannabis

Arizona Has the Fastest Start to the Adult-Use Cannabis Market

The companies that staked a flag in the state for the medical program were in a great position to quickly hit the ground running.
By DEBRA BORCHARDT
Jan 27, 2021 | 11:00 AM EST
Stocks quotes in this article: HRVSF, CURLF, ITHUF, INLB

Arizona voters approved the sales of adult use cannabis back in November and by January some providers were able to begin sales. It was called the Smart and Safe Arizona Act or Prop. 207, and it favored existing medical marijuana license holders. The companies that staked a flag in the state for the medical program were in a great position to quickly hit the ground running.

"Historically, this is massive. We're already one of the strongest medical markets in the country, and this is just going to make things bigger," said Pankaj Talwar, CEO of four Sol Flower dispensaries in the Metro Phoenix area.

The medical market was already proving to be pretty robust. With roughly $750 million a year in sales, it is estimated that the state's recreational market could be worth $375-$400 million in its first year, increasing to $700 -$760 million by 2024, if not higher.

"The legal use of recreational sales for the industry is significant to the extent that we've now opened up a whole new market, a new customer base that we didn't have before, with that, you've generated more capital which may attract more investment and increase job growth in the state," said Greta Brandt, president of The Flower Shop, a vertically integrated cannabis company with three dispensary locations in Arizona. The Arizona Department of Health Services posted this list of licensed adult-use dispensaries.

One of the biggest names in the state is Arizona-based Harvest Health & Recreation  (HRVSF)  which currently operates 15 dispensaries in Avondale, Casa Grande, Chandler, Cottonwood, Glendale, Guadalupe, Lake Havasu, Mesa, Peoria, Phoenix, Scottsdale, Tempe, and Tucson supported by cultivation facilities in Camp Verde, El Mirage, Phoenix, and Willcox and processing facilities in Flagstaff and Phoenix. Last week, the company recorded its first adult use sales and local media posted photos of lines stretching down the sidewalks.

"We are thrilled to record the first sale and begin offering access to regulated and legal cannabis products to recreational customers on this historic day in Arizona," said Chief Executive Officer Steve White. "Initial sales commenced only 80 days from the election and 54 days after the election was certified, representing by far the fastest launch to date in history. The Department of Health Services did an incredible job expediting this process, helping operators like Harvest sell recreationally to Arizonans 21 years of age and older."

Curaleaf (CURLF) also quickly ramped up its adult-use sales last week. The company has eight dispensaries in the state and was also one of the first cannabis operators in Arizona to begin serving adult-use customers. Curaleaf said it would add a ninth retail location in Arizona and it expects to hire an additional 120 team members in the immediate future. Steve Cottrell, President of Curaleaf Arizona said, "Arizona's move to legalize the adult use of recreational marijuana is a defining moment for the state, and Curaleaf couldn't be more excited to be part of this historic moment. Curaleaf has eight state-of-the-art medical dispensaries in Arizona located in Phoenix, Gilbert, Glendale and Youngtown, and we are proud to announce that the ADHS approved all eight of our recreational license applications so we can meet the new consumer demand."

iAnthus (ITHUF) lists three stores in Mesa and one in Phoenix which operate under the Health for Life brand. "We also have two modern and fully equipped production laboratories for producing cannabis derivative products and two large-scale indoor cultivation operations which provide wholesale products to over 50% of the retailers throughout the state," said the company.

Cresco Labs acquired two Reef dispensaries in 2019 from Tryke but the deal was terminated and the company's only store is the Sunnyside Phoenix dispensary. Vireo Health and Medmen each have a single location in Arizona.

Andrew Bowden, CEO of Item 9 Labs Corp. (INLB)  , a vertically integrated cannabis operator headquartered in Arizona, said, "So the 120 existing medical marijuana shops here in Arizona are going to get the bulk of the recreational licenses. So they will just attach to medical and recreational licenses." He said "We are still in the early stages of our growth and are already seeing an acceleration with Arizona's adult-use marijuana market opening in the first half of 2021, which we estimate will increase our consumer base by 500%. We're prepared to meet this demand through our streamlined production process and by expanding our operational cultivation footprint by more than 300% in the year ahead."

The company said in its recent earnings announcement that its 45-acre cultivation site expansion was approved by Coolidge, Arizona officials in November 2020. Currently, the company has two 10,000 square-foot facilities on its 50-acre site. The site will see expansion on 45 of its acres to include six additional buildings, 12 greenhouses and six greenhouse support buildings (head houses). In addition to the above uses, the company is currently awaiting state approval for five acres of on-site outdoor cultivation. Upon breaking ground, ongoing construction will take place over three years in six phases, with the initial phase beginning in early 2021. Phase one includes the construction of two 26,000 square-foot greenhouses, one head house and two 10,000 square-foot buildings - one for indoor cultivation and one for the lab and packaging.

"What we're excited to see with Arizona going adult-use, is the addition of the 26 Social Equity licenses. This is a major step in diversifying the industry in Arizona," said Chelsea Mulligan, Co-Founder and COO of The Open Dør.

"For us who have already had an operating dispensary and are in good standing, the state's showing us they're trying not to get in the way. So, that's really exciting," says Delano Phillips, general counsel and head of business development at Hana Meds.

Note: This article has been updated with new information.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Debra Borchardt had no position in the securities mentioned.

TAGS: Investing | Markets | Stocks | Trading | Cannabis

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