Arizona Cannabis Startup Guide

Starting a cannabis company in Arizona? We’ve put together a state-specific guide covering everything from fees and local rules to what you should include in an Arizona cannabis business plan. Jump to a section by clicking below, or go straight to our sample cannabis business plan.

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Medical vs. recreational cannabis in Arizona
Cannabis license types
Fees and other barriers to entry
Are cannabis business plans required in Arizona?
What to include in a business plan
How to research city regulations
Helpful links
Get expert help

Overview of legal cannabis in Arizona

Legal adult-use cannabis sales begain in January 2021, and the state’s Department of Revenue reported nearly $3 million in sales in the first 10 days alone. Arizona first passed cannabis for medical use in 2010.

Since the recreational cannabis industry is in its infancy, it remains to be seen just how high sales mayt go. According to Marijuana Business Daily, indicators are that adult-use retail sales could reach $300 million in 2021, and grow to over $1 billion within three years. It is estimated that there are between 170,000 and 210,000 cannabis customers living in the state.

Medical vs. recreational cannabis in Arizona

Since proposition 203 passed in 2010, Arizona adults can possess up to 2.5 ounces of cannabis if they have a written recommendation from a doctor. About 300,000 patients have registered in Arizona. People can grow marijuana plants at home for medicinal use, but only if the closest dispensary is more than 25 miles away. Not-for-profit cannabis dispensaries are allowed, but as of 2018, all available 130 business licenses for cannabis dispensaries had already been granted (so there aren’t any available). The allowed number of dispensaries is tied to the number of existing pharmacies in Arizona, and it is reviewed every year. Medical marijuana sales are estimated to be as high as $1 billion in 2021.

Arizona voters passed Proposition 207 in 2020 to legalize adult-use of cannabis, and regulators moved very quickly to implement the program. The state is currently only accepting applications from existing medical cannabis license holders, and those establishments must be located alongside the medical dispensary.

Cannabis business license types

Arizona only issues licenses for dispensaries that grow their own cannabis. A dispensary is a retail storefront where anyone 21 and over can purchase marijuana with a valid doctor’s recommendation. In Arizona, dispensaries must follow strict protocols for security, cultivation, location (at least 500 feet from a school), hours (open at least 30 hours a week), inventory control, recordkeeping, and more.

Standalone grow operations (marijuana cultivation), standalone infused product manufacturing, and cannabis delivery are all illegal in Arizona. Unlike other states (such as Alaska), cannabis testing isn’t required in Arizona, but that may change in the near future.

If you don’t want to grow and sell cannabis in Arizona, you have other options that don’t require a cannabis business license. The state is developing a cannabis delivery program that could start as soon as January of 2023. You can also create an app, payment processing service, advertising and branding agency, ad network, consulting firm, pest management product, automated plant watering system, security service, or anything else you can think of.

Arizona medical and recreational marijuana business plan facts callout.

Fees and other barriers to entry

Local governments may forbid cannabis companies or certain locations, so check city and county regulations--you have to get local approval before you can launch a marijuana business. As part of your application, you must submit documentation from a local authority that your dispensary’s location complies with zoning rules.

Application fee: It costs $5,000 to register a medical cannabis business in Arizona. If denied, you will get $1,000 refunded. Renewing your registration costs $1,000. Recreational applications cost $25,000 and $5,000 to renew.

Fingerprinting and background check: Medical dispensary owners and employees must be fingerprinted, as well as undergoing a criminal record check.

Registry ID card: It costs $500 for a “dispensary agent” (employee, board member, volunteer, etc.) to get a registry identification card, which is required.

Food license: If you want to sell or prepare cannabis-infused edibles, first you have to have written authorization as well as a Food Establishment License.

Medical director: Arizona requires dispensaries to hire a physician to serve as their medical director. The medical director has to train employees, be reachable at all times the dispensary is open, and provide oversight for the dispensary’s educational materials.

Do you need a cannabis business plan in Arizona?

Yes, Arizona requires a cannabis business plan for dispensaries (see page 23 here). It must include, among other things, the expenses you’ve already incurred, investment or other assets you’ve received, projected expenses before your dispensary opens, projected expenses after it opens, and projected revenue. A business plan for an Arizona dispensary will also help if you plan to raise money from investors.

What to include in your business plan

Here’s what an Arizona marijuana business plan should include:

  • Product/service description: What’s unique about your dispensary? Be as specific as you can. Which strains of flower and which products will you sell?

  • Market research: How many people live within five miles? If you’re creating an app, who will be the user base, and why would they use your app instead of someone else’s? Use concrete numbers verified by a third party whenever possible (instead of estimates).

  • Competitors: Who will you compete with, both directly and indirectly? What do they do well and poorly? What is their online reputation? How will you differentiate your company?

  • Management team: Summarize your qualifications and those of others on your management team, such as your medical director. Obviously include cannabis industry experience, but don’t worry if you don’t have any. Highlight leadership skills, customer service, and business development experience in other industries.

  • Financials: This part can be tricky. You need a five-year financial forecast, including projected annual revenue, operating expenses, costs, and net profit. Each year’s projected revenue should include not only revenue but also your margin and direct costs. You can forecast revenue by estimating how much product you think you’ll sell (based on market potential), your retail price, your production cost, and how much you’ll spend on payroll, rent, and other expenses. Your cash flow statement will show that you’ll have enough cash to stay operational. You might want to include a sensitivity analysis (best- and worst-case scenarios), which shows 15% higher and 15% lower revenue than your initial forecast. It’s important to do a sensitivity analysis based on future potentialities of the wholesale price per pound. You can also include a break-even analysis, showing which month you will be profitable.

  • Arizona-specific requirements: Include any details that Arizona requires about your security system, product tracking, secure product transport, waste plan, and other aspects of your business.

  • Investor proposal: If you are presenting your plan to investors, how are you valuing the shares? Consult with your attorney to make sure you are within state and federal compliance. Sometimes, you’ll need your attorney to draw up an offering memorandum, often called a private placement memorandum (PPM). A PPM informs potential investors on the details of the investment vehicle (your company) and potential risks associated with the investment.
How to research city regulations

Google your city or municipality name and “cannabis regulations” or “marijuana laws” -- here’s Phoenix, for example. If your city or municipality’s website doesn’t have information about cannabis, contact your city clerk, city manager, or town hall.

Helpful Links
Get expert help

Confused or overwhelmed yet? That’s normal. With such a highly regulated industry, and one with different rules in every state, starting a cannabis company can be very complex. Get help with your cannabis business plan from Masterplans, the industry leaders. We’ve worked with hundreds of cannabis entrepreneurs like yourself to create investor-ready documents and presentations so you can not only meet regulations but get the funding you need. Click below for your free, confidential consultation:

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