Arizona (AZ) was the 13th state to legalize recreational cannabis in November 2020. As a weed entrepreneur, there’s never been a better time to tap into the Grand Canyon State’s thriving weed industry and straightforward cannabis laws.
If you’re contemplating creating a dispensary in Arizona, be prepared for the initial steps of licensing your business and the other regulations you must consider. To help you navigate the process flawlessly, this updated guide puts together everything you need to know on how to open a dispensary in Arizona.
Understanding the Legal Cannabis Landscape in Arizona
Arizona legalized the adult use of cannabis on November 3, 2020, after 60% of the voters approved the Smart & Safe Arizona Act (SSAA) campaign or Proposition 207. Led by the Smart and Safe Arizona, the campaign received millions in donations to help realize the full legalization of adult-use cannabis in the state.
Now, Arizonans who are 21 years of age and over can legally possess one ounce of recreational marijuana and up to 2.5 oz of medical cannabis. Meanwhile, there is no age limit for those who want to apply for a medical marijuana program.
Arizona currently limits the number of cannabis dispensaries to 130, or one dispensary per 10 pharmacies in the state. Not all state cities allow dispensaries to operate. Scottsdale, for example, does not receive new dispensary applications but only renews existing ones.
Here are the rest of the cities with the same specialized rules about applying for dispensaries:
- Gilbert
- Chandler
- Mesa
- Oro Valley
- Sahuarita
The state tax on recreational retail sales is 16%, and only 9.6% (state and municipal tax) for medical marijuana. Cannabis use is also prohibited in public places like restaurants, parks, sidewalks, etc.
Arizona also implements a special Social Equity Program, which aims to reduce the cost of licensing for those who have been disproportionately impacted by previous cannabis restrictions on communities of color.
The Arizona Department of Health Services (ADHS) heads the licensing operations of dispensaries across the state. Interested applications can apply through the ADHS Licensing Management System Facility Licensing Portal.
Cannabis Market Opportunities in Arizona
The Arizona cannabis market continues to grow following the legalization of recreational weed in 2020. According to ADHS, there are now about 143 active and non-operating adult-use marijuana-licensed establishments in the state.
In 2023, Arizona’s cannabis sales closed the year at $1.4 billion, with the majority of the sales coming from adult-use buyers. Recreational sales totaled about $1.1 billion, while medical cannabis sales added $348 million.
As of February 2024, 111,168 qualifying patients are medical cannabis cardholders contributing 9,562 pounds of cannabis purchase in various product forms.
The cannabis industry in Arizona is expected to grow, with job opportunities projected to exceed 18,000 and tax revenue of over $400 million by 2025.
Step-by-Step Guide to Opening a Dispensary in Arizona
Currently, all AZ-based recreational and medical marijuana dispensary licenses have been taken. However, the state periodically opens a window for new dispensary license applicants through a lottery system.
Keep an eye on these licensing opportunities by regularly checking the ADHS website and subscribing to the AZDHS.
| Before proceeding with the process of setting up a dispensary in AZ, you need to satisfy the following to qualify: – You must be a resident of Arizona for at least three years and have proof to show it. – You must be at least 21 and have passed the background check. – You’re not professionally affiliated with more than one of the US dispensaries. |
Whenever you’re ready, here’s a step-by-step process for opening a dispensary in Arizona, including the license application process. Try not to miss any steps to increase your chances of getting approved.
Step 1. Conduct Market Research and Revisit Arizona Cannabis Laws
Take the time to research the cannabis market in Arizona. Know which cities have the most amenable environment for your business plan, consumer behavior, popular cannabis product form, etc. Additionally, take the time to revisit state cannabis laws and the unique protocols of your chosen city.
The information gathered from your research will dictate your business plan, which is the next step.
Step 2. Create a Business Plan
Anyone trying to build a dispensary in any state should always have a business plan ready. In addition to being a licensing requirement, creating a business plan helps you budget expenses, set objectives, and more.
Any proper business plan must include the following (the more detailed, the better):
- Overview of the cannabis business
- Possible dispensary location, including the site plan
- How the business will be financially supported
- Where to source your inventory and its management
- Possible overhead operational expenses and projected revenue
Step 3. Decide Your Business Entity and Have it Registered
Register your business in Arizona. The business entity could be a corporation, LLC, partnership, etc., depending on your business plan. If you’re planning a medical dispensary, you need to make it a non-profit but with recreational type of dispensaries, either profit or non-profit works.
Step 4. Obtain Funding and Financing
A start-up dispensary would need funding options to operate smoothly. At the moment, it will be quite a challenge to secure funding options from financial institutions due to the unstable legal status of cannabis and even hemp at the federal level.
Even so, a few private banks and credit unions extend loans and other financing options to would-be cannabis owners. Others rely on private investors, such as angel investors and venture capital funds.
You must secure at least $500,000 in liquid assets to apply for a dispensary in AZ. It’s an element the state needs to feel confident that the dispensary license they’re about to give is well-funded. You’ll be asked for proof of this during the application process.
Step 5. Obtain the Necessary Permits and Arizona Dispensary Licenses
AZ’s dispensary licensing application process is meticulous and time-consuming. However, with enough information, careful planning, and professional help, it’s not impossible to successfully complete the process.
Take note of the following requirements before submitting your application to the ADHS:
- A detailed business plan with financial projections and a detailed description of your operations.
- Sufficient funding of at least at least $500,000 in liquid assets.
- You have secured a location for the dispensary that meets state and local zoning regulations.
- A developed security plan to curb theft, diversion, and unauthorized access.
- Information about the business’s ownership and control—background checks, fingerprints, etc., of all owners).
- Pay the application fee of $5,500 for dispensary registration and Arizona facility agent card.
- Detailed information about the dispensary’s ownership and control, including background checks and fingerprints for all owners, board members, and key employees.
After securing the mentioned requirements, you may submit your application to the ADHS online marijuana licensing portal.
Next, you must pass the rigorous inspection to comply with safety standards and establishment regulations.
Lastly, wait to obtain your license. Depending on the size of your operations, it could take several months or longer.
Step 6. Work to Realize Your Business Plan
Now, you have all the green signal to start building your dispensary in your chosen location. Here are some of the gaps in the business you’re now ready to fill:
Kickstart Your Marketing and Promotion Campaigns
Either employ an in-house team to develop your brand or hire freelancers to create your logo, signage, and packaging designs. Aside from developing your dispensary’s personality, you’ll also need a strategy to make your dispensary known locally through a well-designed marketing plan.
It’s important to note that Arizona has specific laws about marketing and advertising cannabis in your vicinity. Include these compliance on your onboarding meeting with a marketer.
Start Completing the Construction of Your Dispensary
Once you have a business plan and a dispensary license, you will have a clear idea of what your dispensary space will be. It will be easier to select which contractors to hire, how to form the space adhering to zoning laws and building codes.
At this stage, installing alarm systems and furnishing is also happening.
Hire and Train Staff
According to your business plan, you may need to fill positions such as budtenders, store managers, HR officers, security guards, inventory personnel, administrative staff, marketers, etc.
Once positions are filled, your staff should be well-trained in the details of your business, including your products, regulatory compliance, etc. The HR officer can help facilitate the training at this point.
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Source Your Supply and Set Up Inventory
In deciding which products to feature on your shelf, you should be able to satisfy the three basic categories of product sellability: products that will attract your customer base, seasonal trending products, and evergreen products.
The first two factors should be nice to have, but evergreen products should always be in your inventory. These products define a dispensary and are often permanent fixtures in your inventory. One fine example of that is THCA flowers.
THCA flowers, when sold in stores, aren’t considered Delta 9 THC even if they turn into the psychoactive compound once smoked or vaped. Hence, they have a favorable legal status and high consumer demand.
At The Hemp Doctor Wholesale, we partner with dispensaries as suppliers of a wide variety of cannabis products, including THCA flowers, to meet evolving consumer demands.
Prepare for Opening Day
Consider doing a soft opening day to gauge your operations, demand, and customer feedback.
Position your grand opening to succeed through event planning. Make sure it’ll create a buzz around town and attract passersby. This is also the best time to promote loyalty programs and sales and give a good first impression through excellent customer service.
How Much Does It Cost to Open a Dispensary in AZ?
Starting and running a dispensary in the US is costly. You probably know by now that the minimum cost of liquid assets you need to secure a dispensary license is $500,000. Depending on how elaborate your dispensary will be, the cost could go up to $2,000,000.
Here’s a breakdown of the cost of starting a dispensary in Arizona.
- Licensing and application costs
The cost of dispensary licensing in Arizona is divided into registration (initial fee) and renewal.
Licensing Expense Cost Dispensary Registration $5,000 Facility Agent Card Arizona Cost $500 Dispensary Registration Renewal $1,000 Dispensary Agent Identification Card Renewal $500 Dispensary Location Change $2,500 Change or Amend Registry Card: $10 Replace Registry Card $10 Licensing and Application Costs - Rental rate
In Arizona, you can either rent or construct a dispensary. Most cannabis small business owners prefer renting a commercial space, which is the most affordable option.
Arizona’s average cost of renting a commercial space depends on the city or county. Here’s the average leasing cost location in Arizona.
Location Cost Per Square Foot Per Year Phoenix $31 Downtown Phoenix $32 Scottsdale $25-$35 Tempe $34 Camelback East Village $31 Paradise Valley Village $16-$25 North Mountain $16-$25 Arizona Commercial Rental Rate - Equipment and inventory
Product inventory and equipment costs largely depend on the size of the dispensary. Here’s a breakdown of the average cost per equipment and product inventory.
Equipment and Inventory Average Cost Security Systems $10,000 – $50,000 Point of Sake $5,000 – $25,000 Display Cases and Fixtures $10,000 – $30,000 Climate Control $15,000 – $50,000 Office Equipment $5,000 – $15,000 Initial Inventory $50,000 – $150,000 Ongoing Inventory $20,000 – $50,000 (monthly) Equipment and Inventory - Marketing and advertising expenses
A dispensary’s marketing and advertising expenses are slightly consistent across the state. Most of your marketing budget here would go to salary and tools. For advertising, leasing billboard spaces and the materials needed to erect them will be the majority of the expenses.
Marketing & Advertising Average Cost Search Engine Optimization $1,000 to $5,000 (month) Social Media Advertising $1,000 to $10,000 (month) Email Marketing $500 to $2,000 (month) Advertising Platforms $500 – $20,000 Traditional Marketing (Print ads, billboards, etc.) $2,000 – $20,000 Marketing and Advertising Expenses - Insurance
The insurance cost depends on the coverage you need, the dispensary size, location, and risk factors. As a result, it varies widely, ranging from a few thousand dollars to $10,000 per year.
- Ongoing cost
The ongoing cost of managing a dispensary includes monthly payroll, utilities, rent, inventory, marketing, compliance fees, etc. There’s no fixed cost for this, as overhead costs largely depend on the size and direction of your business.
Final Thoughts
The beginning is always the hardest for most dispensary owners. However, when there’s a big profit potential, it’s hard not to see it through. Arizona’s dispensary application process is tedious, but it’s not impossible to get a license, especially when done with careful planning and professional help.
FAQs
What are the location requirements for opening a dispensary in Arizona?
Several location requirements exist for dispensaries in Arizona. The most significant is that dispensaries must be at least 1,000 feet away from schools and churches and space should be within commercial and industrial zones.
What are the types of insurance policies required for a dispensary in Arizona?
Arizona dispensaries must acquire several types of insurance coverage according to risk factors. Some required insurance can be general liability insurance, compensation insurance, and product liability insurance.
What are the rules for advertising a dispensary in Arizona?
The general rule of advertising in Arizona protects minors from absorbing false and misleading advertisement statements about cannabis and its benefits.
Can I have more than one location for my dispensaries in Arizona?
Yes. Arizona, however, limits the number of dispensary license slots. So, the competition is steep.
How do you open a delivery dispensary in Arizona?
Opening a cannabis delivery dispensary in Arizona requires obtaining the necessary licenses, which usually means meeting the requirements for delivery licenses, following security protocols, and using a seed-to-sale tracking system.
How to open a medical cannabis dispensary in Arizona?
It’s almost the same as the process of opening recreational dispensaries but with stricter requirements.
How to open a recreational dispensary in Arizona?
You must meet the eligibility qualifications and submit the requirements to secure a recreational dispensary in Arizona.
How much does an Arizona cultivation license cost?
The Arizona cultivation license costs $5,000 per location for registration and an additional $2,500 for another location. If not approved, $1000 of the fee is non-refundable.
How much does a dispensary owner make in AZ?
A dispensary owner makes around $100,000 and $500,000 per year.
How many dispensaries are in Arizona?
Arizona has about 143 active and non-active recreational dispensaries, according to ADHS.
