How to Open a Dispensary in Arizona

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How to Open a Dispensary in Arizona in 2024

Anyone planning to open a dispensary in Arizona must register a business in the state and apply for a dispensary license from the Arizona Department of Health Services (ADHS). It is also necessary to create a business plan and study the state’s cannabis laws as well as local ordinances of the location where they intend to set up the dispensary. This is because most cities have zoning regulations for cannabis businesses. Arizona has a Social Equity Program for eligible persons from disadvantaged areas in the state to help them open and run cannabis dispensaries.

Why Open a Dispensary in Arizona?

Arizona’s medical and recreational cannabis markets are growing business opportunities for savvy marijuana entrepreneurs. Dispensaries have seen a rise in sales over the years, especially since the retail sales of recreational marijuana began in January 2021. Since then, recreational cannabis sales have surpassed $2 billion, with a peak monthly total sales in March 2023 at $99.6 million. The overall medical marijuana sales in Arizona since January 2021 have reached $1.4 billion (as of mid 2023). Tax revenues from medical and recreational cannabis sales from January 2021 to May 2023 totaled $533.6 million, according to the Arizona Department of Revenue. As of August 2023, 126,496 qualified patients are enrolled in Arizona's medical marijuana program.

Types of Dispensary Licenses in Arizona

Anyone interested in opening a marijuana dispensary in Arizona must obtain a Dispensary Registration Certificate (DRC).

How to Get an Arizona Dispensary License

Obtaining a dispensary license in Arizona involves several steps. They include the following:

• Preliminary Research - Thoroughly research Arizona’s cannabis laws and regulations. A person must meet the eligibility criteria to obtain an Arizona dispensary registration certificate
• Business Registration - Register the proposed dispensary as a business entity in Arizona. Recreational marijuana dispensaries can be registered as non-profit or for-profit corporations, but medical dispensaries must be incorporated as non-profits
• Find a Location - Secure a good location for the proposed dispensary. The site must comply with local zoning regulations
• Dispensary Planning - Arizona dispensary owners must prepare a comprehensive business plan highlighting essential aspects of the dispensary
• License Application - The entity’s principal officer/board member can apply for an Arizona dispensary license through the Facility Licensing Portal if they have a valid facility agent card/license
• Dispensary inspection - Upon the initial approval of the dispensary license, ADHS officials will inspect the proposed dispensary location

The Arizona Department of Health Services (ADHS) oversees the application process and issues dispensary registration certificates to successful applicants. Although the department is currently not accepting new applications for dispensary licenses, it reviews active dispensary licenses annually to determine if it should issue more certificates. The ADHS will announce application windows on its website if the need for more dispensaries arises. Per A.R.S. Section 36-2804, Arizona allows one medical marijuana dispensary license for every ten registered pharmacies in the state. However, the ADHS may allocate additional dispensary certificates to suitable applicants from counties without a dispensary. Arizona issued six dispensary licenses in March 2023.

Information and Documents Required for a Dispensary License in Arizona

1. Information about the applying entity:
   • The legal name of the proposed cannabis dispensary
   • The type of business organization
   • Arizona mailing address and phone number
   • The email address used by the principal officer or board member (PO/BM) to apply on the portal
2. The name, residential address, and date of birth of each principal officer and board member
3. Information about the proposed marijuana dispensary:
   • Physical address of the dispensary
   • The geographical area (city/town) where the proposed site is located
   • If the proposed site is at the address of a former dispensary, provide the name and closure date of the former dispensary
4. The following information about the medical director of the proposed marijuana dispensary:
   • The legal name of the director
   • The director’s professional license number

The ADHS also requires the following documents from medical dispensary license applicants:

• A document proving the entity’s good standing with the Arizona Corporation Commission
• An attestation completed and signed by each principal officer and board member for the initial dispensary registration certificate application
• A dated and signed sworn statement for each principal officer and board member that shows the proposed dispensary is compliant with local zoning restrictions
• Documentation of zoning compliance signed and dated at least 60 days before the application date by a local jurisdiction representative
• Documentation of property ownership dated at least 60 days before the application date
• A document containing the proposed dispensary policies and procedures that comply with the requirements in A.A.C. R9-17-304 for:
• Inventory control
• Qualifying patient recordkeeping
• Security

What Plans Do You Need to Open a Dispensary in Arizona?

It is essential to prepare a business plan before applying for a dispensary license in Arizona. A business plan serves as the framework that guides the dispensary's activities from its startup phase to when it starts operating. It also serves as a roadmap for dispensary owners to establish a sustainable business. Key elements to include in the business plan for an Arizona dispensary include:

• Overview of the dispensary, including its legal name, address, and ownership details
• Financial projections and budgeting details
• Operational plan
• Employee handbook
• Security measures that comply with state requirements
• Products that the dispensary will sell
• Risk assessment
• Quality assurance plan

The ADHS also requires applicants to submit site plans for proposed dispensaries. An ideal Arizona dispensary site plan should include the following:

• Streets surrounding the proposed dispensary location
• Property lines of surrounding premises, buildings, parking areas, and outdoor areas
• Fences, security features, fire hydrants, and access to water system
• If applicable, a floor plan design that illustrates the following details:
• Layout and dimensions of each room
• The name and use of each room
• Location of each toilet room and hand washing sink
• Means of egress
• Location of each video camera
• Location of each panic button
• Location of natural and artificial lighting sources

Are There Municipal Requirements for Opening a Cannabis Dispensary in Arizona?

The Smart and Safe Arizona Act, also known as Prop 207, allows municipalities in Arizona to create ordinances to regulate the operation of cannabis dispensaries within their borders. This may include zoning laws or specific hours of operation. However, such laws must not prevent entities with dual licenses from opening a non-profit medical marijuana dispensary and another marijuana establishment at a shared location. Arizona municipalities can ban recreational-only cannabis dispensaries within their boundaries.

How Long Does It Take to Get an Arizona Dispensary License?

The Arizona DHS issues a dispensary license within 60 working days of applying during the application window.

Where Can You Locate a Cannabis Dispensary in Arizona?

Marijuana dispensaries in Arizona must abide by the location requirements of the state and local municipalities.

In Arizona, a licensed cannabis dispensary can be located in the following areas:

• At least 500 feet from a private school or a public school that existed before the dispensary submitted its license application
• In an area zoned for commercial or industrial use, as stated in local zoning ordinances
• In a location where there is no licensed cannabis dispensary within 25 miles

Can Licensees Have More Than One Dispensary Location in Arizona?

Yes, Arizona DHS allows dispensary licensees to operate more than one cannabis dispensary location in the state. Usually, the department issues one marijuana dispensary license for every ten pharmacies registered in the state. However, it may issue additional certificates to ensure every county with an approved application has at least one dispensary licensee.

How Much Does It Cost to Open a Marijuana Dispensary in Arizona?

Opening a marijuana dispensary in Arizona requires various costs, which may vary based on location, business size, and other related factors. Some of the costs dispensary owners can expect to incur in Arizona are listed below:

• Property purchase or lease - Setting up a dispensary site (facility) may cost between $50,000 and $100,000 annually, depending on location, size, and condition
• Property renovation cost - Renovating the facility to meet the state’s required standards could cost between $25,000 and $100,00, depending on the size
• Professional fees - Up to $50,000, encompassing services such as legal consultation, financial advisory, security system design, or architecture plans
• Dispensary license application fee - $5,000, from which $1,000 is refundable for unsuccessful applications
• Inventory cost - Dispensary owners can expect to spend up to $1,600 per pound of marijuana products, depending on the volume and type of cannabis products purchased
• Operational cost - This costs between $110,000 and $120,000 annually
• Staffing costs - Arizona requires a dispensary to register employees as dispensary agents for $500 each. Staff can earn up to $20.05/hour, but the total staffing cost varies based on staff size
• Taxes - This depends on patronage

Do You Need an Insurance Policy for a Cannabis Dispensary in Arizona?

Arizona does not require insurance coverage for cannabis dispensaries to operate in the state. However, having an insurance policy can protect a cannabis dispensary against potential risks or liabilities. Dispensary owners in Arizona should consider getting these insurance policies:

• General Liability - This insurance protects cannabis businesses against common risks cannabis companies face, such as personal or property damage on their premises
• Property Insurance - This policy covers the dispensary’s properties against various disasters, such as fire, vandalism, or theft
• Workers’ Compensation Insurance - This policy covers the expenses of employees who suffer work-related injuries or illnesses
• Product Liability Insurance - This covers the legal expenses or financial compensation resulting from lawsuits against the dispensary because of its product
• Directors & Officers Insurance - This covers the legal expenses for company directors and officers if they are sued personally for dispensary-related issues

Some of the factors that determine a dispensary's insurance cost or premium include:

• Dispensary Size
• Location of the dispensary
• Security measures
• Policy limits

How to Get a Grant to Open a Dispensary in Arizona

Cannabis entrepreneurs can secure funds to open a cannabis dispensary in Arizona through the following means:

• Self-funding - This involves using personal savings or assets to finance a dispensary business
• Funding from Family and Friends - Getting financial assistance from family members and friends
• Equity funding - Offering a stake in the business to investors or private equity firms in exchange for capital
• Cannabis-specific Brokers and Lenders - These are specialized financial institutions that provide funding for cannabis entrepreneurs
• Social Equity Investment - Eligible residents from communities disproportionately impacted by cannabis prohibition can apply for social equity programs that provide grants, fee waivers, and licensing priority to open a cannabis dispensary

Does Arizona Have a Social Equity Program for Cannabis Dispensaries?

Yes, Arizona manages a Social Equity Campaign program to promote the ownership of cannabis facilities by residents from areas disproportionately impacted by marijuana ban enforcement prior to legalization. In April 2022, the ADHS awarded 26 dispensary certificate registrations to applicants who qualify under the social equity ownership program. To qualify, a principal officer or board member (with at least 51% ownership) of the applying entity must meet three of the following four requirements:

1. They have court documents proving they were negatively affected by the past enforcement of marijuana prohibition laws in either of these ways:
   • Granted expungement for applicable marijuana offenses per A.R.S. Section 36-2862
   • Conviction in Arizona for a federal or state marijuana-related offense
2. They resided in any of the disproportionately affected areas identified by the ADHS for three years between 2016 and 2020
3. They were negatively impacted by former marijuana law enforcement, resulting in a relative’s conviction of marijuana-related offenses in Arizona or their eligibility for expungement. The relative must be a:
   • Surviving spouse
   • Parent
   • Child
   • Sibling
   • Legal guardian
4. Applicants with an annual household income that is less than 400% of the poverty level for three years between 2016 and 2020

Does Arizona Tax Marijuana Dispensaries?

Yes, marijuana dispensaries pay taxes in Arizona. For recreational dispensaries, there is a 5.6% transaction privilege tax (TPT) on consumer cannabis purchases and a 16% excise tax on retail sales of recreational products. The state also imposes a 5.6% sales tax (TPT) for medical marijuana purchases. There are no local cannabis taxes in Arizona. Cannabis dispensaries in the state remit marijuana taxes to the Department of Revenue.