Arizona Marijuana Business

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What is the Demand for Marijuana in Arizona?

According to figures released by Arizona, recreational marijuana sales in the state hit $2.9 million in the first ten days of allowing recreational sales on January 22, 2021. With the recent passing of Proposition 207, businesses are beginning to see heightened demand for recreational marijuana. Reports reveal that medical dispensaries have been a lot busier since the passage of the proposition, as medical dispensaries were given the first shot at recreational marijuana licenses.

Arizona is yet to include any information about recreational marijuana sales in the monthly report by the ADHS. This is because the Smart and Safe Act approved in November 2020 does not make provisions for report tracking, unlike the Arizona Medical Marijuana Act (AMMA). AMMA requires the state to develop a system to track and report specific details about the medical cannabis program, including sales reports.

However, a report from the Arizona Department of Health Services (ADHS) shows that medical marijuana sale figures in the state were lower in February 2021 than in February 2020. In February 2021, an estimated 190,153 ounces of medical marijuana was sold, while the total sold in February 2020 was 238,183 ounces. Although there were more active medical marijuana cardholders in 2021 than in 2020 (by the reports from both years), the demand for medical marijuana fell. Experts in the cannabis industry have attributed the lower demand for medical marijuana in Arizona to the recent legalization of recreational marijuana.

How is Marijuana Taxed in Arizona?

In Arizona, both medical marijuana and recreational marijuana are subject to tax. Recreational marijuana businesses are subject to the retail Transaction Privilege Tax (TPT) on sales of recreational marijuana and other products at the stores. Also, recreational marijuana businesses pay a 16% state Marijuana Excise Tax (MET), otherwise known as cannabis excise tax, on recreational marijuana. Arizona TPT is a tax paid by vendors for the privilege of doing business in the state. It is also known as a sales tax. Likewise, medical marijuana dispensaries in Arizona pay state and local TPT on sales of medical cannabis and other products sold at the dispensaries. The jurisdiction a business operates in Arizona determines its TPT rate. The Arizona Department of Revenue (ADOR) provides businesses with an online resource for determining their TPT rate. It generally ranges from 5.6% to 11%, depending on the sales location.

In Arizona, adults can buy up to 1 ounce of recreational marijuana and not more than 5 grams in the form of concentrates. Such consumers pay 16% sales tax on every purchase per A.R.S. § 42-5452(A). Similarly, patients can purchase a maximum of 2.5 ounces of medical marijuana within 14 days. These patients are subject to a 6.6% state tax plus an optional 2 to 3% tax imposed by cities. However, some dispensaries offer discounts for patients who have financial needs.

Taxes generated from marijuana sales in Arizona are credited into the Smart and Safe Arizona Fund (SSAF). The money in SSAF is first used to pay the administrative costs of some agencies. The remaining part of the money is used to fund special programs and entities. 0.2% of the remainder goes to the state Attorney General for enforcement, while the government allocates 10% to public health and criminal justice programs. Also, 25.4% of the remaining funds go for state and local transportation programs, while 31.4% is earmarked to local law enforcement and fire departments. The Arizona government appropriates 33% of the remaining money in SSAF to community colleges. The state's revenue department collects the excise tax and transfers the money to the State Treasury. The State Treasury is the office tasked with funds allocation.

What is the Arizona Department of Revenue?

The Arizona Department of Revenue (ADOR) is the agency responsible for collecting taxes from individuals and businesses, including marijuana businesses, on behalf of the Arizona government. The agency requires both recreational and medical marijuana businesses in the state to register to collect, file, and pay marijuana taxes. However, such marijuana businesses must first obtain a license issued by the Arizona Department of Health Services (ADHS). Once this is done, a marijuana business must apply for a license to report Transaction Privilege Tax (TPT), withholding tax, and excise tax. They can do this by completing the Arizona Medical, Adult-Use, or Dual License Transaction Privilege/Use/Excise Tax Application Form (Form JTM-1) and submitting it to the ADOR via email. It costs $12 to register for a TPT in Arizona.

Businesses dealing in marijuana accessories only must obtain a regular TPT license with ADOR under the retail classification. An existing business that already holds a TPT license but wishes to go into the sale of marijuana and products must contact the ADOR to effect necessary changes to the license to indicate their new business activity. They must do this to enable them to file and pay taxes on the sales of marijuana products. If the business has an ADHS license that permits it to sell recreational marijuana, it must also register with the ADOR to file and pay Marijuana Excise Tax (MET). After registration, the ADOR will provide a marijuana business with its unique TPT and MET license numbers.

The ADOR requires recreational marijuana businesses in Arizona to report their MET using the Arizona Marijuana Excise Tax Return reporting form (MET-1). They are required to complete this form even if there is no sale activity by inputting zero sales. Medical marijuana in Arizona is not subject to MET. It is only subject to TPT. While reporting excise tax to the ADOR, marijuana businesses must provide certain information. These include:

• The total amount of sales to consumers during the reporting period

• Linked marijuana license numbers for the recreational marijuana retail locations

• Inventory changes schedule for the reporting period

• The three-digit location code (this is on the retail license number)

All recreational marijuana businesses in Arizona are required to file the MET-1 form on the 20th of the month after the reporting period. The ADOR considers MET-1 forms not received within ten calendar days of the due date late. They provide taxpayers with statistical data for corporate income tax, such as estimated payments, gross collections, and refunds. They also publish annual reports for the prior fiscal year. For inquiries on marijuana taxes, Arizonans can contact the Arizona Department of Revenue at:

1600 West Monroe Street

Phoenix, AZ 85007

Phone: (602) 255-331

The ADOR provides the contact information of all its divisions for residents who need answers to division-specific inquiries.