Arizona voted to legalize cannabis in November 2020 and launched its legal market in January 2021, but the state’s market is already one of the largest in the country; it’s also the quickest state at the time to move from voter approval to a fully-fledged recreational marketplace.
And it appears things are off to a solid start: Cannabis sales in the state reached a hearty $1.6 billion in 2021, which makes Arizona second to California in terms of retail sales for the year, according to a Cronkite News report.
Cannabis brought in $221.3 million in taxes in 2021, according to data from the Arizona Department of Revenue, and sales in 2022 were on pace to surpass that number, boasting $196.4 million in taxes over the first nine months of the year, roughly $22 million in excise taxes each month.
And while cannabis sales are strong, experts noted that the crop still has a long way to go before it’s added to the “five C’s” of the Arizona economy (cattle, cotton, copper, citrus and climate), since production still trails behind other states. However, cannabis could still become a strong part of the Arizona economy in the next few years; it’s a matter of overcoming nationwide barriers to growth, like limited trade and restrictions on financing, since cannabis is still federally illegal.
“We don’t see SWAT teams busting in the doors of dispensaries,” National Cannabis Industry Association CEO Aaron Smith told Cronkite News. “But we do have problems with not being able to take tax deductions like a normal industry, or being able to have interstate commerce, which really creates a barrier to entry for a lot of folks.”
Alexis Villacis Aveiga, an assistant professor at the Morrison School of Agribusiness at Arizona State University, said the state still needs to see a much larger expansion of agricultural production before cannabis can rival the rest of the state’s five C’s. He also noted that the Arizona climate presents challenges for growing cannabis, and though greenhouses can help to address that barrier, the state still has a lot of work to do before it’s on par with the other legal-cannabis states.
“For example, we have 35,000 square feet of indoor cannabis and hemp,” Aveiga said. “In California, there are over 4 million square feet, Colorado has over 2 million and Kentucky has around 200,000. So Arizona is pretty small compared to other states.”
Looking at the other prominent industries in the state also provides further insight. Dave DeWalt, the Arizona statistician for the U.S. Department of Agriculture, told Cronkite News in an email that the state had around 129,000 acres of cotton production in 2021, worth about $156 million; cattle also brought in $754 million that year. There were also 10,031 acres of state in 2017, the most recent year with available USDA data.
While the acreage for cannabis production was not available, the Arizona Department of Agriculture measures the production of hemp—defined as cannabis with 0.3% or less of THC and used for industrial uses along with individual medicinal needs. According to the department, Arizona had 155.5 acres of industrial hemp growing in fields at the end of 2021 and 11,558 square feet planted indoors. Hemp also faces its share of challenges, Aveiga said, as farmers can only sell their harvest if they are under the 0.3% THC threshold. Anything more and the crop is no longer hemp, requiring a separate license to grow and sell it.
Regulations can also make it difficult for small businesses to deduct expenses and find banks to work with, according to Aveiga. Though there are a number of hurdles, Smith called Arizona a “pioneering purple state” in regard to cannabis regulation and shows how popular legalization can be.
“Cannabis is used across demographics, boomers and millennials, and Gen Z, people over 21 are using responsibly and we’re glad to see that,” Smith said. “Arizona law is by and large working well.”
