Requirements for Opening a Cannabis Dispensary in Arizona
In order to open a dispensary in Arizona, you must first contact the Arizona Department of Health Services (ADHS) to apply for a license. Competition from existing entities and multi-state operators along with the licensing limitations can be a barrier to entry to the Arizona cannabis dispensary market. Arizona also strictly limits the number of licenses available, and application fees are not refundable, so mistakes can be costly. Always consult with an experienced cannabis attorney to assist with preparing your dispensary license application.
Between medical marijuana legalization in 2010 and adult recreational use launching in January 2021, only 143 Arizona dispensary licenses have been issued by ADHS statewide. However, Arizona dispensary license applications for the Social Equity Ownership Program will be accepted December 1 - 14th, 2021. Social equity licenses are meant to level the playing field and encourage diversity in ownership in the cannabis industry. Social equity licenses have been established in Arizona to benefit individuals and communities damaged by the long-running War on Drugs.
“In most states, individuals eligible for equity licenses must live in(or have recently lived in) a designated geographical area where there has been a high rate of arrest and incarceration for marijuana-related activity that is no longer illegal. These areas must have higher than average poverty and unemployment rates. Applicants who themselves have been arrested or convicted, or who are hiring employees who have been arrested or convicted, may receive priority for their social equity license application.” - National Association of Cannabis Businesses
For those interested in how to own a dispensary, an additional 26 Arizona licenses will be awarded to social equity applicants. Only qualified applicants will be considered when new licenses are opened for competition. The cost to apply for a dispensary license is a $5,000 non-refundable fee. Social equity license applications will be accepted December 1 - 14th, 2021. The state will use a lottery system to pick the license holders. Final rules for social equity applicants will not be announced until September 2021, however, applicants must have lived in Arizona for three of the last five years, and they must meet at least three of the following five criteria:
- Had a household income in at least three of the last five years that is less than 400% of the federal poverty level.
- Was convicted of a violation of a federal or state law related to marijuana or marijuana paraphernalia and does not have an excluded felony offense OR is eligible for and has petitioned for expungement of charges relating to the possession of less than 2.5 ounces of Cannabis.
- Has a spouse, surviving spouse, parent, child, sibling, or legal guardian who was convicted of a violation of state or federal laws related to marijuana or marijuana paraphernalia.
- Has lived for at least three of the last five years in a "community that has been disproportionately affected by the enforcement of Arizona's previous marijuana laws. (The state adds that these criteria are still being developed and will be added to the rules by September 1, 2021).
- Complete an ADHS approved training course
Once licensed, in order for your dispensary to sell cannabis in Arizona your business must:
- Apply for a license to report transaction privilege (TPT) excise and withholding tax by completing the Medical, Adult-Use, or Dual License Transaction Privilege/Use/Excise Tax Application (Form JTM-1) and email it to AZTaxHelp@azdor.gov.
Once the TPT license is granted, the dispensary business must also file a detailed document with ADHS that includes:
- The name and license number of the marijuana establishment;
- The physical address of the marijuana establishment’s retail location;
- The marijuana establishment’s Transaction Privilege Tax Number issued by the Arizona Department of Revenue;
- The marijuana establishment’s proposed hours of operation;
- Whether the marijuana establishment agrees to allow the Department to submit supplemental requests for information;
- An attestation that the information provided to the Department to apply for approval to operate a marijuana establishment is true and correct; and
- The signature of each principal officer and board member of the marijuana
- A copy of documentation issued by the local jurisdiction to the marijuana establishment authorizing occupancy of the building as a marijuana establishment’s retail location, such as a certificate of occupancy, a special use permit, or a conditional use permit;
- A list of which of the following activities the marijuana establishments is requesting approval to provide at the retail location:
- Manufacturing of marijuana products
- Preparation of edible marijuana products
- If requesting approval of preparing edible marijuana products, a copy of the marijuana establishment’s license or permit of the location as a food establishment
- A site plan drawn to scale of the marijuana establishment’s retail location showing streets, property lines of the contiguous premises, buildings, parking areas, outdoor areas if applicable, fences, security features, fire hydrants if applicable, and access to water mains; and
- A floor plan drawn to scale of the building where the marijuana establishment’s retail location is located showing the:
- Layout and dimensions of each room
- Name and function of each room
- Location of each hand washing sink
- Location of each toilet room
- Means of egress
- Location of each video camera
- Location of each panic button
- Location of natural and artificial lighting sources.
The Cost to Open a Dispensary
The cost to open a dispensary in Arizona is considerable. In the state, dispensary license application fees are a non-refundable $25,000 per location or a $5,000 non-refundable fee for social equity applicants. Arizona dispensary licenses must be renewed and fees must be paid annually or biannually in order to remain compliant with the state’s laws. If you are planning on a dual-operation that’s also licensed to cultivate cannabis, additional applications, license fees, and regulations may apply. Medical marijuana dispensaries must also have a licensed physician on staff.
In addition to licensing, the cost to open a dispensary includes real estate acquisition whether buying, building, or obtaining a lease in approved zoning areas. Then factor in the build-out of the store including equipment, shelving and displays, secure areas, signage, etc. Additional costs associated with the ongoing costs to operate a dispensary include buying inventory, hiring and paying employees, insurance, legal services, marketing, plus all the usual costs that are incurred when operating a retail business.
For more information on how to get a dispensary license in Arizona, click here.
For a full list of ADHS dispensary licensing regulations, click here.
For more on ADHS guidelines of adult use of cannabis, click here. For ADHS definitions and FAQs, click here.