Arizona Medical Marijuana Market Struggles To Remain Robust

Arizona Medical Marijuana Market Struggles To Remain Robust

Arizona took a huge step forward in 2020 when voters decided to legalize recreational cannabis for adults 21 and over. Now, medical and recreational stores operate throughout the state. An odd thing has happened, though: even as recreational cannabis retains its earlier sales, the medical market has slipped.

Medical marijuana has been legal in Arizona since 2010 when voters passed the Arizona Medical Marijuana Act.

Medical Cannabis Sales in Arizona

Arizona’s medical cannabis sector has struggled, especially since the state let retailers start selling recreational cannabis products.

In May of 2022, medical marijuana sales dropped by $45 million. It was only the second time medical sales dropped below $50 million. Even the number of medical marijuana cardholders has fallen. In January, the Arizona Department of Health Services (ADHS) reported that the state had 256,676 medical marijuana cardholders. In July, it reported 158,154. That’s a striking drop that has confused many experts.

Perhaps even more bewilderingly, fewer people are participating in the medical cannabis cultivation program. ADHS reported approving 2,982 cultivation permits in its January report. It only reported 1,844 in July.

Granted, you would expect to see some variation from month to month. These changes seem surprisingly large, though. They also seem like an ongoing trend that might have started after recreational sales began.

Recreational Cannabis Sales Hold Strong

Unfortunately, lower medical marijuana sales mean that the state collects less tax. The good news is that the state’s recreational cannabis industry holds strong.

Although Arizona legalized recreational cannabis sales in 2020, stores couldn’t make transactions until January 2021. That was around the time that medical sales started to fall. Still, monthly recreational sales have exceeded $70 million five times. In April, dispensaries sold approximately $81.2 million of recreational cannabis products, breaking the previous record of $80.4 million.

What Does This Mean for Arizona?

Right now, it means that the state isn’t collecting as much tax from medical cannabis as expected. That could hurt a variety of essential services. The state’s program dedicates:

  • 33% to community colleges
  • 31% to public safety, which includes police, fire departments, and first responders
  • 25% to the Arizona Highway User Revenue Fund
  • 10% to the justice reinvestment fund, which seeks to promote social justice in communities damaged by the War on Drugs and similar anti-drug initiatives

Perhaps these are just short-term concerns, though. If the taxes from recreational cannabis can cover the gap, Arizona doesn’t need to worry. It’s also worth considering that recreational tax revenues are new for the state. They didn’t even exist until 2021.

Why Have Medical Marijuana Sales Dropped in Arizona?

No one has published information showing why medical marijuana sales are dropping in Arizona. A few possible explanations come to mind, though:

  • Adults no longer see the need to seek a prescription when they can simply buy recreational products.
  • Public and private health insurance plans do not cover medical marijuana, so patients might choose other prescription drugs to save money.
  • High inflation has forced patients to live without the benefits of medical marijuana.
  • Legal cannabis seemed novel for a while, but now people have gotten used to it and purchase products less often.

How Will Arizona Respond to These Changes?

At the moment, the state probably will not do anything to influence cannabis buyers. Instead, they will likely keep an eye on tax revenues to determine whether they need to make adjustments. The state will find itself in a challenging situation, though, if medical marijuana sales keep falling and recreational sales do not replace them.

The state could respond in several ways, such as:

  • Lowering the tax rate on medical marijuana to help patients afford their medicine.
  • Increase the tax rate on recreational marijuana to encourage patients to use the medical program.
  • Giving marijuana companies more tax breaks so they can charge lower prices.
  • Adding medical marijuana to the list of medications covered by public health insurance policies. (This might seem unrealistic, but New York is pursuing a similar plan.)

Regardless, Arizona officials need to pay close attention to how these trends evolve over the next several years.

September 2, 2022Comments Off

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