Arizona began adult-use cannabis sales in January 2021 and since has become the second-highest-selling market Headset tracks (behind California). This is interesting because Arizona has a population of only 7 million people. States like Illinois and Michigan have larger populations, younger people, and bordering states that haven’t legalized adult use (Illinois has reported 30 percent of adult-use sales come from out-of-state residents), and yet Arizona is outselling both of them.
Let’s take a deeper look at Arizona dispensaries to see what’s selling and why.
Arizona sales vs. sales in similar states
From January through September 2021, Arizona recorded a total of $1.6 billion in cannabis sales (medical and adult-use) — $175 million more sales than Colorado. Illinois and Michigan both also recently began adult-use cannabis sales, so it’s worth comparing them to analyze the trends.
Each state exhibited a strong medical market prior to beginning adult-use sales. Arizona has shown strong year-over-year (YoY) growth, growing 110 percent YoY in September to $179 million total. Over the past five months, the YoY sales growth rates in Michigan and Illinois have started to slow, but Arizona continues to show the largest growth in each period.
Looking at category sales shares in each state, we see flower is the largest category, capturing 44.9 percent of sales in Arizona in September. Arizona sits squarely in between the category shares seen in Illinois and Michigan when it comes to the largest three categories (flower, vapor pens, and pre-rolls). Concentrates, on the other hand, produced 10 percent of September sales in Arizona compared to only 6.8 percent and 7.1 percent in Illinois and Michigan, respectively. This makes sense as concentrates products are often associated with medical applications due to their potency, and there is still a significant portion of medical sales in Arizona.
Arizona has the lowest category market share of any U.S. cannabis market for both the topicals and tinctures-and-sublingual categories. This is interesting given the state’s recent transition from a medical-only market to a medical and adult-use market, since both topical and tinctures categories often are thought of as wellness-oriented and marketed to treat pain, insomnia, and other ailments. Arizona customers spend less than one-third as much on topicals as Colorado customers do, and less than one-quarter as much on tinctures and sublingual products as California customers do.
The likely reason for high sales
The strongest reason for Arizona having such high sales is its robust medical program which, as of writing, includes more than 307,000 card holders. Given the state’s cannabis market is new to recreational sales, there is still a significant portion of medical sales . This shift away from medical and toward recreational makes Arizona a very interesting market to watch as recreational category sales continue to mature and evolve. We can expect medical sales to decrease over time as they have in Michigan and Illinois since the introduction of adult-use sales. While many medical customers may opt not to renew their cards, some medical customers still might as medical sales in Arizona don’t have the 16-percent excise tax adult-use sales incur.
Cy Scott is co-founder and chief executive officer at Headset, Inc., turning retail data into real-time cannabis market insights. He provides industry analysis and insights about innovative brands through his weekly blog, Cannabis Packaged Goods. Prior to founding Headset, he co-founded Leafly and helped grow the site into the world’s leading cannabis information resource. Along with his work at Headset, Scott founded a monthly Cannabis Tech Meetup hosting cannabis entrepreneurs and technology developers that has expanded into multiple regions throughout the U.S. Scott’s favorite strain is Tangie.