Falling sales, too many stores and declining cannabis prices have harshed the buzz for Arizona’s big cannabis market, with sales declining in both the medical marijuana and adult-use markets.

According to cannabis data firm Headset, between August 2022 and July 2024, total sales in the state “peaked in March 2023 at approximately $127.29 million but have since declined to about $90.32 million by July 2024. This represents a significant year-over-year sales decline of 14.5% as of July 2024.”

Indeed, Arizona recorded sales of $87 million in adult-use cannabis in February and March, but June only brought in $71 million. Medical marijuana sales topped out at $23 million at the beginning of the year and then slipped to just $18 million in June.

One of Arizona’s strengths has been its cap on the number of dispensary licenses, but that number grew 13.5% from 148 operating dispensaries in June 2023 to 168 in June of this year.

In its recent quarterly earnings filings, one operator in Arizona – Vext Science Inc. (OTC: VEXTF) – wrote, “Using available data from the state of Arizona, the average dispensary in May 2024 had net sales of $557,094 compared to $814,968 in May 2023. This represents a decrease of (31.6%) on an average per dispensary basis.

Too much marijuana

In addition to additional stores resulting in additional competition, prices have fallen. According to Headset, “The average item price in Arizona has also decreased from $20.72 in July 2023 to $18.83 in July 2024, indicating a potential shift in consumer behavior or market saturation.”

Vext addressed the pricing issue in its filing, saying, “The market continues to have an oversupply of cultivators and flower products, which has been impacting wholesale flower pricing. Retail pricing to end consumers has been impacted, but not as dramatically as in the wholesale channel. The majority of dispensary operations are vertically operated and primarily focused on selling their own products in their own retail locations to maximize their margins.”

Another problem for the market, according to Vext, is the decision by some license owners to “lease” the right to cultivate to non-license holders.

“These non-license holding cultivation operators do not have retail operations to sell their own product and are solely reliant on the wholesale channel,” the company wrote. “This phenomenon has put further downward pressure on wholesale pricing and leaves operators without retail doors, vulnerable to market conditions.”

Valuations remain high

However, the market pressures haven’t affected the valuations of the properties and assets – so far. Vext said that acquisition multiples for dispensaries in Arizona are still relatively high.

“Acquisitions involving all cash are seeing some easing of price multiples, but they are still high given overall market valuations,” said the company.

Drew Mathews, CEO of Green Life Business Group, a company that facilitates the sales of cannabis properties, agreed. He said Arizona is by far one of the best markets still, and that it holds its value because of the limited licenses. Mathews said a paper retail license still sells for around $8 million and “that’s not even built out or anything.”

“The Arizona market is still a very, very hot market, and we actually have groups right now that are targeting retails in Phoenix,” Mathews said. “The values in Arizona are definitely very unique in that sense, considering how long the market’s been around. It hasn’t really declined, but most sellers’ valuations are much higher than the actual market itself. We’re still dealing with sellers that want 10 times EBITDA, which is crazy.”

Indeed, Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF) recently announced it was buying two Arizona subsidiaries from The Cannabist Company Holdings Inc. (Cboe CA: CBST) (OTCQX: CBSTF), 203 Organix LLC and Salubrious Wellness Center. Verano said it was paying $15 million in cash.

Historically low

Arizona legalized medical marijuana in 2010 under Proposition 203, with the first dispensaries operating under a compassionate care model in 2012. Adult-use cannabis was legalized in 2020 through Proposition 207 (the Smart and Safe Act), with legal sales starting in January 2021.

Since then, Arizona’s best month for adult-use sales was April 2023 when the state recorded $108 million in sales. It has not come close to that number since. Sales averaged in the $80 million range and hadn’t dipped into the $70 million range since July 2023.