Verano Enters into Agreements with The Cannabist Company to Acquire One of Its Virginia Licenses and Associated Operations and Its Arizona Operations

Providing Verano Entrance into the Virginia Market Ahead of Adult Use Program Launch and Deeper Footprint in Arizona

CHICAGO, July 29, 2024 (GLOBE NEWSWIRE) — Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF) (“Verano” or the “Company”), a leading multi-state cannabis company, today announced that it has entered into agreements to acquire all of the ownership interests of three subsidiaries of The Cannabist Company Holdings Inc. (Cboe CA: CBST) (OTCQX: CBSTF) (“The Cannabist Company”), one of the most experienced cultivators, manufacturers and retailers of cannabis products in the U.S. Two subsidiaries, 203 Organix, L.L.C. and Salubrious Wellness Center, Inc. (together, the “Arizona Operations”) operate in Arizona, and the third subsidiary, Columbia Care Eastern Virginia LLC, operates in Virginia (the “Virginia Operations”).

Deal Highlights

• The Virginia Operations include one cultivation and production facility and six dispensaries.
  • Virginia’s cannabis program is uniquely and attractively structured in that the Commonwealth is split into five Health Service Areas (HSAs) with only one cannabis operator and retailer permitted to service each HSA.
  • Verano will become the sole cannabis operator and retailer for HSA 5 in Eastern Virginia.
  • HSA 5 is home to nearly two million residents, serving populated areas such as Virginia Beach, Chesapeake, and Norfolk.
    Virginia’s legal cannabis program permits home delivery throughout the Commonwealth as well as wholesale opportunities to other HSAs, providing Verano the ability to serve patients statewide.
  • Total consideration for the Virginia Operation, subject to adjustment, is $90 million. Upon Closing, Verano will pay closing consideration of $20 million in cash, $40 million in Class A subordinate voting shares, and issue a $30 million promissory note.
• The Arizona Operations include one cultivation facility, one production facility, and two dispensaries.
  • Verano’s total Arizona cultivation footprint will expand to 90,000 square feet across three facilities.
  • Verano will operate eight dispensaries in Arizona adding one in Tempe and one in Prescott.
  • Total consideration for the Arizona Operations is $15 million, payable in cash.

Once closed, the acquisitions will bring Verano’s geographic footprint to 14 states, 15 cultivation and production facilities, and 150 dispensaries.
The Cannabist Company will maintain its Virginia operations in the Richmond region (HSA 4), with approximately 80,000 square feet of cultivation and manufacturing capacity, five retail locations in operation and one in development. Upon exit of the Arizona market, the Cannabist Company’s operational footprint will be in 13 markets, including previously announced divestitures that are subject to future closing.

Verano Management Commentary

“Today’s agreement further diversifies Verano’s portfolio, which, since the company’s inception, has remained focused on expanding our business into limited-license markets to scale both our wholesale and retail operations,” said George Archos, Verano Chairman and Chief Executive Officer. “This opportunity greatly increases Verano’s growth trajectory as we gain access to the coveted market of Virginia ahead of an adult use program and deepens our footprint in Arizona. With Virginia, we will be in a prime position to once again take advantage of the extraordinary growth that is expected to come with an adult use program launch.”

The Cannabist Company Management Commentary

“We are pleased to have reached an agreement and look forward to welcoming Verano to the robust Virginia market. As mentioned in previous announcements, we are continuing to optimize our footprint as we target building a better business, which includes deleveraging our balance sheet. We will retain our five existing retail locations in the Richmond, Virginia area, with one additional location in development, as well as our cultivation and manufacturing facility. We are so proud of what our Eastern Virginia and Arizona teams have accomplished and look forward to seeing the Verano team support their continued successes,” said David Hart, CEO of The Cannabist Company.

Closing of the acquisitions pursuant to the acquisition agreements for the Arizona Operations and the Virginia Operations are each subject to closing conditions, including approval of applicable regulatory bodies.

About Verano

Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF), one of the U.S. cannabis industry’s leading companies based on historical revenue, geographic scope and brand performance, is a vertically integrated, multi-state operator embracing a mission of saying Yes to plant progress and the bold exploration of cannabis. Verano provides a superior cannabis shopping experience in medical and adult use markets under the Zen Leaf and MÜV dispensary banners, including Cabbage Club, an innovative annual membership program offering exclusive benefits for cannabis consumers. Verano produces a comprehensive suite of high-quality, regulated cannabis products sold under its diverse portfolio of trusted consumer brands including Verano, (the) Essence, MÜV, Savvy, BITS, Encore, and Avexia. Verano’s active operations span 13 U.S. states, comprised of 13 production facilities with over 1,000,000 square feet of cultivation capacity. Learn more at Verano.com.

Original press release

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An Arizona church has reached a settlement in a lawsuit against the U.S. Drug Enforcement Administration and other federal agencies that allows the Indigenous religious organization to use the psychedelic brew ayahuasca for sacramental purposes. Under the agreement, the Church of the Eagle and the Condor (CEC) will be permitted to import, prepare and distribute ayahuasca to its members at religious ceremonies.

“The Church of the Eagle and the Condor has reached a settlement to secure its religious freedom and the right to use Ayahuasca as its sacrament,” the church wrote in an announcement of the settlement. “This is the first Indigenous-based church to receive recognition and protection.”

In 2022, the CEC filed a lawsuit against the U.S. Department of Justice, the Department of Homeland Security (DHS), Customs and Border Protection and the DEA after DHS officials seized shipments of ayahuasca intended for sacramental use by church members. The lawsuit also cited government threats that the church and its members could face prosecution under federal drug charges if they continued to import ayahuasca, which contains the psychedelic drug and Schedule I controlled substance DMT (N, N-Dimethyltryptamine).

The settlement allows the CEC and its members to obtain and use ayahuasca in paste or liquid form under an exemption to the Controlled Substances Act. The concentrate will then be diluted with water into a ceremonial tea by church members for religious ceremonial purposes held in Phoenix. The settlement permits the DEA to take samples of imported shipments to confirm they contain ayahuasca and no controlled substances other than DMT. 

“This Agreement permits CEC to import, receive, manufacture, distribute, transport, securely store, and dispose of ayahuasca solely for CEC’s religious purposes,” the settlement reads. “CEC may not conduct any of these activities for non-religious purposes, including but not limited to recreational purposes. CEC may not use any DEA registrations subject to this Agreement to import, receive, manufacture, distribute, store, or use any other controlled substance.”

Ayahuasca is used in South America by Indigenous cultures and folk healers in spiritual and religious ceremonies. In recent years, the psychoactive brew has gained popularity with American celebrities including Aaron Rodgers, Will Smith, Miley Cyrus and others, who have used ayahuasca to take advantage of its purported mental health benefits.

CEC Ayahuasquero (sacramental practitioner) Joseph Tafur, M.D. said in a statement that the ceremonial use of ayahuasca “is an essential sacrament for our church.”

“Our ceremony is rooted in the Shipibo Amazonian tradition which has been passed down by countless generations,” he said. “Now, in fulfillment of the ancient Prophecy of the Eagle and the Condor, this tradition has come to North America.” 

“I am honored to be an Ayahuasquero with the CEC, and bring to our ceremony the care, respect, and reverence that it deserves,” Tafur continued, adding, “Our ancestral practice will continue to support the community and nourish our holistic well-being.” 

Belinda P. Eriacho, a CEC board member of Diné and A:shwii lineages, said that the settlement with the DEA “reaffirms our right to practice our spirituality as we have always known. It is a recognition by the U.S. government and an important milestone in honoring and validating indigenous belief systems. Prior to contact, indigenous peoples have used sacred plant medicines for healing and ceremony since time immemorial.”

“Our relationship with our plant relatives has always been an extension of our worldview. This has been interrupted by the imposition of governmental policies that have suppressed our way of life and demonstrated religious intolerance,” Eriacho continued. “This settlement is a significant step and acknowledgment of our spiritual beliefs as original peoples of the Americas.” 

Regulated sales of marijuana in Arizona topped $1.4 billion last year, according to state data, marking the third year in a row that licensed weed sales have exceeded $1 billion in the Grand Canyon State. Sales of recreational marijuana totaled more than $1 billion in 2023, while sales of medical cannabis brought in nearly $350 million, the Arizona Mirror reported on Tuesday.

Arizona’s continued strong weed sales were welcome news for the state’s licensed cannabis businesses. Luke Flood, senior vice president and West regional leader for multistate operator Curaleaf, said, “Arizona has been a strong success story for us, and has become one of the top markets in the country for Curaleaf.” 

“Since the launch of adult use, we have seen a lot of consolidation in the market on the retail side, along with a multitude of new third-party brands and products coming into the market, resulting in a wider selection for consumers at an affordable price,” Flood wrote in an emailed statement. “Uniquely, Arizona offers one of the lowest prices per gram at the retail level in the country.”

Adult-Use Sales Dominate the Arizona Market

Adult-use cannabis sales came to $1.1 billion in 2023, according to data from the Arizona Department of Revenue (ADOR), or about 72% of the year’s total sales. The year before, recreational marijuana sales contributed 70% of the yearly total. In 2021, the year adult-use cannabis sales began in Arizona, recreational weed made up only 45% of the state’s total cannabis market.

“Reaching $1.4 billion in sales is a huge milestone for the state and I think it speaks to the wider efforts of de-stigmatization surrounding the plant,” Josh Hirschey, president of Arizona-based concentrate manufacturer Timeless, said in a statement.

“The consumer demand for high-quality cannabis is there and Arizona brands are strategic in navigating natural limitations to normalize the plant,” he added.

Monthly sales of recreational marijuana have totaled between about $80 million and $93.5 million since July 2022, peaking in March 2023 at $100 million. In January, adult-use sales dropped to $76.8 million, the first time in 18 months the figure was below $80 million.

Medical cannabis sales totaled $348 million last year as the market for medicinal weed in Arizona continues to decline. Medical sales hit a monthly sales record of $73.4 million in April 2021 and have steadily decreased nearly every month since then.

The decline in medicinal cannabis sales has coincided with a drop in the number of registered patients in Arizona’s medical marijuana program. Last month, the total number of medical marijuana cardholders was 111,168, down from the peak of 299,054.

Weed Taxes Fund Social Services

Arizona levies a 16% excise tax on adult-use cannabis sales in addition to the usual sales tax. Medical patients pay the sales tax of about 6%, depending on the area. Additionally, local jurisdictions add a tax of about 2% to all weed sales. 

Last year, cannabis excise taxes totaled $172.8 million. Since recreational marijuana sales began in January 2021, the marijuana excise tax has generated $451 million in revenue for the state.

Approximately one-third of Arizona’s marijuana tax revenue is earmarked for community college and provisional community college districts and 31% is dedicated to fire departments, fire districts, law enforcement and other first responders. One-fourth of state cannabis taxes are reserved for the Arizona Highway User Revenue Fund, while 10% is dedicated to the justice reinvestment fund supporting public health services, counseling, job training and other social services for communities that have been disproportionately affected by the War on Drugs.

Although Arizona’s cannabis market has begun to stabilize, many of the state’s weed retailers are still optimistic about this year. Eivan Shahara, CEO of Mint Cannabis, said the business is “anticipating an even busier 2024, as we prepare to employ more people to serve more customers at our additional dispensary locations.”

“The marijuana industry is blossoming into a significant job creator,” Shahara wrote in an email to High Times. “It’s estimated that the cannabis industry employs about 500,000 full-time equivalent positions in the U.S., with about 280 new jobs being added daily. This showcases a promising trend, as more than 100,000 new jobs were established in the previous year, making the cannabis industry one of America’s fastest-growing job sectors.”

Arizona Attorney General Kris Mayes recently issued a formal legal opinion on March 11, which addressed a question sent by Sen. Steve Montenegro and Sen. T.J. Shope, which inquired if selling delta-8 THC products (which also covers delta-10 products and any other “hemp-synthesized intoxicants”) at smoke shops or convenience stores violates state law.

Mayes’ summary answer immediately responds to the presented question. “No, Arizona law does not permit the sale of delta-8 and other hemp-synthesized intoxicants by entities that have not been licensed by Health Services,” Mayes wrote. “Irrespective of delta-8’s arguable federal legality under the 2018 Agriculture Improvement Act (“Farm Bill”), Arizona continues to define and regulate “industrial hemp” in a manner that precludes the sale of hemp-synthesized intoxicants in convenience stores, smoke shops, and other unlicensed locales.”

The opinion sets up an analysis supported with background history of cannabis in Arizona, starting with medical cannabis legalization in 2010, the effects of the 2018 Farm Bill, the state’s legalization of industrial hemp for some purposes (also in 2018), and the following surge in delta-8 THC products.

Mayes also utilizes Food and Drug Administration (FDA) concerns about unregulated delta-8 THC. The FDA previously said that “[s]ome manufacturers may use potentially unsafe household chemicals to make delta-8 THC through this chemical synthesis process,” and “[t]he final delta-8 THC product may have potentially harmful by-products (contaminants) due to the chemicals used in the process.” Further accounts claim unsanitary settings where products are processed, calling it a “’quite a soup’ of by-products and other unwanted compounds.” Also, Mayes includes that the FDA has received 104 reports regarding adverse effects of delta-8 THC product consumption between December 2020-February 2022, as well as 2,362 “exposure cases” involving delta-8.

Following this, Mayes begins the analysis portion of the legal opinion. “You have asked this Office to examine whether entities that do not possess a license to sell cannabis products by Health Services can lawfully sell products containing delta-8 THC or similar hemp-synthesized intoxicants,” Mayes wrote. “The answer to that question depends on whether products containing hemp-synthesized intoxicants constitute ‘controlled substances\’ and/or ‘industrial hemp’ under Arizona law. As explained below, we conclude that state law prevents entities not appropriately licensed by Health Services from selling products containing hemp-synthesized intoxicants like delta-8 THC.”

Mayes cites that delta-8 THC products are listed as a controlled substance in Arizona, and that the state’s industrial hemp program “does not exempt hemp-synthesized intoxicants from Health Services’ regulation.”

State law defines cannabis as “all parts of any plant of the genus cannabis whether growing or not, and the seeds of such plant.” Mayes included a 2019 court case, State v. Jones, in which the Supreme Court ruled on whether the state definition of cannabis also applies to hashish or cannabis extracts, to determine if medical cannabis patients are protected if they use extracts instead of dried cannabis flower. “‘All parts’ refers to all constituent elements of the marijuana plant, and the fact the resin must first be extracted from the plant reflects that it is part of the plant,” the ruling stated.

However, Mayes explained that this case does not apply to delta-8. “Jones’ plain import is that because [Arizona Medical Marijuana Act] legalized marijuana—an intoxicating substance—for certain purposes, it must be understood to have legalized a materially similar intoxicating extract of marijuana. Nothing in the case’s holding or reasoning supports its extension to the synthesis of an intoxicating product from a non-intoxicating product.”

Finally, the opinion ends with a final point that although the industrial hemp law was incorporated into federal law, it does not legalize delta-8 THC products.

Mayes concludes her opinion and reiterates that delta-8 THC products, as well as other hemp-synthesized intoxicants, can’t legally be sold by unlicensed sellers. “Arizona’s 2018 industrial hemp law did not create an exception to these laws,” she wrote. “Rather, in contrast to the federal Farm Bill, the industrial hemp law omitted hemp ‘extracts’ and ‘derivatives’ from the definition of industrial hemp and expressly provided that the State wished to ‘maintain strict control of marijuana.’ Delta-8’s sale by unlicensed entities like convenience stores and smoke shops is therefore unlawful.”

The Arizona Mirror spoke with Jonathan Udell, Arizona NORML communications director, about Mayes’ legal opinion, stating that she is giving the state’s cannabis industry a monopoly. “This is Attorney General Mayes giving the marijuana industry something that the legislature would not,” Udell said. “It’s a disappointing outcome.”

Udell provided an example, explaining that the Arizona Dispensaries Association (ADA) has introduced legislation in the past to regulate hemp-derived THC products by banning sales of such products or making it legal to sell them only at licensed dispensaries. According to a campaign finance report obtained by the Arizona Mirror, the ADA provided $40,000 to a political committee that spent approximately $367,000 in order to assist Mayes in getting elected to her position.

ADA executive director, Ann Torez, sent a statement to the news outlet, approving of Mayes’ opinion. “We believe it reflects the intent of Arizona’s voters and most importantly is in the best interest of public health and safety,” Torez said.

Additionally, the Arizona Mirror spoke with Phoenix-based attorney Tom Dean, who claims that Mayes’ legal opinion is very similar to a rebuttal of a legal analysis that he provided last year. “It’s just yet another example of what I think is a wrongheaded approach to marijuana policy in general,” Dean said. He added that Mayes’ opinion isn’t legally binding, and a lawsuit would be necessary in order to pursue a legal conclusion to the argument.

As Arizona lawmakers push for increased psilocybin research, some are looking to take things a step further by joining the ranks of other states that have ushered in legal psilocybin therapy.

A group of nine bipartisan lawmakers in the state are sponsoring the newly introduced bill which would legalize psilocybin service centers, allowing those in Arizona to undergo therapy with the psychedelic substance under medical supervision, according to a Marijuana Moment report. 

Arizona’s Proposed Therapeutic Psilocybin Program

The bill would allow the Department of Human Services (DHS) to license these centers and would also establish the Arizona Psilocybin Advisory Board. The board would include members appointed by the governor and legislative leaders, like representatives of the attorney general’s office and DHS, military veterans, first responders, scientists with psilocybin experience and physicians, among other potential groups.

Following in the footsteps of other states that have legalized psilocybin therapy, the board would need to establish training criteria for those working in psilocybin service centers and would also make recommendations on how the law is implemented while studying the science and policy developments related to psilocybin and other psychedelics.

Board members would also be required to submit an annual report by July 31, 2025 and each year after regarding the status of “medical, psychological and scientific” studies surrounding the safety and efficacy of psilocybin. Members would also be required to report on a “long-term strategic plan” to ensure psychedelic-assisted therapy remains “safe, accessible and affordable” to those over 21.

Medical directors of the therapy centers would be required to complete at least 132 hours of training under the approved program, including lessons on the historical and traditional use of psychedelics, safety and ethics, facilitation and preparation, administration and integration. 

If passed, it would likely still be some time before Arizonans could expect to utilize the psilocybin services, however — the bill notes that the DHS would need to start accepting applications for the centers by Jan. 1, 2026. While the DHS would need to create rules for the program, the department would not be allowed to require specific eligible conditions for the services.

Adding to Current Psilocybin Research Legislation

The bill would also provide a significant boost to the state’s existing law focused on psilocybin research.

Last year, the research was approved as part of an appropriations package specifically mandating further study into the medical potential of psilocybin pertaining to conditions like post-traumatic stress disorder (PTSD), depression, anxiety, long COVID symptoms and substance misuse disorder.

The legislation puts $5 million in funding toward the research, and unlike many other previous studies, Arizona’s prospective research would not utilize lab-produced psilocybin. Rather, it would look at the use of whole mushrooms.

More recently, an Arizona House committee approved another bill meant to protect the funding from being redistributed while the state deals with a budget deficit. Passing in an 11-3 vote, the legislation keeps the psychedelic research funds from going elsewhere until at least July 2026 so long as it gains final approval.

Without the new legislation, research appropriations were set to expire this summer, which advocates argued was not enough time to properly conduct the research.

Without the deadline extension, Dr. Dani Cabral, the principal investigator at IMA Clinical Research, said, “We are in a position here where we have $5 million, and few researchers will be awarded these funds, and they will have four months to complete a random control trial.”

Sponsor Rep. Kevin Payne (R) similarly chimed in, pointing out that the research under the current timeline is essentially not possible.

“What’s going to happen is they’re going to be halfway through the study and the money is going to run out and they’re not going to get paid at all,” he said. “So there won’t be anybody doing any studies unless we get this bill done.”

When Arizona voters approved adult-use cannabis initiative Prop 207 in 2020, it created a program called Justice Reinvestment Program, which directs the Arizona Department of Health Services (ADHS) cannabis tax funds to go toward a variety of public services.

The Justice Reinvestment Program includes funding for 1.) public and behavioral health services (such as substance abuse prevention/treatment), 2.) “Restorative justice, jail diversion, workforce development, industry-specific technical assistance or mentoring services” (to benefit those who are in areas that are disproportionately affected by high arrest rates), 3.) “addressing the underlying causes of crime” and targeting reduction in prison population and drug-related arrests, and 4.) funding the creation of tech or programs with a focus on “restoration of civil rights” and expunging records.

On Dec. 21, the ADHS announced that it has finally chosen the recipients of the first round of Justice Reinvestment Grants. This includes 18 nonprofit recipients which …”address all of the key focus areas outlined in the statute and in the community listening sessions and represent communities from across the state of Arizona,” ADHS wrote.

Northland Family Help Center, Hushabye Nursery, Axiom Community of Recovery, Cihuapactli Collective, Stuck Community Acupuncture, Inc, Phoenix Indian Center, Arouet Foundation, Friendly House, Jobs for Arizona’s Graduates (JAG), Persevere, Constructing Circles of Peace, Regional Center for Border Health, Inc. – Yuma, Regional Center for Border Health, Inc. – Parker, Arizona Democracy Resource Center, Southern Arizona Legal Aid, Inc, The Bambi Fund, Just Communities Arizona, and Our Sister Our Brother.

According to a press release, ADHS began working on this initiative by analyzing state data and determining which communities were impacted the most by the War on Drugs, specifically in relation to “drug enforcement, arrest, and incarceration.” During this time, 18 listening sessions were heard, and participants came up with a list of eight points of benefit for their communities: neighborhood safety/community gathering places such as parks or community centers, cultural awareness training, affordable housing, stigma reduction, offering tech classes for people who were once incarcerated, youth development services, and substance abuse education/prevention.

“Moving forward, the Office of Health Equity will develop a robust program evaluation process to ensure that funded projects serve the intended communities and create a positive impact,” ADHS continued. “The program evaluation will assess if awardees meet their determined goals and the data collected will be used in efforts to continuously improve the program. The Office will also facilitate a Community of Practice for all awardees and interested stakeholders to share best practices, lessons learned and build partnerships to support the communities served.”

State law says that the Justice Reinvestment Program will receive 35% from the Justice Reinvestment Fund, which includes 10% of cannabis sales tax revenue. Additionally, one-third of cannabis tax revenue goes to community colleges and districts, 31% to public safety (law enforcement, fire departments, etc.), and 25% for the Arizona Highway Revenue Fund.

When Prop 207 passed in 2020, it was widely celebrated by the cannabis community. NORML Executive Director Erik Altieri shared a statement about how it will benefit people in Arizona. “Until now, Arizona had imposed some of the strictest prohibition laws in the country; in some instances, the possession of even small amounts of marijuana was classified as a felony,” Altieri said. “By rejecting this failed policy, no Arizonan going forward will be saddled with a criminal conviction for engaging in the personal possession or cultivation of cannabis, or face the lifelong stigma that comes with it.”

Recently, Arizona met a milestone sales achievement. As of December 2023, the state has officially collected more than $1 billion in cannabis sales (with data collected between January 2023-September 2023). This includes a split of adult-use cannabis sales ($797 million) and medical cannabis sales ($267 million) for the same nine-month time period. Since January 2021 when sales first began, the state has collected more than $4 billion in combined recreational and medical sales.

Other states have also implemented similar programs to help fund various community services. The California Department of Cannabis Control (DCC) announced in February that it would be granting $20 million to bring cannabis retail stores to underserved areas through a Local Jurisdiction Retail Access Grant.

Later in June, the DCC awarded $4.1 million as part of the first phase of the grant process. “The Local Jurisdictional Retail Access Grant program will help provide access to regulated cannabis retail for over 2 million Californians that currently live in an area where access to licensed cannabis retail businesses is insufficient,” said DCC Acting Director Rasha Salama. “In addition to improving access to existing customers, these grants are another important step towards establishing legal pathways for legacy and social equity operators.”

Applications for Phase II of the Local Jurisdiction Retail Access Grant opened in October 2023, where $15 million is available in total funding. An announcement date has not yet been established.

Sales of cannabis in Arizona have exceeded $1 billion this year, according to data from the state Department of Revenue. Total marijuana sales eclipsed the billion-dollar mark in September, marking the third straight year the state’s weed sales have reached the seven-digit milestone. 

So far this year, Arizona’s sales of adult-use cannabis have totaled $797 million, while medical marijuana sales reached $267 million, bringing the total for 2023 through September to $1.1 billion. The state’s overall cannabis volume since recreational marijuana sales began in January 2021 has now reached $4 billion, with sales of adult-use cannabis contributing $2.5 billion to the total.

Arizona voters legalized the medical use of marijuana in Arizona in 2010 with the approval of Proposition 203, which received just over half of the vote. The first licensed medical marijuana dispensary in the state began serving patients on December 6, 2012. 

Recreational marijuana was then legalized in the state with the passage of Proposition 207 in 2020. Known as the Smart and Safe Act, the ballot measure was approved by 60% of voters. Regulated sales of recreational marijuana began on January 21, 2021, less than three months after the ballot measure succeeded at the polls.

Arizona Department of Revenue (ADOR) cannabis sales data from August and September of this year show that medical marijuana accounted for about one-third of the state’s total sales, according to a report from the Arizona Mirror. The ratio of medical marijuana sales to sales of adult-use cannabis continues a trend the state has seen over the last year, leading to the lowest total recorded sales of medical marijuana ever.

Sales of medical marijuana in September were just under $27 million, down from $28.7 million the previous month. September’s figure marks the lowest monthly total for medical cannabis sales since regulated sales of adult-use cannabis began nearly three years ago. The last time monthly medical marijuana sales topped $30 million was in June. Medical marijuana sales have steadily declined in Arizona since the peak of $73.4 million in April 2021. Total medical weed sales have not exceeded $40 million in a single month since June.

Sales of adult-use cannabis totaled $85.8 million in August and just over $80 million in September. Recreational cannabis sales hit their highest monthly total in March of this year at $100 million. Sales of recreational pot have exceeded $80 million per month since dropping below $90 million in May. Since first reaching $80 million in March 2022, sales of adult-use cannabis have only failed to reach that level twice—in May 2022 at $79.3 million and June 2022 at $77.2 million.

Eivan Shahara, the CEO of Mint Cannabis, a multistate operator that opened its sixth dispensary in Arizona last week, says that the state’s dip in cannabis sales coincided with changes in the way consumers are shopping.

“In terms of consumer spending, we’re seeing cannabis customers visit our dispensaries more frequently with smaller basket sizes. During the pandemic, we saw customers visit less frequently but with larger basket sizes,” Shahara writes in an email to High Times. “We’re responding to this trend by continuing to offer day-of-the-week deals, stock up and save promotions, giveaways, and buy-one-get-one offers to drive additional traffic and sales at our locations. We have also responded by incorporating more conveniences like online ordering and drive-thru pick up.”

Weed Taxes Generate Millions

Arizona levies a 16% tax on recreational marijuana sales in addition to approximately 6% in sales tax. Medical marijuana patients pay only sales tax on their purchases of cannabis. Local jurisdictions add additional taxes of about 2% to recreational marijuana sales.

About a third of cannabis tax revenue collected in Arizona is dedicated to community college and provisional community college districts, while 31% is dedicated to law enforcement, fire departments, fire districts and other emergency first responders. A quarter of state marijuana taxes go to the Arizona Highway User Revenue Fund, while 10% is reserved for the justice reinvestment fund, which supports public health services, counseling, job training and other social services for communities that have been adversely affected and disproportionately impacted by nearly a century of cannabis prohibition.

So far for 2023, the state has collected $174.5 million in excise taxes on recreational marijuana. During the 11 months of regulated sales in 2021, taxes on adult-use cannabis generated $32.9 million for the state’s coffers. The total spiked the following year, with the excise tax on recreational weed jumping to $132.8 million. Overall, the excise tax has generated more than $391 million in revenue for Arizona since regulated sales of adult-use cannabis began.

Arizona collected $13.7 million in August and $12.8 million in September from taxes on recreational marijuana sales. So far in 2023, the excise tax on adult-use cannabis has generated $174.5 million in revenue. Tax revenue on medical marijuana came to $2.4 million in August and $2.2 million in September.

Deep Roots in the Grand Canyon State

Gile has been with H4L almost the entire time, since the MPX days, and has seen the business grow and expand across the state. What started with one location in Cave Creek, quickly became a second in Elsworth, both celebrating their ten year anniversaries this fall. H4L has since added locations in Crismon and McDowell, delivers to medical patients around the state, and is vertically integrated to grow and manufacture their own house brand products. In addition to selling their house brands at their own dispensaries, H4L provides “wholesale products to over 50% of the retailers throughout the state.”

While Gile now uses cannabis, he is the first to admit, “I didn’t come from a cannabis background.” He used to work for the sheriff’s department, until medical leave forced him to find other employment. He was introduced to cannabis and CBD products which he said, “helped me get off a lot of the medications I was on.” Thanks to his background in law enforcement, Gile handles the compliance for H4L in Arizona.

A Legacy of Legal Hurdles

Every state legalizes and regulates cannabis in different ways, and some states, like Arizona, have some very unique quirks in their regulations that have posed interesting challenges for H4L and other cannabis operators. 

The first major hurdle for Arizona’s medical cannabis industry came just three years after legalization in 2013, when a cannabis patient named Rodney Jones was arrested and sent to jail for 3.5 years for possession of a cannabis concentrate. That kicked off a six year long legal battle over the fate of cannabis concentrates in Arizona, something that activists, the industry, and eventually the state supreme court all said had been entirely legal the whole time. “I remember those days before 2019 and people were scared,” said Gile, who noted they did not stop selling concentrates while the court battle played out. The biggest issue he noted was for their vendors, “we had vendors going almost two hours out of their way to avoid some counties up north, because if they were caught the law enforcement would go after them.” 

Currently, a major project for the Arizona Dispensary Association, which H4L is a member of, is lobbying to regulate delta-8 products like THC products. “We had a push in Arizona to regulate delta-8 like delta-9 products,” said Gile, “there are a lot of delta-8 carts out here, they’re essentially black market.” Another situation playing out in Arizona and around the country is the naming of cannabis cultivars. In Arizona it specifically has to do with strain names that could appeal to children, such as Candyland or the Cookies, which were both deemed to appeal to children. “Just the Cookies is a problem, but Bubba Cookies is fine,” Gile noted, which is a relief as H4L is selling Bubba Cookies and would rather not have to rename it, like they did with their Dark Knight, which is now “Black Knight.”

The Importance of Employee Training

As someone who has written a book on budtender training, I had to ask Gile about the big question for anyone who wants to work for a dispensary, what kind of training do they need to have? Do they want people who have a certification like that from Ganjier or The Trichome Institute’s Interpening program? What about going to college for cannabis classes? And when it comes to their work background, what other professions do well at H4L’s dispensaries?

When it comes to employees taking cannabis training courses, “It’s not necessarily a preference.” Gile noted that while both the University of Arizona and Paradise Community College have cannabis classes, H4L doesn’t “seek those people out and we prefer some type of industry experience.” While industry experience is preferred, there is plenty of space for hires from industries like retail sales or food service. “We hire a lot of baristas, like 4 out of 20 employees at one dispensary are all former baristas,” said Gile. “That customer service, that hustle, that drive is what we are looking for,” Gile said, adding “We can teach anyone about the PoS systems, the laws, and product education” through regular vendor trainings and thorough training on their house brands. 

The Power of House Brands

While H4L operates four dispensaries around Arizona, iAnthus, their parent company, has 29 dispensaries across 11 states, as well as other verticals like manufacturing and cultivation. That means every region they operate in can share their skills and expertise with the others, for example, Gile said, “Florida has a rosin line and we don’t so we regularly share best practices.” They’re working on adding rosin to their line up in Arizona, which right now includes disposables and live resin sold under their MPX brand and cured resin products sold by their Black Label brand. Gile was proud that iAnthus was so impressed by Arizona’s MPX brand, that they “picked it up for other states to bring Arizona’s best practices to other states.”

The power of house brands isn’t just the sharing of knowledge among different state operations, but also the ability to produce at a scale unlike most other cannabis businesses, which means lower prices for customers. According to Gile, the Black Label is “the best price you can get for your money, terp sugars and other top end concentrates testing over 80% THC will go for $10 a gram.” Even the higher quality live resins sold by MPX are just $40 a gram or $18 for a diamond roll, which Gile described as the “best flower [combined] with our diamonds to make an infused preroll” from growers like Alien Labs and True Med. 

It isn’t just about value, it is also about quality, and H4L’s MPX brand has won multiple awards from High Times, including Best THC Cartridges of 2018 and Cannabis Cup Winner – Indica 2019. Thanks to that high quality and low price, their house brands make up a little over 30% of all sales.

Delivering Quality in Record Breaking Heat

Operating a cannabis business in different parts of the United States will have specific challenges depending on where you are, for example, earthquakes and wildfires in California or frigid temperatures in New England. In Arizona, H4L is dealing with record breaking heat, specifically almost two solid months of 110 degree weather, which poses challenges to all their operations. 

That heat makes cultivation more difficult and costly, and means that dispensary sales may take a hit as customers choose to stay home and avoid driving in dangerously high temperatures. That heat also means H4L needs specially equipped vehicles if they ever want their products to reach customers without melting. “We have a distribution hub that will bring products to our stores and they use huge refrigerated vans so when we get our live rosin and other products they are all kept cold,” Gile said. Currently, state law only allows for delivery to medical cannabis patients, but that is all likely to change next year as Arizona finalizes their adult use delivery rules, and H4L is already figuring out the specifics of how they will keep delivering top quality to cannabis customers around Arizona. 

A particular strain of cannabis flower literally named “Grim Reefer” has been recalled from Arizona dispensaries due to potential mold contamination. 

The Arizona Department of Health Services issued a recall Monday for certain cannabis products that may have been contaminated with aspergillus mold.

“An Arizona marijuana establishment has voluntarily recalled specific products due to possible contamination with Aspergillus, a fungus that can cause allergic reactions or infection, usually in people already sick with something else,” said a written press release from the ADHS. “The products being voluntarily recalled is the Nirvana Center’s Grim Reefer, Batch number PHX1091-GR.”

The ADHS said that the cause of the possible contamination was due to laboratory testing that did not follow state guidelines, though the press release did not say exactly how the labs were skirting guidelines, only that whatever was being done elicited the possibility of false negative results for certain contaminants. 

“ADHS Laboratory auditors discovered discrepancies during a routine inspection, potentially leading to false negative results for contaminants being reported,” the press release said. “Once ADHS discovered the potential contamination, they contacted the facility that produced the products. The licensee took immediate action to work with all distribution and retail partners to remove any potentially impacted products from store shelves.”

There has not yet been any issues reported with people who have consumed the Grim Reefer, nor with any of the other cannabis product recalls from aspergillus in Arizona. The Nirvana Center voluntarily recalled all the potentially contaminated products, presumably before they could make anybody sick. 

“To date, no illnesses have been reported. This announcement is being made out of an abundance of caution,” the press release said. “Patients who have purchased potentially contaminated products should not ingest, inhale, or otherwise consume them and should dispose of them. If you have already consumed any of the products and have any of the symptoms described below, please contact your healthcare provider or seek care in the event of an emergency.”

According to the Center for Disease Control, aspergillus is a type of fungus with over 180 known species, about 40 of which have been known to cause unpleasant or harmful reactions in humans. Aspergillus fumigatus is the most common “strain,” if you will, of the fungus. People with healthy immune systems typically don’t experience a reaction to aspergillus, but people with weakened immune systems have been known to have reactions to it in the form of ailments like lung or sinus infections which can spread to the rest of the body. 

Most people breathe aspergillus every day without getting sick, but in those it does affect the fungus can cause an illness known as aspergillosis. Most of the symptoms of aspergillosis can be likened to a combination of asthma and allergy attacks, according to the CDC. 

Aspergillus recalls in cannabis products have actually been happening with some form of regularity as more states legalize and enact different standards of lab testing. In Oregon, for instance, there was a big problem with products testing positive for aspergillus beyond the allowed levels but the laws ended up getting repealed and recalled products were eventually sold after local cannabis farmers appealed to the state legislature that some level of aspergillus is near-impossible to avoid when growing cannabis. 

“The industry was concerned that that was not a workable standard that could be met, particularly for growers who are growing directly in soil,” said attorney Kevin Jacoby to KLCC. Jacoby represented the Cannabis Industry Alliance of Oregon in a legal challenge to the state’s aspergillus laws with regard to cannabis. 

Oregon’s change of heart has not stopped the ADHS from recalling the Grim Reefer, however. Nor has it stopped the state health authority from recalling nine other batches of potentially contaminated cannabis just this year. Almost all the batches recalled were due to possible aspergillus contamination, though some were for salmonella as well. Several of the past incidents of aspergillus contamination also cited poor lab etiquette or improperly reported lab results. 

Interestingly enough, two of those product recalls were ultimately – recalled – because there’s a law in Arizona with regard to cannabis testing facilities that if a product fails testing it can be sent to a second lab. If it passes testing at the second lab, the product is sent to a third lab and the third lab’s result is the final one. Three of the ten batches recalled in 2023 for aspergillus in Arizona met this standard, had their recalls lifted, and were ultimately sold to the general public.