Projections for Arizona adult-use cannabis sales

Forecast rationale

Arizona started the recreational cannabis legalization process with the 2020 election, with actual sales starting in late January 2021. With a total population of approximately 7.3M, it is the largest state in the Southwest. Another US state that recently took a similar path to recreational cannabis legalization is Michigan. Because of this, Arizona's forecast is modeled after Michigan's developments. This is justifiable from the standpoint that the two markets are not too different in size, and both states had an important constraint to the recreational market transition: Arizona will not require medical cannabis card renewal in the first year and in Michigan the medical cards last for three years, which more or less has a similar effect on the transition.

Therefore, Michigan's first complete year of recreational sales (December 2019 through November 2020) was used as a baseline for this forecast. Like Arizona, Michigan had an operational medical cannabis market before adopting recreational sales. Also like Arizona, medical operators in Michigan were able to become med + rec retailers upon legalization. The forecast assumes that the transition moves in similar fashion between the two states.

While the COVID pandemic happened in the middle of Michigan's year one, monthly sales data does not suggest that the pandemic affected Michigan's sales. Therefore, no adjustments were made in this forecast to account for the pandemic.

High level year one estimate

MI year one total recreational sales and 21+ population were used to calculate the AZ year one per capita spend at $61.39. However, MI experienced heavy supply constraints in the early months of the roll-out. Because of this, an adjustment was made to the per capita spend to apply the average monthly volume of the last nine months to the average volume of the first three months. This adjustment increases the AZ per capita spend estimate to $76.18. One interesting group of potential consumers are tourists, but overall MI has almost 2x the annual visitors as AZ so there likely won't be an advantage in the per capita numbers from inbound tourism. The reverse effect of AZ residents not having to travel to neighboring CA, NV, and CO for recreational cannabis may be a factor, but the same case can be made with any state legalizing recreational cannabis. With the per capita assumptions, and AZ 21+ population, the top line sales forecast for AZ is $406M for the first complete year of recreational sales.

We will be keeping a close eye on the Arizona cannabis market. To stay informed about cannabis market data and trends in other legal markets, sign up for a free Insights Pulse account.

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