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How can I participate in the Adult-Use (Recreational) market? The answer is Sublicensing

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With the passage of Prop 207 in November 2020, Arizona voters shouted a triumphant “Yes Please!” and approved the creation of Adult-Use Marijuana Establishments, bringing years of hard work and dedication from industry advocates into fruition. 

Arizona’s regulatory landscape is unique as a result of the Arizona Department of Health Services (ADHS) issuing vertical licenses to each dispensary operating under the Medical Marijuana Program.  This effectively authorizes each license holder to operate: 1.) dispensary, 2.) onsite cultivation with processing and a kitchen; and 3.) offsite cultivation with processing and a kitchen. In other states, the licenses are separated whereby a company would need to acquire three licenses to cultivate, process, and conduct retail sales.  

Market Need

The Adult-Use Rec program in AZ has a very similar structure to its medical program.  Early Applicant licensees, which include existing dispensaries in good standing (Dual Licensees) and initial establishments slated for the rural, underserved communities without at least 2 dispensaries in the county, were or will be issued: 1.) a retail location with onsite cultivation with processing and a kitchen; 2.) an offsite manufacturing site with processing and a kitchen; and 3.) offsite cultivation with processing and a kitchen. 

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Many operators do not have the capacity nor desire to operate every aspect of the vertical in which they are authorized to establish.  Current license holders can monetize unused portions of their vertical by “sublicensing” their cultivation or manufacturing/processing/edibles rights to qualified third parties. Companies with expertise in these fields are out there; the secret is finding the right partners that align with your vision. 

Many of the medical operators have already pursued these opportunities by sublicensing to third-party companies that provide cultivation services, extraction, edible production, and wholesale services.  These supply chain contracts support the dispensary to meet the needs of its patients.  As part of the Dual License structure, every medical dispensary received authority to open one additional offsite cultivation with processing and a kitchen, and offsite manufacturing.  However, Adult-Use has expanded AZ’s customer base tremendously. Dual License operators recognize the value of partnerships with sound companies because they help drive increases in their market share. Furthermore, these relationships help provide sufficient inventory to meet customer needs, growing the industry as a whole.  

How to Take Advantage Evaluate your monetization model.

The challenge for operators is locating suitable partners with experience and a history of success in other markets.  The challenge for the companies looking to enter Arizona’s market is finding suitable licensees who are interested in partnerships. 

CannaOwners is the solution and we bridge the gap.  As advisors and previous owners, we’ve been in the AZ market since 2011 and have an intimate knowledge of its nuances.  Looking to sublease your license?  Looking for a license to lease and want to know what you need? 

Send us an email at caleb@cannaowners.com or give us a call at 480-343-4964. 


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