A deep dive into the Arizona cannabis market

Introduction

Arizona's medical marijuana law, the Arizona Medical Marijuana Act (AMMA), was approved by voters in 2010. In November 2020, Arizona voters approved Proposition 207, which legalized the use of recreational cannabis for adults aged 21 and older. The law went into effect on November 30, 2020, allowing individuals to possess and use cannabis, and licensed businesses to sell it. Since then, Arizona has quickly become a significant cannabis market in the US. This report will use real-time data from Headset Insights to examine Arizona's place in the American legal cannabis landscape.

Executive Summary

The “Grand Canyon State” legalized adult-use sales just over two years ago, and though the Arizona market parallels other US markets in many ways, it has some notable exceptions. Category composition is consistent with other US markets, but the overall market has exhibited slower growth than most emerging markets, up only 2% since 2021. Pricing compression has also been less severe in AZ than in other US markets, with the EQ price of flower only dropping 13% from January to December 2022. Given the market’s heavy verticalization, there has been significant brand consolidation (only second to Massachusetts), mostly driven by flower-producing ‘House Brand,’ defined as any brand produced and sold by a retailer within the same retail chain.

Methodology

Data for this report comes from real-time sales reporting by participating cannabis retailers via their point-of-sale systems, which are linked up with Headset’s business intelligence software. Headset’s data is very reliable, as it comes digitally direct from our partner retailers. However, the potential does exist for misreporting in the instance of duplicates, incorrectly classified products, inaccurate entry of products into point-of-sale systems, or even simple human error at the point of purchase. Thus, there is a slight margin of error to consider. In this report we examine sales from US Headset Insights markets. This includes AZ, CA, CO, IL, MA, MD, MI, NV, OR, and WA.

Total annual sales by market

Arizona was the seventh largest Headset-tracked cannabis market in the US last year, with just under $1.4B in total adult use and medical sales. In 2022, Arizona’s cannabis sales surpassed those of several mature markets such as Washington, Nevada, and Oregon and was close behind Massachusetts and Colorado.

Monthly sales and unit volume

This graph shows the total retail sales and unit volume by month in Arizona’s cannabis market. The shape of this graph is fairly unique when compared to a similar graph from other new emerging markets. Sales growth in newly opened cannabis markets tends to start very strong and then gradually slow over the first 24 months of sales. Arizona, on the other hand, did see strong growth in the first quarter of sales, but then plateaued for much of 2021, before declining slightly in early 2022. Total Arizona retail cannabis sales in 2022 were only 2% greater than in 2021.

Pricing and basket sizes over time

Here we see the average item price and average basket size over the past two years in Arizona. The trends in these two metrics don’t appear dramatic on this chart, but still represent significant indicators of an emerging market moving towards maturity. The average price of cannabis products in Arizona has decreased by 25% from a high of $30.84 in March 2021 to $23.05 in January 2023. The average transaction size dropped by -31% over the same time period (from $78.90 to $54.82). All new markets experience pricing compression as supply catches up with demand and clearly Arizona is no exception.

Category market share

The two graphs above show the 2022 category market share of Arizona in comparison to all other US markets. Here we can see that consumer preferences in Arizona are fairly well aligned with other US markets - especially in the highest revenue categories. Arizona customers appear to choose Flower (43.2%) slightly more often and Edibles (10.1%) slightly less often than in other US markets. In the lower-revenue categories such as Tincture and Sublingual (0.3%) and Capsules (0.5%), Arizona’s market share tends to be significantly lower than in other US cannabis markets.

Flower pricing compression

This graph compares the average equivalized price (or average price per gram) of Flower in January and December 2022 across US cannabis markets. Here we can see that at the end of 2022, Flower in Arizona is on the more expensive end of the US pricing spectrum at $0.86 per gram (although it lands far below the Massachusetts at $1.27/g). Through the calendar year of 2022, Arizona actually saw some of the slowest pricing compression, with a decline of only -13% between January and December. Michigan and Oregon led the price-slashing charge with decreases of -28% and -36% respectively.

Super Bowl™ sales

Arizona hosted the Super Bowl this February in Glendale. Despite being the host state, cannabis sales only saw a moderate lift of 3.5% on Super Bowl Sunday in comparison to an average of the previous four Sundays. Cannabis customers in Colorado (+5.6%) were the most likely to stock up on weed in addition to wings before the big game while California saw completely flat sales over the same time period.

Brand consolidation

This graph shows the combined market share of the top ten highest revenue brands in each US cannabis market in 2022. As we can see here, Arizona was the second most consolidated cannabis market last year. This is due to the large proportion of sales that are attributed to ‘House Brand.’ Arizona a heavily vertically-integrated cannabis market many retail companies also having some level of production capability. Conversely, in Washington - where vertical integration is effectively barred by state regulations - brand consolidation is lowest.
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In-house production by category

In Arizona, Headset defines ‘House Brand’ as: “Any sales for brands that are produced and sold by a retailer within that retail chain.” With many retail operators also having production capacity, we do track a high proportion of sales in Arizona to in-house brands. However, we can see in this graph that the relative prevalence of ‘house-branded’ products is not the same across all product categories. Flower has the highest ratio of in-house to external brand sales at 35% while Edibles has the lowest at only 10% of sales. Subscribers can read more about our methodology including about ‘House Brand’ in the ‘Analytical Methods’ section of Headset Insights.

Conclusion

Totaling nearly 1.4 billion in cannabis sales last year, the Arizona market has already surpassed several mature US markets in size. Despite its similar trajectory to other emerging markets, the “Grand Canyon State” stands out in several key ways, notably its resistance to severe pricing compression, premature growth plateau, and high degree of brand consolidation. For additional analysis of the Arizona market, Headset Insights provides real-time SKU-level data, including sales by strain, package size, and consumer demographic.

Key Takeaways

• Last year Arizona totaled just shy of $1.4B in total retail cannabis sales, making it the seventh largest US cannabis market.
• Arizona’s cannabis sales growth has plateaued earlier than most new markets, with sales in 2022 up only 2% over 2021.
• Both product pricing and basket sizes are compressing over time as supply catches up with demand.
• In general, Arizona’s category market shares are very similar with other US markets.
• The average price for a gram of Flower in Arizona is on the higher end of the US cannabis landscape. Additionally, the Grand Canyon State saw some of the slowest pricing compression through 2022.
• Arizona saw only a middling increase in sales on Super Bowl Sunday, despite hosting the event in Glendale.
• Arizona is a market with a high prevalence of vertical integration, especially in the Flower category.