For over a year now, Arizona has been slowly moving towards implementation of Phase 2 of the Arizona medical marijuana program. That phase involves opening up marijuana dispensaries to serve those individuals who have a valid marijuana card.
The law was passed in 2010 and has been scheduled for a two phase implementation.
The Arizona medical marijuana card system was Phase 1 and has been going fine since April 2011. Arizona medical marijuana doctors evaluate patients, write certifications, and the AZ Dept of Health Services administers cards. The medical marijuana dispensary phase 2 has reached a potential implementation point with this lottery selection of over 95 locations a few weeks ago.
Here are the top three reasons why going into the Arizona medical marijuana dispensary business is an extremely risky proposition.
1. Upfront Cost – In order to open a medical marijuana dispensary in Arizona, applicants needed to have $150,000 in the bank for at least a month. In addition, potential dispensary owners needed to secure a lease and build out the property with appropriate security, inventory management systems, credit card processing, and will need to train personnel along with having a medical director on board.
The upfront cost for opening a medical marijuana dispensary will therefore be somewhere between $200,000 and $350,000. Somehow, that amount will need to be financed either with common equity from owner investment, or bank debt. Banks are not likely to lend on this kind of investment since marijuana remains federally illegal and most banks receive FDIC insurance. That could be at risk if lending occurs on a business that sells a federally illegal substance.
So the most prominent reason why it is a risky investment is it a cost a lot of money to consider doing it and then making it a reality. Those who have persisted have had to wait while the governor sued the Department of Justice and needed to keep that money ready as opposed to spending it on a separate investment.
2. Opportunity cost. When it comes to opportunity cost, it is a fairly simple concept. When deciding on an investment opportunity, the main thing to consider is what are the other opportunities that are being forgone in order to put your money into the investment being considered. If that money could be put into a safer investment which has the potential to yield the same return, then it is a better way to go.
In the case of a medical marijuana dispensary, with the lengthy delays, upfront capital expense required and the other opportunities in the business sector, it may be that the opportunity cost is too great to move forward on a dispensary.
3. Marijuana is federally illegal. This is the biggest problem of all. Marijuana is federally illegal and remains a schedule one controlled narcotic. Years ago, the federal government put out a memo saying they were not interested in spending federal resources going after businesses that were compliant with state law for medical marijuana.
The federal government has now done a 180 on this approach, and in California the US Attorney Generals are now actively pursuing medical marijuana dispensaries. For instance, they have sent letters to landlords of dispensaries threatening civil forfeiture if they did not affect their tenants. They have had the IRS go after dispensaries as being unable to deduct normal business expenses similar to other regular businesses.
The latest concern is that the Arizona Atty. Gen. has now filed for summary judgment to stop the medical marijuana program. The stated reason is that federal law conflicts with state law when it comes to medical marijuana and that federal law should be respected. This is despite the fact that the people of Arizona approved the law and would like to see it implemented. So even with a law abiding medical marijuana business, there is major risk still is in place for a federal raid against a law-abiding and taxpaying entity.
For these three main reasons, opening a medical marijuana dispensary in the state of Arizona is a very risky and costly proposition. Granted, the reward may be substantial, but there are other ways to make an exceptional investment than incurring this type of risk. Especially considering that dispensaries have to be nonprofit entities.
If you live in AZ and need an Arizona medical marijuana card, Arizona MMC has doctors who can evaluate you and write your certification to obtain a card.
The all inclusive fee includes submitting your application to the state along with taking your photo ID. Call (855) 294 3227 toll free today.