According to the Cannabis Panel

Arizona’s Burgeoning Cannabis and Hemp Industry

ASCPA Cannabis Special Interest Section Formed

by Josephine Giordano, CPA

As CPAs, we are accustomed to dealing with challenging clients and new situations. The newly formed Cannabis Special Interest Section was formed to bring education and information to better serve our clients while protecting the public in the everchanging cannabis and hemp industry. The Section kicked off its inaugural meeting on February 11, 2020 with a well-attended panel discussion.

Panel Discussion: Arizona’s Burgeoning Cannabis and Hemp Industry

We had an overwhelming response to our invitation to our first panel discussion. Our attendance included accounting and legal professionals, as well as bankers and state regulators. Our panelists included Gary Smith, Esq. with Guidant Law, Will Humble with the Arizona Public Health Association, J.P. Holyoak. I was with Arizona Natural Selections and Ross Dietrich, CPA, with Price Kong, and the moderator. Our panelists interacted and provided valuable information related to legal and regulatory challenges, dispensary operations and accounting and tax issues.

Based on information published by Marijuana Business Daily in January 2020, medical marijuana stores sold approximately 165,722 pounds of product in 2019, a 36% increase from the 121,916 pounds sold in 2018. Based on retail prices advertised by major dispensaries in the Phoenix area, the industry took in more than $400 million in revenue for 2018. Active cardholders increased 18% to 219,817 from 186,002 in 2018. Based on earlier reported retail prices, it was estimated that approximately $547 million was generated in 2019. Medicalmarijuana sales are subject to the state’s 5.6% sales tax equating to an estimated $30.6 million in revenue to the state (not counting additional city and county taxes ranging from 0.25 to 4%). However, later published reports (March 2020) indicated that the Marijuana Business Factbook estimates Arizona medical marijuana sales reached $715 to $730 million in 2019, which made it the country’s largest medical cannabis program.

The Arizona Department of Health Services (DHS) regulates the Act through its Medical Marijuana Program. In Arizona, DHS is the only agency that has the responsibility to oversee and regulate medical marijuana. According to an Arizona Attorney General Report issued in June 2019, in contrast, Colorado, Nevada and Washington divide the responsibility between two agencies — one to regulate the facilities that produce/sell marijuana and the other to oversee patients who use medical marijuana. Will Humble discussed his former role at the DHS and the challenges he faced. He addressed common inspection and licensing/application issues.

The panelists discussed Arizona legislative updates, including Governor Ducey signing legislation that requires dispensaries to have all medical marijuana tested by third-party laboratories for potency and contaminants by November 1, 2020 (Marijuana Policy Project 1/3/2020). The new law also makes patient registry cards valid for two years instead of one. Additionally, in May 2019, the Arizona Supreme Court ruled that concentrates, edibles and other infused products are legal under the state’s medical marijuana law, ending a controversy based on an inaccurate reading of the 2010 voter-backed law.

Arizona is considered one of the states that could legalize adult-use cannabis this year via ballot measure. Gary Smith provided an update on the status of the SAFE Banking Act of 2019, the proposed legislation regarding disposition of funds gained through the cannabis industry in the U.S. He discussed how bankruptcy is not an option for marijuana businesses and