I recently had the opportunity to sit down and interview Peter Davis. Most people in the Arizona cannabis industry know Peter. Peter was one of the first receivers appointed over a dispensary in the United States. Since then, Peter has built a very reputable cannabis practice. He is currently the receiver over a Phoenix based dispensary that also has a grow operation. Peter has been a receiver over dispensaries on three occasions. In addition to Arizona, Peter has also assisted clients in California and Nevada.
Peter also comes from the insolvency and financial advisor world. I have had the good fortune of working with Peter on Chapter 11 bankruptcy matters. Among other things, Peter was appointed as an Examiner for group of c-stores that filed bankruptcy in Arizona where my client was one of the senior secured creditors.
Peter started Simon Consulting in 2000 and recently merged with JS Held, which has 1,200 professionals worldwide. Peter is a newly appointed practice lead for JS Held’s cannabis practice. To read more about Peter and his background, please CLICK here.
Ethan: Peter, thank you for taking the time to sit down with me. What are some of the issues you’re seeing in the cannabis industry in Arizona?
Peter: Good question, Ethan. Right now, the biggest issue facing the industry is supply. Since recreational marijuana became legal in Arizona, there has been a shortage of product.
Ethan: What impact has that had on the market?
Peter: The price per pound has gone up rapidly. Before recreational marijuana was legalized, a pound of flower was selling for around $700. Now, the price per pound is $2,000, and I see the price continuing to go up until supplies can catch up with demand. The pricing also depends on how the cannabis is grown. Essentially, there are three ways to grow marijuana – outdoor, in-door greenhouse or in-door grow facility where all of the grow conditions are controlled by specialized lighting and nutrients. The in-door grow facilities typically produce the best products. However, it cost millions of dollars to properly build-out such a facility.
Ethan: Given the cost of a state-of-the-art grow facility, are you seeing any investment activity in that area?
Peter: Definitely. Current owners need access to capital to build-out these type facilities. Because traditional financing is not available, and alternative financing can be very expensive, some owners have turned to outside investors. So, while procuring a new license is difficult given the cap on the number of licenses in Arizona, there are other ways to get involved in the industry.
Ethan: What kind of regulatory issues have you seen lately?
Peter: If you aren’t in compliance with the regulations, then the Arizona Department of Health Services will take notice and may revoke a license or pursue other disciplinary action. The industry is subject to random audits by the Department, but so far, I have found the Department pretty reasonable to work with. If you follow the regulations and ensure compliance, you should be in good shape.
Ethan: Now that Arizona allows recreational use, are you seeing a lot new players in the market?
Peter: Yes, we are seeing national players enter the Arizona market. They’re interested in all facets of the industry – from owning and running their own dispensaries to assisting current owners with growing more product. They are also well financed and able to pay the price for a license in the open market.
Ethan: You just touched upon a subject I wanted to ask you about. Given the limited number of dispensaries allowed in Arizona, how is that impacting the price for a license?
Peter: We have seen the price for just a license go as high as $10,000,000 to $15,000,000 – and that would be for an average type dispensary. That’s just for the naked license, without real estate and other assets. I don’t see the price coming down any time soon, and in fact, now that dispensaries can sell both medical and recreational products, I think the prices will continue to go up. As long as you have a limit on the number of dispensaries, you’re going to see high values as well.
Ethan: How much does location impact profits?
Peter: We moved a dispensary in receivership, pursuant to a Court order, from Wickenburg to Phoenix. It is possible to move a dispensary and moving to the right location can result in significantly higher revenues as we experienced in the recent move.
Ethan: Now that marijuana has been legalized and some people are trying it for the first time, do you expect recreational sales to stay high or level off?
Peter: We are at a tipping point in Arizona and nationally. Now that states are legalizing marijuana, I think we will see continued demand, especially as less stigma is attached to the use of marijuana. Eventually, marijuana will be viewed like alcohol and become part of a mainstream for entertainment.
Well, this seems like a good place to stop for today. I want to thank Peter for his time and insights. In the coming months, we intend to check back in with Peter to get a bird’s eye view of the market.