Huge Merger of Phoenix Medical Cannabis and Scottsdale Marijuana Dispensaries in Arizona

A merger of Arizona medical marijuana dispensaries announced in July 2017 will make Harvest, the dispensary and retail company based in Tempe, Arizona, one of the state’s largest legal marijuana businesses. Some commentators predict Arizona consumers of medical marijuana will see lower prices as a result.

The merger comes about as wholesale supplier Modern Flower has agreed to merge with Harvest. Combined, the operation may be Arizona’s largest distributor of medicinal marijuana.

Harvest’s CEO Steve White says Harvest will operate a total of seven marijuana cultivation centers and eight dispensaries by January 2018. White says this allows for a consistent medicinal product to be sold to patients across various parts of the state.

The CEO went on to say that the merger would stimulate, rather than stifle, competition. White said Harvest would influence competitors by lowering the price of its products. He noted that an increase in the number of wholesalers and cultivators was already set to lower the price of the product in 2018.

Per the Arizona governing body that licenses and administrates the medical marijuana dispensary program, its Department of Health Services, as of 2017 Arizona had 98 legal dispensaries in operation. The state granted additional licenses in October 2016, bringing the total number of licenses to 130. New growing facilities and dispensaries are expected to open in the next year.

Steve White predicts that in 2018, the number of marijuana buds produced will outstrip the demand by patients in the state. This, White contends, will contribute to a falling price for consumers.

Modern Flower and Harvest’s merger is part of a larger consolidation trend seen in the dispensary and growing companies across Arizona. Although medicinal marijuana is still prohibited by federal law, Arizona’s dispensaries are a prime example of how mainstream the medical marijuana industry has become since statewide legalization.

Washington D.C. and 25 states have some degree of marijuana legalization despite federal law. The industry generates billions of dollars per year, and Forbes Magazine has noted that by 2020, more Americans will work in the marijuana industry than in the manufacturing sector.

Robert Carp, a retired attorney who writes marijuana business guides, agrees with White’s proposition that the merger will likely lower the prices for patients. Carp remarked that in agriculture, pricing is “generally a race to the bottom.”

Having multiple growing facilities allows for economies of scale that Harvest couldn’t realize previously, Carp said. The merger should allow the company to increase its cost efficiency and pass its savings along to patients.

Because of the secrecy built into the industry, it’s difficult to tell if the Modern Flower-Harvest merger makes Harvest the largest dispensary company in Arizona. According to a 2010 Arizona law, medical marijuana dispensaries are exempt from public records laws. This protects the identities of both patients and the not-for-profit boards in charge of the dispensaries.

Arizona law specifies that Scottsdale dispensary businesses be run by a board of directors and operated as a non-profit organization in order to obtain a license. Licensed dispensaries can cultivate their own botanicals or use the services of a wholesaler. Although Arizona  licenses can’t legally be sold or transferred, companies are allowed to cede a portion on their oversight to a management company.

This is basically what the Modern Flower-Harvest merger entails. Steve White serves on the non-profit board of Harvest. The company plans to add more retail outlets and triple its number of employees by the end of 2018. White encourages those seeking jobs to apply through the Harvest website.

Harvest is currently seeking licenses in Arizona, Nevada, Illinois, Maryland, and Pennsylvania. It currently employs about 100 people but hopes to employ up to 300 in the next year. White was quoted as saying, “We are fortunate to be adding employees with similar 420 friendly values.”

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