I recently had the chance to sit down and interview Peter Davis. Most people in the Arizona cannabis industry know Peter. Peter was one of the first recipients to be appointed through a pharmacy in the United States. Since then, Peter has built a very reputable cannabis practice. He is currently the recipient of a Phoenix-based pharmacy that also has a growing operation. Peter was a recipient of pharmacies three times. In addition to Arizona, Peter has also supported clients in California and Nevada.
Peter also comes from the world of bankruptcy and financial advisor. I was fortunate to work with Peter on Chapter 11 bankruptcy matters. Peter was named an auditor for a group of C-stores that had filed for bankruptcy in Arizona, where my client was one of the senior secured creditors.
Peter founded Simon Consulting in 2000 and recently merged with JS Held, which has 1,200 professionals worldwide. Peter is a newly appointed trainer for JS Held’s cannabis practice. To learn more about Peter and his background, please click here.
Ethan: Peter, thank you for taking the time to sit with me. What are some of the problems you see in the Arizona cannabis industry?
Peter: Good question, Ethan. Currently the biggest problem in the industry is supply. Since marijuana became legal in Arizona, there has been a product shortage.
Ethan: What impact did that have on the market?
Peter: The price per pound has increased rapidly. Before recreational marijuana was legalized, a pound of flowers sold for around $ 700. Now the price per pound is at $ 2,000 and I see the price keep rising until supply can catch up with demand. Pricing also depends on how the cannabis is grown. There are essentially three ways to grow marijuana – outdoors, in the greenhouse, or indoors, where all growing conditions are controlled by special lighting and nutrients. The best products are usually made in the in-house cultivation facilities. However, it cost millions of dollars to properly expand such a facility.
Ethan: Given the cost of state-of-the-art acreage, do you see investment in this area?
Peter: Definitely. Current owners need access to capital in order to develop these types of facilities. Because traditional financing is not available and alternative financing can be very expensive, some owners have turned to outside investors. While obtaining a new license is difficult given the limit on the number of licenses in Arizona, there are other ways to get involved in the industry.
Ethan: What regulatory issues have you seen lately?
Peter: If you fail to comply, the Arizona Department of Health will take notice and may revoke a license or take other disciplinary action. The industry is subject to random checks by the department, but so far I’ve found it pretty sensible to work with the department. If you follow the rules and ensure compliance, you should be in good shape.
Ethan: Now that Arizona is allowing recreational use, do you see a lot of new players in the market?
Peter: Yeah, we’re seeing internationals enter the Arizona market. You are interested in all facets of the industry – from owning and operating your own pharmacies to helping current owners grow additional products. You’re also well funded and can pay the price of a license on the open market.
Ethan: You just brought up a subject that I was about to ask you about. Given the limited number of licensed pharmacies in Arizona, how does this affect the price of a license?
Peter: We saw that the price for just one license is between $ 10,000,000 and $ 15,000,000 – and that would be for an average pharmacy. This is only for the bare license, excluding real estate and other assets. I don’t see prices dropping anytime soon, and now that pharmacies can sell both medical and recreational products, I think prices will continue to rise. As long as the number of pharmacies is limited, high values are also displayed.
Ethan: How much does location affect profits?
Peter: We have moved a pharmacy in acknowledgment of receipt from Wickenburg to Phoenix due to a court order. It is possible to relocate a pharmacy and moving to the right location can result in significantly higher revenues than we saw with the most recent move.
Ethan: Do you expect marijuana to stay high or low after it is legalized and some people try it for the first time?
Peter: We are at a turning point in Arizona and nationally. Now that states are legalizing marijuana, I think we’ll see continued demand, especially since there is less stigma attached to using marijuana. After all, marijuana is viewed as alcohol and part of a mainstream entertainment.
Well this seems like a good place to stop today. I want to thank Peter for his time and insight. In the coming months we want to contact Peter again to take a bird’s eye view of the market.