Harvest of Arizona, the Tempe-based medical-marijuana dispensary company with retail shops in Tempe and Scottsdale, announced a merger Tuesday that would make it one of the largest players in the growing industry.
In theory, the deal could benefit to the state's 115,000 registered patients by lowering prices.
Harvest has merged with Arizona cultivator Modern Flower, currently the state's "leading wholesale supplier," the company said in a news release, adding that the company will soon become "the largest medical marijuana operator in Arizona."
By January, Harvest — the 2015 Best of Phoenix winner for Best Dispensary — will own eight dispensaries and seven cultivation centers in the state, said the company's CEO, attorney Steve White.
Steve White, Harvest CEO
Harvest of Arizona
He said the consolidation will improve competition, not stifle it.
In becoming the state's largest wholesaler, Harvest will be able to influence the prices of its various vendors and bring down retail prices, White said.
The price of an ounce of flower (a.k.a., buds) is bound to come down next year, anyway, he said, because more cultivators and wholesalers are coming into the market.
The Arizona Department of Health Services, which grants licenses and oversees the state's medical-marijuana program, reports that 98 dispensaries are currently open and operating.
Last October, though, the state expanded the number of licenses in play. Now, 130 licenses have been granted, and entrepreneurs have been busy preparing to open new shops and cannabis-growing facilities across the state.
White predicted that in 2018, the Arizona industry will produce more marijuana flower than can be consumed by patients, causing prices to fall.
The merger follows a trend of consolidation and license-swapping among dispensary companies around the state in the past year or so. It also reflects how mainstream the industry seems, despite the ongoing federal prohibition on selling or possessing marijuana.
The rejection of federal law by Arizona and 25 other states, plus Washington, D.C., in the past few years resulted in the creation of a multibillion-dollar market that will create more jobs for Americans than manufacturing by 2020, according to Forbes Magazine.
Industry expert Robert Carp, a Boston lawyer who writes guides to running marijuana businesses, said he agreed with White's idea that a merger will likely benefit patients in the long run.
"Agriculture is generally a race to the bottom," in terms of pricing, Carp said.
Expanding cultivation operations for the strains sold by Harvest will create economies of scale that aren't necessarily available to companies that own only one growing facility, he said.
A larger operation "should be able to achieve cost efficiency, and will hopefully pass that on to a patient," Carp said. ""The more facilities ... the lower the price."
The question of who runs the biggest dispensary company in Arizona, however, can't be answered with certainty at this time because of the industry's built-in secrecy.
The 2010 law approved by voters that created the Arizona medical-marijuana industry creates an exception in public records law that prevents the public from knowing the identities of the people behind the nonprofit boards that run the dispensaries.
Each retail license is assigned to a nonprofit firm run by a board of directors, and allows the operation of one dispensary that, in turn, can choose to open cultivation facilities or buy from a wholesaler.
The retail dispensary licenses can't be transferred or sold, but the dispensary boards can choose to cede their oversight to management companies. That's essentially what's happening with the Harvest-Modern Flower merger.
White is on the board of one of the Harvest nonprofits. The additional retail outlets will be operated by Harvest under the Harvest brand, the company said.
Besides the newly expanded Arizona operation, Harvest has been busy acquiring retail and cultivation licenses in Illinois, Maryland, Nevada, and Pennsylvania.
Locally, White said the Harvest expansion will nearly triple the number of employees from about 100 now to 200 or 300 next year. Anyone interested in a job could contact the company through its website, he said.
"While expansion will always present new and exciting challenges, we are fortunate to be adding employees with similar values," White said. "We are excited to be a powerful force for Arizona patients for years to come."
Correction: The company later said that Jason Vedadi of Modern Flower is not on the board of any of the nonprofits, but is a managing member of Modern Flower.
