The Latest on Arizona Cannabis: State Webinar Summary, Our Comments, Next Steps

On December 17, 2020, the Arizona Department of Health Services (“Department”) held an open meeting to take comments on the proposed state cannabis regulations. In this post, we share some of the comments made by the participants and some of the answers provided by the Department. The Department stated that the purpose of the meeting was not to take questions (although, in some cases, they did answer questions), but rather to just allow interested parties to provide comments on the proposed regulations.

Early Applicants in Counties with Fewer than 2 Medical Dispensaries

There was a robust discussion regarding early applicants for counties that have less than two medical marijuana (“MMJ”) dispensaries. According to the Department, there are currently eight counties in Arizona that have fewer than 2 MMJ dispensaries – the Department will provide a list of those counties before the early applicant period begins (which is set for January 19, 2021). Thus, there should be opportunities to procure an adult-use license in those counties.

Several commentators suggested that given the high application fee, that applicants should be scored and rated. Under the law, the Department will accept applications until March 9, 2021 for early applicants. Any entity that submits a complete and compliant application, along with the application fee, by March 9, 2021, will be entitled to enter a random selection process for those counties with fewer than 2 MMJ dispensaries (assuming there are more applicants than allotted licenses).

Of particular importance, the Department said the application fee (which is currently set at $25,000) is non-refundable. Click HERE for more information regarding applications and licensing fees. If an entity submits a complete and compliant application but is not selected by the Department to be a licensee, then for future drawings or open applicant periods, that entity will need to submit a new application.

The Department will also release an electronic form that localities can complete for zoning approval acknowledgment. When counting the number of establishments in a county, for purposes of the early applicant period, the Department stated it would only count medical marijuana dispensaries (and not cultivation or other related licensees).

Social Equity Opportunity Program

While several commenters asked about the new Social Equity Opportunity Program (“SEOP”), the Department has not released those rules yet and it does not seem like a priority in the near term as the Department is pushing to get ready for the early applicants. One commenter suggested that SEOP licensees should be for only for local (Arizona) residents, minorities, and others that have been disenfranchised by prior marijuana laws. The Department will take that comment (and all other comments) under consideration as it updates the proposed regulations.

Residency Requirement for Owners

Other commenters requested that the Department make Arizona residency a requirement for all owners. However, I pointed out that because the statutes allow public companies to be licensees, the Arizona residency requirement would be untenable (I actually incorrectly said the “proposed regulations” instead of the statutes). How could the Department enforce such a regulation for the open markets? It would be completely antithetical to the concept of publicly traded companies and how they operate. Among other issues, every trade to an out-of-state owner would somehow have to be stopped in advance. I don’t believe that can be operationalized by the public markets or the companies that are traded on the markets.

Miscellaneous Discussion

One commenter asked if the rules were modeled on other state rules. The Department said that the rules are intended to comply with Proposition 207, which is now the law in Arizona. The rules will be finalized by sometime in mid-January 2021. Moreover, according to the Department, the Arizona legislature will likewise have a chance to review and comment on the proposed rules.

The Department stated that all applications will be in electronic format but that they will not release the new applications now because the regulations are not final yet. But the Department promised to release the new applications as soon as possible (and obviously prior to January 19, 2021). The Department further noted that future rules will have more information on dispensary operations and administrative requirements. One commenter asked if the Department would hold mandatory trainings for owners and employees, like other states require. Also, two commenters requested that the Department have better coordination with cities and towns.

As we previously reported (HERE) there are caps in place for the overall number of adult-use dispensaries in Arizona, which is one dispensary for every 10 registered pharmacies in Arizona (HERE to see the statutes that include the full criteria for the cap). I asked the Department if it had this information, and if so, whether they would share it with the public. I have searched for this information but have only found one report from 2013 that discusses the overall number of pharmacies in Arizona. The Department said that anyone who wants to know can call the Arizona State Board of Pharmacy.

Concluding Remarks and Next Steps

The Department’s meeting was very informative, and any comments made today or on-line (if timely made) will be considered by the Department as they continue to update the proposed regulations. Anyone interested in procuring an adult-use license would be wise to review the proposed regulations, any updated proposed regulations, and any other information provided by the Department. Likewise, if you have comments about the proposed regulations or the new proposed regulations that will be released in the future, you should take the time to submit such comments to the Department.

The Department will hold another public comment period in early January 2021, like the one held on December 17, 2020. Also, the Department will release a new draft of the proposed regulations in the very near term. It was obvious that the Department is listening closely to comments made and received by interested parties. How those comments impact the next set of proposed regulations is yet to be seen.

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