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LEGAL ANALYSIS AND SUMMARY

MAY 2021 DRAFT OF REGULATIONS ONARIZONA’S ADULT USE MARIJUANA SOCIAL EQUITY PROGRAM
By Janet E. Jackim

On May 6, 2021, the Arizona Department of Health Services published its first draft of regulations on an adult-use marijuana social equity program created by Prop 207, the Smart and Safe Arizona Act passed by an initiative of the voters on November 3, 2020. Draft Ariz. Admin.Code §§ R9-18-102 et seq. Draft regulations generally give guidance to the public on how the Department expects to regulate a recently-enacted law. 

BY MAY 16, 2021 the public may make comments, objections, and suggestions on the draft regulations by answering a 4-question online survey. We encourage your participation in the survey
(here’s the link:https://www.surveymonkey.com/r/ZYSK59B).

Social Equity Program. Prop 207 directs the Department to create and implement a “social equity ownership program to promote ownership and operation of marijuana establishments by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws.” Ariz.Rev.Stats. § 36-2854 (A) (9). But the draft regulations do not use the term “social equity” anywhere, nor, as you will see below, is there any reference to “communities disproportionately impacted” or qualifications such as race or veteran status often adopted by other States in implementing their vision for a social equity program. The draft regulations will likely be widely criticized for being simplistic, lacking definition, passion, and soul. Below is a summary of this first draft of regulations: 

Applicant. Although the social equity program is intended to promote the ownership and operation of adult-use marijuana establishments by “individuals from communities disproportionately impacted” (italics added), an applicant must be an entity, e.g., a corporation, partnership, or limited liability company. Ariz.Rev.Stat. § 36-2854 (A) (9); draft Ariz.Admin.Code §§ R9-18-303 (B), (D).

Application Fee. Non-refundable fee of $5,000. Ariz.Rev.Stats. § 36-2854 (A) (1) (f); draft Ariz.Admin.Code §§ R9-18-102 (C).Qualifiers. Certain persons (whom we will refer to herein as “qualifiers”) who own an entity (corporation, limited liability company, partnership) may apply for a marijuana establishment license for the retail sale of adult-use marijuana. Ariz.Rev.Stats. § 36-2854 (A) (1) (f); draft Ariz.Admin.Code §§ R9-18-302 (B).

Qualifier Characteristics. Qualifiers (1) are principal officers and board members of the applicant, (2) must pass a level I fingerprint clearance, (3) do not have an excluded felony offense except for an offense that is the subject of an expungement proceeding established by Prop 207, and (4) had a 2019 family income not greater than 200% of the federal poverty guidelines [2]. DraftAriz.Admin.Code §§ R9-18-303 (B) (1), (2).

Qualifier Licensing Fee. The qualifier’s facility agent licensing fee will be waived (a savings of $300 – $600). Ariz.Rev.Stats. § 36-2862, § 41-1080.01; draft Ariz.Admin.Code §§ R9-18-102 (B).

Qualifier Ownership. One or more of the qualifiers must hold at least 51% ownership of the applicant entity; thus, for example, one qualifier may hold 51%, or 4 qualifiers may hold a total of 51%, ownership. There does not appear to be any requirement that one or more qualifiers continue to own a controlling interest in the entity after the license is awarded. Ariz.Rev.Stats. § 41-1080.01; draft Ariz.Admin.Code §§ R9-18-303 (B) (1), (2).

No Removal of Qualifier. No qualifier, who provides the applicant entity’s qualification requirements (or the licensee entity’s qualification requirements, if the applicant is awarded a license), may be removed from his/her position as a principal officer or board member except with his/her consent or a court orders removal. Draft Ariz.Admin.Code §§ R9-18-303 (A) (5).

Training Requirements. Each qualifier must complete Department-provided training on marijuana laws, establishing and running a business and other topics to be determined at a later date. Draft Ariz.Admin.Code §§ R9-18-303 (B) (3).

Application Limitation. No qualifier may submit more than one application for an adult-use license. Draft Ariz.Admin.Code §§ R9-18-303 (C).

Number of Licenses Available. Only 26 social equity program adult use-only licenses are available (no medical marijuana licenses will be awarded at this time); licenses will be awarded by lottery (random drawing). Ariz.Rev.Stats. § 36-2854 (A) (1) (f); draft Ariz.Admin.Code §§ R9-18-302 (A).

Applications. The Department will accept applications electronically only during a period of time specified by the Department on its website. Untimely applications are returned to the sender. Ariz.Rev.Stats. § 36-2854 (A) (1) (f); draftAriz.Admin.Code §§ R9-18-303 (A), (D).

Required Information. Applications must contain the name of the proposed licensee, type of business organization, an Arizona address, telephone number, and email address; each name, residence address and date of birth of every principal officer and board member; and various attestations as to compliance with law. Ariz.Rev.Stats. § 36-2854 (A) (1) (f); draftAriz.Admin.Code §§ R9-18-303 (A).Information not Required. The intended location of the applicant’s adult-use marijuana facility is not required to be disclosed in the application. DraftAriz.Admin.Code §§ R9-18-303 (A).

Licenses are not Transferable. Like medical marijuana licenses issued under the Arizona Medical Marijuana Act and adult-use licenses issued otherwise under Prop 207, an adult-use license issued under the social equity program cannot be sold or transferred. Ariz.Rev.Stats. § 36-2854 (A) (1) (f);draft Ariz.Admin.Code §§ R9-18-305 (A).

Partner – Zuber Lawler 
Janet E. Jackim
 
Janet Jackim, named one of the Best Lawyers in America®, is an experienced leader for all kinds of matters related to the cannabis industry. She handled the acquisition of cannabis operations across the nation and represented clients in relation to cannabis dispensary certificate applications, buyout transactions, business restructuring and partner dispute resolution. Ms. Jackim’ s clients include multistate operators, dispensaries, producers, cultivators, investors, lenders, landlords, tenants and vendors. She serves on the Board of Directors of Arizona Cannabis Chamber of Commerce and in leadership roles on other notable cannabis-related organizations. Ms. Jackim obtained her J.D., cum laude, from Loyola University Chicago School of Law, and her B.A., with honors, from Indiana University.

 
About ZUBER LAWLER
 
Zuber Lawler, one of the most selective law firms in the United States, represents clients throughout the world from offices in Austin, Chicago, Los Angeles, Phoenix, New York, and Silicon Valley. In addition to representing a list of Fortune companies, as well as funds and government entities, Zuber Lawler represents leading companies in emerging industries and technologies, including blockchain, eSports/virtual reality, and legalized cannabis. Zuber Lawler focuses on intellectual property; M&A, finance, and other deals; IPOs; antitrust, data/privacy, FDA, anti-corruption, and other regulatory work; and litigation. Zuber Lawler’s attorneys work in languages covering 90% of the world’s population. https://zuberlawler.com/
 

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