SOCIAL EQUITY SUMMARIZED BY Gary Smith
The final Proposition 207 Social Equity Rules were released last week by the Arizona Department of Health Services (“ADHS”). You can read the rules here.
The following is not meant to cover all the requirements and considerations for those interested in applying, but provides a summary of some of the most pertinent items to consider:
The final rules address the structure of the entity applying for the application by requiring that one or more the principal officers or board members of the applying entity must hold at lead 51% ownership in the entity. Ownership in this sense means that the individual has an interest in the applying entity and entitles that individual to three (3) things:
1. Entitles the individual to at least that portion of distributed profits of the applying entity that is proportional to the individuals’ percentage of interest in the applying entity;
2. Ensures the individual has a percentage of voting rights in the applying entity that is proportional to the percentage of the individuals’ interest in the applying entity; and
3. Is not subject to restrictions or assignments of voting rights that cause benefits derived from the individual’s interest in the applying entity to be transferred to another person other than by voluntary sale of the interest, the individuals’ death, or the individual’s incapacity to serve.
Additionally, each of the principal officers or board members who in totality hold at least 51% ownership in the entity must complete an ADHS provided educational training course. This course will cover state laws and regulations for operating a marijuana establishment, information about obtaining financial backing, and details about the ADHS’ rules for operating a marijuana establishment. [No, the course has not yet been created.]
The final rules establish that the principal officers or board members of the applying entity must meet 3 of the 4 below criteria:
1. Household Income – Must have had a household income in at least 3 of the previous 5 years less than 400% of the federal (HHS) poverty level;
2. Previous Marijuana Conviction –Is either eligible for and has petitioned for expungement pursuant to A.R.S. 36-2862 or was convicted of a violation of state or federal law related to marijuana or marijuana paraphernalia and does not have an excluded felony offense;
3. Relative with a Previous Marijuana Conviction – Has a spouse, surviving spouse, parent, child, sibling, or legal guardian who has been convicted of a violation of state or federal laws related to marijuana or marijuana paraphernalia; and
4. Lived in a Community Disproportionately Affected by Marijuana Laws – Has lived for at least 3 of the previous 5 years in a “community that has been disproportionately affected by the enforcement of Arizona’s previous marijuana laws.” Please note – ADHS has not yet finalized the criteria, nor released it, as these criteria are still being developed. The criteria will be added in a subsequent iteration of the rules prior to September 1, 2021.
Each principal officer and each board member listed will be required to submit an attestation that the principal officer or board member does not have an excluded felony offense as defined in A.R.S. 36-2801.This means the principal officers and board members cannot have had an A.R.S. 36-2801 felony offense for the following:
1. A violent crime classified as a felony in A.R.S. 19-901.03(B)regardless of jurisdiction;
2. A violation of state or federal controlled substance law that was classified as a felony, regardless of jurisdiction; except for:
a. Offenses for which the sentence was completed more than 10 years ago; or
b. An offense that would have been immune under A.R.S. 36-2811 if it occurred before the AZ Medical Marijuana Act or was adjudicated outside of Arizona.
Applications must establish that principal officers and board members cannot be removed from their position without either the written consent of the principal officer or board member OR a court order for removal of the principal officer or board member.
ADHS has also established an application limit. No principal officer or board member of the applying entity may be a principal officer or board member on more than one other marijuana establishment.
In furtherance of complying with all other requirements for operating a marijuana establishment, social equity licensees must show how they will help communities disproportionately affected by the enforcement of Arizona’s marijuana laws through:
1. Specific hiring or interning practices; or
2. Donation of a percentage of gross profits to nonprofits not affiliated with the marijuana establishment that focus on social or health inequities in the community.
Applications will be accepted 12/1/2021 and 12/14/2021. An Application Fee is $5,000 and is non-refundable.
If there are more than 26 qualified applicants ADHS will conduct a random selection. ADHS is required to issue 26 social equity licenses by December 31, 2021 as per A.R.S. 36-2854(A)(1)(f).
Under A.R.S. § 36-2862, and beginning July 12, 2021, an individual who was arrested for, charged with, adjudicated or convicted by trial or plea of, or sentenced for, any of the following offenses based on or arising out of conduct occurring before the effective date of this section may petition the court to have the record of that arrest, charge, adjudication, conviction or sentence expunged. The crimes that can be expunged include:
- Transporting, consuming, or transporting 2.5 ounces or less of marijuana
- Cultivating, transporting, or processing no more than six marijuana plants at your primary residence for your personal use
- Transporting, using, or possessing paraphernalia that is related to cultivating, processing, manufacturing, or consuming marijuana
The Arizona Supreme Court has launched a new website to help people determine if they are eligible to have their records expunged for marijuana-related offenses. You can find it HERE. And, the Arizona Supreme Court has adopted petition forms and instructions for people to use for this purpose, also on the website. NOTE: These forms should not be filed before the July 12, 2021 effective date.
Also, pity the poor courts, the expungement and pandemic-related eviction/ foreclosure tidal waves headed their way are likely to converge in late summer.