What follows below is the text of a March 1, 2011, letter from Alan Sobol and the Arizona Association of Dispensary Professional, Inc., to Arizona Department of Health Services Director Will Humble.  Alan asks that DHS immediately clarify two huge problems that almost all prospective dispensaries face:

  • The requirement of Proposition 203 and the Arizona Department of Health Services rules that the application for a dispensary license show the actual address of the dispensary.
  • Confusion in the rules as to whether all owners of the dispensary must meet the Arizona residency requirement.

I agree with Alan on all three issues.  It’s a landlord and zoning zoo out there for prospective dispensaries, but it doesn’t have to be.  Rather than have 5,000 would be dispensaries scramble to tie up 5,000 sites, file 5,000 zoning applications, pay 5,000 city and county zoning fees and have cities and counties waste their scarce and valuable resources processing 5,000 zoning applications, the DHS rules should provide that prospective dispensaries be required to list on its application the actual location of the dispensary after they obtain a dispensary registration certificate, but before they apply for their final inspection necessary to obtain the license.

Under the current rules 5,000 prospective dispensaries are all competing for the limited number of sites that meet local zoning requirements.  The result is landlords can charge higher rent because the demand is much bigger than the supply of properly zoned sites.  Yesterday somebody told me that there are only two properly zoned sites in Surprise and one is leased and the other is in foreclosure.  It makes no sense for any prospective dispensary to waste its time and resources and the time and resources of a city or county zoning department unless the dispensary has obtained a dispensary registration certificate.  Require dispensary applicants to disclose the location of their sites and affirm the zoning only after they win the lottery and get a dispensary registration certificate.

Alan’s third issue is valid.  In my February 18, 2011, letter to Will Humble I suggested that the rules be amended to clarify that all eligibility requirements for any principal officer and director be expanded to include apply to all owners.

Here’s Alan Sobol’s March 1, 2011, letter.  DHS please listen and help.

March 1, 2011

Arizona Department of Health Services
Office of the Director:
150 North 18th Avenue
Phoenix, Arizona 85007

RE: Open letter To Director Humble.  The Market Place is in Chaos, Please help!!

Dear Mr. Humble

I am writing to you at the request of the members of the Arizona Association of Dispensary Professionals, (AADP). With over 6100 members we are the largest trade association of its kind in the State of Arizona. Collectively, we represent the largest percentage of Dispensary applicants in Arizona. Upon information and belief we have at least one member/applicant in almost every AZDHS CHAA.

We are writing to you regarding our great concern for the current chaotic market conditions across the State of Arizona. We adamantly believe these conditions are a direct result of the confusion unintentionally caused your agency.

There are numerous rumors, misrepresentations, and bogus statements being made by individuals causing panic, price gouging, and fraud. Many, if not all of these outrageous acts can be stopped by some simple clarification from your office.

Here are a few examples of the events that have triggered this letter:

R9-17-302 requires an applicant, among other items, to provide the department with a “physical address” for the proposed Dispensary, and if applicable, the Cultivation site. Consequently, your inclusion of the physical address in the first part of your application process (R9-17-302) has created a modern day land rush for the limited amount of Dispensary locations. Thousands of applicants across the state are bidding for these very limited retail locations causing artificial escalation of rental rates. In the end we all know that only 125 retail stores will actually be utilized. However, the resulting damage caused by this ill conceived policy will mean that the few selected Dispensaries will be saddled with years of exorbitant rental rates which will trickle down to the end user, the patient, in the form of higher prices for the medicine they need. Simply put, landlords, who recognize the new value of these “zoned” locations, are price gouging the rental rates. It is unfair, unreasonable and very costly to require these initial applicants to include an actual physical address of the Dispensary location.

We recommend that that your agency, in addition to all the other requirements set forth in R9-17-302; require the applicant to only identify the CHAA in which he/she would like to operate. If more than one “Approved Registration Certificate” is allocated then have your lottery and draw your candidate. Then require the selected application, pursuant to R9-17-304, to locate the facility, in the allocated CHAA, obtain necessary zoning approval, build out the facility and apply for the necessary approval from your department. At that point only those who are allocated a CHAA will be looking to rent/buy a facility. This will immediately eliminate the panic and return stability to the rental market.

While we acknowledge that ARS36-2804 B, 1, (b) (ii) requires the physical address to be included in the application process, it does not indicate what part of the application process it is required to be disclosed.

Therefore we believe that this revision of the rules will be in full compliance with the law. We urge you to act immediately to correct this problem. Waiting till March 31st will be too late. Applicants across the state are unjustly plopping down significant amounts of security deposits and prepay rents to secure these limited facilities. Your immediate action on this issue will demonstrate your agencies good faith, competence and integrity.

Furthermore, R9-17-302 creates a conundrum which requires immediate clarification from your agency. Rumors abound that you must have your “ZONING APPROVAL” in place to comply with R9-17-302. A carefully reading of said section leaves the reader rightfully confused. The relevant section under this chapter states;

The Applicant shall submit the following:

R9-17-303,B,5; A sworn statement signed and dated by the individual or individuals in R9-17-301 certifying that the dispensary is in compliance with local zoning restrictions.

This requirement is ambiguous at best. It does not state that you “must” have zoning approval, nor does it state that you “will” obtain zoning approval. It confusingly states that you “in” compliance with Zoning. Does “in” compliance mean you believe you meet zoning requirements and will obtain zoning approval, OR you already have? When certain prominent individuals move aggressively to obtain Zoning approval, is it prudence or inside information that moves them? All applicants have a right to a fair and equal playing ground, and this requires immediate clarification and or disclosure by your agency. We noted that you have rightfully moved the requirement for a Certificate of Occupancy to the second part of your application process. This is typically obtained after zoning approval. Is an applicant to consider this an indication that zoning approval is a requirement under R9-17-303 instead of R9-17-302?

Aside from the aggravation factor, what a waste of limited resources to expect these local zoning boards to hear thousands of applications when knowing only 125 will be required. This is insanity that can be resolved with one definitive sentence from Mr. Humble.

Moreover, knowing the time constraints to obtain Zoning approval has caused an immediate rush to local zoning boards to obtain such approval. What exacerbates the problem is that many local zoning departments across the state are holding “pre-registration” to reserve dispensary locations. As previously stated, some prominent individuals have already obtained zoning approval. Under this scenario it appears that the zoning departments are selecting the dispensary applicants. If you believe the rumors, you can not comply with R9-17-302 without “zoning Approval”. If this is true, you are allowing local zoning departments to perform a defacto selection of the Dispensary applicants which may place your agency in violation of A.R.S 36-2801 by acquiescing it’s authority to govern this program.

Lastly, we wish to address the confusion regarding state residency requirements for Dispensary owners.

R9-17-301 allows a corporation or other entity, hereinafter, third party entity, to own the Arizona Not-for Profit Dispensary. The relevant rules address whom on the third party entity will be required to comply with the department’s rules. While we acknowledge that Title 36 and your rules require all principal members of the “ Arizona nonprofit medical marijuana dispensary” to be Arizona residents, it leaves a gaping loophole. Your rules do not require all the principals of the third party entity to disclose their residency. Consequently, a member of the third party entity who is a substantial investor or majority stock holder in said entity may in fact have controlling interest in the third party entity and therefore, controlling interest in the “Arizona nonprofit medical marijuana dispensary”. Thereby creating a Non-residency controlling interest in an Arizona Dispensary.

If it is the intent of AZDHS to have all Arizona Dispensaries owned and operated by Arizona residents then you must take immediate action to close this gap.

We recommend that you either eliminate the third party ownership option entirely and require applicants to be individual residents of Arizona, or require proof of residency from all members of the nonprofit medical marijuana dispensaries, and their subsidiary owners.

We encourage AZDHS to continue their effort to design this Act as a model for the country, but in doing so, not to forget the people it is designed to help. Creating confusion, costly procedures, and other unreasonable policies will only cause this program to fail.

We again extend our invitation to organize a roundtable of industry leaders, to assist you in the development and implementation of this program. We urge you to consider this offer in the same good faith it is presented.

If you have any questions please feel free to contact me directly.

Sincerely,

Allan Sobol, Director
Arizona Association of Dispensary Professionals, Inc