Arizona Proposition 205: the Regulation and Taxation of Marijuana Act

This article discusses the major provisions contained in Arizona’s Proposition 205 also known as the “Regulation and Taxation of Marijuana Act.”   Proposition 205 will be on Arizona’s November 8, 2016, ballot.  If the Arizona voters approve Proposition 205 Arizona law will be be changed as follows:

• Arizona Department of Marijuana Licenses and Control (the “Department”) will be created to oversee the legalization of marijuana in Arizona.  The Department will adopt and enforce rules that govern marijuana retailers sale of marijuana.

• A Marijuana Commission will be created to oversee the Department.  It will have seven members appointed by the Governor of Arizona.  Not more than four members can be from the same party.  Commissions are appointed for a term of three years.

• Marijuana establishments will be created.  A marijuana establishment is an entity that is a marijuana cultivator, marijuana distributor, marijuana testing facility, marijuana product manufacturer or marijuana retailer.

• Marijuana cultivator is an entity that is licensed by the new Department that may produce, process, transport and package marijuana, to have marijuana tested by a marijuana testing facility and to sell marijuana to other marijuana establishments, but not to consumers.

• Marijuana distributor is an entity that is licensed by the Department that may store marijuana and marijuana products at a location that is not licensed for the production, manufacture or retail sale of marijuana and marijuana products and to transport marijuana and marijuana products from a marijuana establishment to another marijuana establishment, but not to a consumer.

• Marijuana establishment is any entity that is a marijuana cultivator, marijuana distributor, marijuana testing facility, marijuana product manufacturer or marijuana retailer.

• Marijuana product manufacturer is an entity that is licensed by the Department to purchase, manufacture, process, transport and package marijuana and marijuana products and to sell marijuana and marijuana products to other marijuana establishments, but not to consumers.

• Marijuana retailer is an entity that is licensed by the Department to purchase marijuana and marijuana products from marijuana establishments, to transport marijuana and marijuana products to or from marijuana establishments and to package and sell marijuana and marijuana products to marijuana establishments and to consumers.

• Reorganized marijuana business is an entity that is established to operate a marijuana establishment by the unanimous consent of all of the principal officers of a nonprofit medical marijuana dispensary that is registered and in good standing pursuant to Chapter 28.1 of this Title.  This is a dispensary licensed before the adoption of Proposition 205 that votes to open a marijuana establishment.

• The Department shall begin accepting and processing applications for up to one of each type of marijuana establishment from each reorganized marijuana business on or before September 1, 2017.  The Department shall accept an application for up to one of each type of marijuana establishment for each dispensary registration certificate held by such nonprofit medical marijuana dispensary.  The Department shall begin accepting and processing applications for marijuana establishments from all other applicants on and after December 1, 2017.

• Limit on the Number of Marijuana Retailer Licenses.  On or before December 1, 2017, the Department shall issue licenses to each qualified reorganized marijuana business.  Until September 1, 2021, the department may not issue more marijuana retailer licenses than ten percent of the total number of series 9 liquor licenses issued by the Arizona Department of Liquor Licenses and Control. On and after September 1, 2021, the Department may issue additional marijuana retailer licenses if the Department determines that additional licenses are desirable to minimize the illegal market for marijuana in Arizona to efficiently meet the demand for marijuana or to provide for reasonable access to marijuana retailers in rural areas.

• Beginning September 1, 2017, the Department of Health Services will cease to oversee and be involved with marijuana related matters in Arizona and all of its previous powers will be exercised by the Department.

• The Department can adopt procedures that would allow for the transfer of a license held by a marijuana establishment.

• Marijuana cultivators will be strictly regulated.  There will be three levels of licenses issued to marijuana cultivators.  A reorganized marijuana business will automatically be issued the highest level cultivator’s license if it is eligible and applies for the license.

• The Department may not issue or renew a license for marijuana establishment if a controlling person of the proposed marijuana establishment has been convicted of a felony or convicted of an offense in another state that would be a felony in this state within five years before application.

• The new law would add a lot of new fees, including: (i) $5,000 to apply for a marijuana establishment license, (ii) $20,000 and $6,600 for initial license and renewal license for a marijuana retailer, (iii) $15,000 and $5,000 for initial license and renewal license for a marijuana product manufacturer and marijuana distributor, and (iv) $10,000 and $3,300 for initial license and renewal license for a marijuana testing facility.

• The Department shall establish a tiered schedule of annual licensing fees for marijuana cultivators with fee amounts relative to the size of the licensed cultivation area. The Department may require payment of an annual licensing fee of not more than $30,000 for the initial issuance of a license for a marijuana cultivator or $10,000 for a renewal license for a marijuana cultivator.

• All marijuana establishment licenses expire one year after the date the license was issued.

• Sales of marijuana to consumers begins March 1, 2018.

• Consumers 21 years of age and older may possess and use not more than one ounce of marijuana and six marijuana plants.

• It is the public policy of Arizona that contracts related to the operation of marijuana establishments are enforceable, and a contract entered into by a licensee or its agent may not be deemed unenforceable on the basis that any action or conduct allowed pursuant to the license rs prohibited by federal law.

• Sellers of marijuana must pay Arizona a sales tax of 15% of the sale price.