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Is DHS’ Lottery for a Medical Marijuana Dispensary License Gambling in Violation of Arizona Law?

Under the second draft of Arizona’s medical marijuana rules issued by Arizona Department of Health Services on January 31, 2011, DHS proposes to select dispensary registration certificates (aka dispensary licenses) by a lottery.  The rules divides Arizona into 126 zones called Community Health Analysis Areas (CHAAs).  DHS will allow one dispensary in each CHAA.  Currently there will be 125 possible dispensaries so one CHAA may not have a dispensary.

DHS will begin accepting applications for dispensary registration certificates for thirty days on May 1, 2011.  On June 30, 2011, DHS will award dispensary registration certificates as follows:

  • If a CHAA has only one qualified application for a dispensary registration certificate, that applicant will be awarded the certificate.
  • If a CHAA has more than one qualified application for a dispensary registration certificate, DHS will conduct a lottery and the winner will be awarded the certificate.

DHS has created a new Arizona lottery.  Here is how the new lottery works.  Pay $5,000 and take a chance your chit will be pulled out of a hat.  If your number is picked, you will win a really big valuable prize, i.e., a state authorized monopoly to make money.

How can DHS unilaterally create a new Arizona lottery.  I thought legalized gambling in Arizona had to be authorized by a law passed by the legislature and signed by the governor.  Apparently I am wrong.

Arizona Revised Statutes Section 13-3301.1 states:

“Gambling” or “gamble” means one act of risking or giving something of value [$5,000] for the opportunity to obtain a benefit [a dispensary registration certificate] from a game or contest of chance [the lottery conducted by DHS for a dispensary registration certificate] or skill or a future contingent event but does not include bona fide business transactions which are valid under the law of contracts including contracts for the purchase or sale at a future date of securities or commodities, contracts of indemnity or guarantee and life, health or accident insurance.”

I submit that DHS process does not involve a contract.  There will not be any contract between the applicants and DHS so the contract exception will not apply.

Arizona Revised Statutes Section 13-3303 states:

A. Except for amusement, regulated or social gambling, a person commits promotion of gambling if he knowingly does either of the following for a benefit [a dispensary registration certificate] . . . Conducts, organizes, manages, directs, supervises or finances gambling.

B. Promotion of gambling is a class 5 felony.

Is the DHS lottery exempt from Section 13-3303 and therefore not illegal under Arizona law because it is amusement, regulated or social gambling as defined in Section 13-3301?  It is clear to me that the DHS lottery is not amusement or social gambling.  DHS would probably claim its lottery is regulated gambling, which is defined in Section 13-3301 as:

“Regulated gambling” means either:(a) Gambling conducted in accordance with a tribal-state gaming compact or otherwise in accordance with the requirements of the Indian gaming regulatory act of 1988 (P.L. 100-497; 102 Stat. 2467; 25 United States Code sections 2701 through 2721 and 18 United States Code sections 1166 through 1168); or

(b) Gambling to which all of the following apply:

(i) It is operated and controlled in accordance with a statute, rule or order of this state or of the United States.

(ii) All federal, state or local taxes, fees and charges in lieu of taxes have been paid by the authorized person or entity on any activity arising out of or in connection with the gambling.

(iii) If conducted by an organization which is exempt from taxation of income under section 43-1201, the organization’s records are open to public inspection.

(iv) Beginning on June 1, 2003, none of the players is under twenty-one years of age.

Conclusion:  The DHS rules that create a lottery to select dispensary registration certificates is legalized gambling because it appears to be regulated gambling, which is exempt from the criminal prohibition on gambling set forth in Section 13-3303.  Given the public interest in the lottery and the high value of the prizes to be awarded to the sweepstakes winners, DHS should make public the lottery procedures and televise every drawing to avoid the appearance of impropriety and actual impropriety.

By |2017-02-11T20:34:34-07:00February 3rd, 2011|DHS Rules, Legal Issues|Comments Off on Is DHS’ Lottery for a Medical Marijuana Dispensary License Gambling in Violation of Arizona Law?
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CHAA on This!

I am part of a group that plans to apply for one of the medical marijuana dispensary licenses to be awarded by the Arizona Department of Health Services. I believe the method the AZDHS has chosen to distribute the licenses throughout the State is flawed. Here are some of the reasons.

Prop. 203, as it was passed by the voters, expressly based the number of dispensary licenses to be awarded on the number of retail pharmacies in the State. Recently, the total for the State was 1,249, which, if rounded up would result in 125 dispensaries.

Prop. 203 does not expressly state how the dispensaries are to be distributed throughout the State of Arizona. There are two obvious methods that could be used. One would be to distribute them among Arizona’s 15 Counties according to the number of pharmacies in each county. After all, Prop. 203 based the total for the state on the number of pharmacies statewide. The other method would be to distribute the dispensaries throughout the 15 counties according to the per-capita population of each county compared to the total for the state.

Using either the pharmacy method or the population per county method would have similar results. Although urban areas have more pharmacies per capita than rural areas, the differences are not so great as to make the distribution result significantly different based on the method chosen.

In general, using numbers of pharmacies per county slightly increases the number of dispensaries in large urban areas and using population per county slightly decreases the share of the large urban areas and transfers a few of the dispensaries to smaller population counties.

In the 2d set of Agency rules distributed by AZDHS on January 31, 2011, they have come up with a different method of distributing the dispensaries. They have used AZDHS’s Community Health Analysis Areas (CHAA) and have decided to locate one dispensary in each one of them. There are 126 of these CHAA zones. 19 of them are located throughout the State on Indian Reservations Although I have not seen it in print, I have heard that possibly all of the 19 tribes may allow the State to refrain from locating a dispensary in their lands. I believe that AZDHS is counting on this. The reason I believe this is that in his January 28 posting to his blog, Director Humble stated that individual CHAA districts in Arizona include as few as 5,000 residents and as many as 190,000 residents. If you take into account Indian Reservation CHAA districts, there are 6 districts with fewer than 1,000 residents and 11 with fewer than 5,000 residents. On this basis, I am assuming that AZDHS does not plan to distribute dispensaries to the 19 Indian Reservation CHAA districts. AZDHS has not said whether it intends to distribute 19 additional dispensaries among the non-Indian Reservation CHAA zones in order to bring the total back up to 126. They will likely be required to do something to make up the difference between 107 and at least 125, since Prop 203. specifies that at least 1 dispensary license will be distributed for each 10 pharmacies. Since there are 1,249 pharmacies, AZDHS should be required to distribute at least 125 licenses.

To view the CHAAs go to the Medical Marijuana Dispensary CHAA Map.  You can zoom in and out or enter an address to determine the CHAA in which the address is located.   If you click on a CHAA, the map will display the name of the CHAA, its ID number, 2000 population and 2010 population.

Using the CHAA districts as the basis for distribution of the dispensaries throughout the State will result in a radical redistribution of dispensaries from urban areas to rural areas. I have learned, from the AZDHS website, the 2010 population totals for each of the 107 non Indian Reservation CHAA zones. The smallest is Ajo, in far West Pima County which had 4,290 residents. The largest is Maryvale in Phoenix which had 224,678 residents.

I divided the CHAAs into two groups. The first is the 54 CHAAs with the smallest 2010 population totals. The second group is the 53 CHAAs with the largest 2010 population totals. Here is some information comparing those two groups.

  • The 54 smallest CHAAs have a total of 1,165,676 residents. They average 21,587 residents per CHAA. Their total population represents 18% of Arizona’s total non-Indian Reservation population of 6,535,445.
  • The 53 largest CHAAs have a total of 5,335,808 residents. They average 100,808 residents per CHAA. Their total population represents 82% of Arizona’s total non-Indian Reservation population.
  • Under the AZDHS proposal group 1, representing 18% of Arizona’s population will receive 54 dispensaries. Group 2, representing 82% of Arizona’s population will receive 53 dispensaries.

I have also looked at how dispensaries would be distributed among Arizona’s 15 counties based on number of pharmacies per county, per capita population per county and distribution by CHAA. As mentioned above, by pharmacy total Maricopa County would receive 80 dispensaries. By per capita population it would receive 75. Since there are 41 CHAAs in Maricopa County, per the AZDHS proposal, Maricopa County would receive 41 dispensaries. Although Maricopa County has 64 % of the State’s pharmacies and 60 percent of the population, it would only receive 38% of the 107 non-Indian Reservation dispensaries.

Pima County receives a similar percentage of the number of dispensaries whether they are distributed by number of pharmacies, per capita population or by CHAA.

The difference between the 80 dispensaries out of 125 that Maricopa County would receive by pharmacy total and the 41 of 107 it would receive according to CHAAs would be distributed to the smaller and more rural Counties. Here are some facts concerning the population totals that would be served by Maricopa County’s 41 dispensaries and those of smaller rural Counties.

  • Maricopa County’s 41 dispensaries would each serve, on average, 98,130 residents.
  • La Paz County is the 2d smallest population County in Arizona. Its population is 21,616. It was one of the Counties that, per Prop… 203 was guaranteed at least one dispensary even though it would not receive one if it were determined by number of pharmacies or by population. Since La Paz County has 2 CHAAs, it would now receive 2 dispensaries which would each serve 10,808 residents.
  • Cochise County has a population of 140,623. If dispensaries were distributed by number of pharmacies (23), it would receive 2. If they were distributed by population, they would receive 3. Cochise County has 6 CHAAs and will receive 6 dispensaries per the AZDHS proposal. These dispensaries, would, on the average, serve 23,377 residents, compared to the Maricopa County average of 98,130 residents.
  • By virtue of distribution by CHAA, Santa Cruz County, Gila County, Navajo County and Coconino Counties would each gain dispensaries compared to the distribution by number of pharmacies or population. In each of these Counties, less than 30,000 residents, on average, would be served by the dispensaries the County would receive according to CHAAs.

AZDHS could make up the difference between the 107 non-Indian Reservation CHAAs and the 125 dispensaries required by Prop. 203 by distributing 18 or so additional dispensary licenses. The most logical way to do this would be to assign an additional license to each of the 18 highest population CHAAs, so that each of the 18 largest CHAAs would have 2 dispensaries instead of 1. 16 of these additional dispensaries would go to Maricopa County and 2 would go to Pima County. This would reduce to some extent the radical disparity between the treatment of urban and rural areas. The disparity would still be large. If Maricopa County received 57 dispensaries out of 125 as opposed to 41 out of 107, its share of dispensaries would increase to 46% from 38%. This compares to Maricopa County’s 60% share of Arizona’s population.

This would not alleviate the problems AZDHS will be creating by insisting that every tiny population CHAA receive a dispensary license. These problems are discussed in detail below.

According to AZDHS figures, Arizona has 6,535,445 non-Indian Reservation residents. Dividing this total by the 125 dispensaries mandated by Prop. 203 would result in an average of approximately 52,000 residents per dispensary. Close to this average would result whether the dispensaries were distributed by numbers of pharmacies or by per-capita population per County. Distributing the dispensaries by the AZDHS CHAA proposal radically revises the distribution so that dispensaries in rural areas will serve far fewer residents than those in urban areas.

In my opinion the AZDHS proposal is a clear and blatant violation of the Arizona Voter Protection Act and the provisions of Prop… 203. The fact that Prop. 203 provided that the total dispensaries in the State would be determined by a 1 to 10 ratio clearly implies that distribution of dispensaries throughout the State should be done by the same method. As mentioned above, distribution by per-capita population would yield similar results, with just a few dispensaries being transferred from Maricopa and Pima Counties to several smaller rural Counties.

Prop. 203 implied that distribution should be based on number of pharmacies. Moreover, it dealt specifically with the situation where a small population County might not be entitled to a dispensary because it has few pharmacies. It provided that each County, no matter how small, would be entitled to no less than one dispensary if there were a qualified applicant. Prop.. 203 provided that the State total of dispensaries could be increased above the number specified in the law, if necessary to provide at least one to each County. Distributing dispensaries by CHAA flies in the face of the clear language of Prop… 203. If litigation were filed, the CHAA distribution would probably be struck down by a Court, since it flies in the face of the language of Prop… 203 and its effects are so clearly unjust.

It is obvious that the reason AZDHS decided to distribute dispensaries per CHAA is that it will spread the dispensaries out throughout the entire State and increase the percentage of Arizona’s land that will be covered by “grow your own exclusion zones” of 25 mile radius which will exist around each dispensary. I can understand how many could consider this to be a worthy goal. Even if the goal is worthy, it does not justify such a radical perversion of the intent of Prop. 203.

I can see several specific negative consequences of distribution of dispensaries by CHAA.

  • Since the urban areas will have dispensaries serving very large populations, those dispensaries will become very large operations. This could be difficult in light of the fact that many if not most Cities and Counties are putting square footage limitations on dispensaries.
  • Of the 20 smallest CHAAs, 13 have 2010 populations of less than 10,000. All of the smallest 20 CHAAs have 2010 populations less than 15,000. Some have only the smallest of towns or settlements and may not have commercial suitable space available for a dispensary. Many of these CHAAs are very large geographically with their population densities being extremely low.
  • In many cases, because of the very small populations and very low population densities, these low population CHAAs may not be able to support the operation of a dispensary. Many of these dispensaries could fail and go out of business. As they were in the process of going out of business, numerous problems involving patient services, defaulting on financial obligations and others could arise. Having dispensaries go out of business would decrease the stability of the industry and create additional problems for AZDHS to have to deal with.
  • Presumably if a small population CHAA went out of business, the “grow your own exclusion zone” would go away and the original motive of those proposing distribution by CHAA would be frustrated.

The CHAA proposal is not necessary. There are better ways to distribute dispensaries in a way that would not create such radical distortions. Gila County is a good example. It would receive only one dispensary whether they are distributed by number of pharmacies or by population. Gila County’s population is divided, more or less evenly, between Payson in the North and Globe in the South. The road between the 2 towns is over 80 miles. They have a legitimate desire to have a “grow your own exclusion zone” surrounding both towns.

Here is a way to solve the problem without creating all of the problems involved with the CHAA rule. AZDHS could write a rule that would allow a County, such as Gila County, to request, based on its particular circumstances, that it have its one dispensary operate out of 2 locations, one in Payson and the other in Globe. It could qualify as one dispensary rather than 2 by operating out of the 2 locations on alternate days and never being both open at the same time. AZDHS would impose a “25 mile radius grow your own exclusion zone” around each location of the one dispensary.

Although the dispensary would have increased costs maintaining 2 operating locations, it would be able to share other costs like wages between the 2 locations. A single dispensary operating out of 2 separate limited hours locations would be more likely to survive financially than 2 separately owned dispensaries with larger operating costs.

Other rural Counties with large distances separating their population centers could benefit by such a rule. This would satisfy the goal of reducing the area where self cultivation is allowed while avoiding the instability involved with trying to force people to operate dispensaries in locations that are not viable. There will inevitably remain some locations that will not have dispensary locations even with the suggested rule. Even the CHAA rule does not completely eliminate areas where card holders could grow their own. These areas have very low population density and the number of card holders living in them would likely be quite small. It seems unlikely that many cardholders would move to one of these unprotected locations just so they could grow their own medical marijuana.

People who are interested in Prop. 203 should take the opportunity to submit their concerns and suggestions to AZDHS in the next several weeks. They should also consider attending the public meetings where they can voice their concerns and suggestions.

___________________________

Arizona Department of Health Services asks people to submit comments to the second draft of the rules not later than the end of the day on February 18, 2011.

By |2011-02-11T19:20:52-07:00February 3rd, 2011|CHAAs, DHS Rules, Legal Issues, Real Estate Issues, Stories & Articles|Comments Off on CHAA on This!
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Update on Arizona Attorney Rules of Professional Conduct and Medical Marijuana

Question:  Will the Arizona State Bar allow Arizona lawyers to represent businesses in the Arizona medical marijuana industry or will it push the industry toward LegalZoom?

Answer:  The Arizona State Bar says to Arizona lawyers, “we’ll  get back to you on that.”  Today, January 31, 2011, I received the following email message from John F. Phelps, CEO/Executive Director of the Arizona State Bar:

The State Bar’s Committee on Rules of Professional Conduct has undertaken a review of Arizona’s new medical marijuana law and its impact on our ethical rules.  The committee is composed of members of the State Bar from a wide variety of practice areas, all with significant experience and interest in lawyer ethics.  The State Bar plans to provide guidance on this matter in advance of the law’s implementation, currently scheduled for late March of this year.  In the interim, the State Bar will not take regulatory action against attorneys for counseling or assisting clients in the implementation of the medical marijuana law during this period.

By |2012-08-18T09:14:52-07:00January 31st, 2011|Legal Issues, Stories & Articles|Comments Off on Update on Arizona Attorney Rules of Professional Conduct and Medical Marijuana
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Arizona Main Stream Media Silent on HB 2557 & the Proposed 300% Tax on Medical Marijuana

HB 2557 (aka the Grow Your Own Pot All Over Arizona Act or the Small Group of Elites Overrules the Majority of the Arizona Voters Act)

On January 26, 2011,  a group of legislators who want to overturn the will of the majority of the Arizona people who voted for Arizona Proposition 203 (legalization of medical marijuana) and who know what is best for the masses introduced a proposed law that would kill Arizona’s medical marijuana industry before it begins and allow all 160,000 future medical marijuana patients to grow their own marijuana.  House Bill 2557 will, if enacted unchanged, impose a sales tax of 300% on all medical marijuana.  That means a $10 THC laden candy bar would cost the patient $40 and an ounce of marijuana that retails for $250 would cost the patient $1,000.

I googled “HB 2557” and marijuana today and found only one story in the first 5 pages of Google results in Arizona’s main stream media about HB 2557.  The Tucson Citizen published a story on January 26, 2011, entitled “Drug Cartel Empowerment Act: Arizona Legislature proposes 300% sales tax on medical marijuana,” which stated:

“All I can say is WTF are you thinking?“

On January 27, 2011, the Arizona Daily Star published “Medical marijuana sales taxable, Horne says” in which HB 2557 is discussed.  Apparently the paper interviewed one of the bill’s sponsors, Rep. Steve Farley, D-Tucson (phone (602) 926-3022; email address: [email protected]), about HB 2557.   Farley said the tax could bring in as much as $1.8 billion a year and solve Arizona’s deficit problem.  He also claimed that patients would not have a problem paying a total of $160 to buy an ounce of medical marijuana for $40.  This guy appears to be out of touch with reality.  Taxing anything 300% does not generate more sales tax revenue it generates ZERO sales tax revenue.  Is there any item in the U.S. that must be purchased for 4 times its actual value?

My clients who operate dispensaries in Colorado tell me that an ounce of medical marijuana in Colorado sells between $250 – $400 depending on the strain and quality.  For the benefit of the we know what is best for the people of Arizona legislators who think a 300% sales tax will generate revenue, I will do the math and show my work.

Example:  Patient goes to local dispensary to purchase 1 ounce of medical marijuana and decides to buy the cheapest ounce for $250.  Clerk rings up the sale and says “that will be $1,000 please.”  Let’s analyze this sale from the perspective of the Arizona legislators who live in a different world and the perspective of the average guy on the street who may not be as smart as our legislators.

How the legislators  think:  160,000 patients will happily fork over $1,000 to buy one $250 ounce of medical marijuana as just a small part of the patient’s grand plan to purchase 5 ounces per month and 60 ounces a year. Total cost to patient to purchase 60 ounces a year = (60 ounces x $250) $15,000 plus 300% tax of $45,000 = $60,000.  Total sales tax revenue collected annually on medical marijuana purchases by 160,000 patients = 160,000 x $45,000 = $7,200,000,000.   Budget deficit solved with the additional bonus that Arizona will have so much new revenue it can cancel all other types of sales taxes.

How the patients and citizens think:  Are you kidding?  Nobody is going to pay $40 for a $10 candy bar or $1,000 for a $250 ounce of medical marijuana.   All  160,000 patients will grow their own marijuana.  Total sales tax revenue collected by Arizona = 160,000 patients x $0 plus $0 sales tax = $0.  There will not be medical marijuana dispensaries in Arizona.

Some years ago the brains in Congress who also are unaware of the laws of economics passed a luxury tax on yachts.  The idiots actually thought that the rich would be happy to pay the tax and the federal government would collect more revenue.  What actually happened was the rich (who are not stupid) stopped buying luxury yachts, the luxury yacht manufacturing industry died and the federal government collected less money from yacht sales.

Main Stream Media Not Reporting for Duty

Why isn’t the main stream media reporting this story?  Does the main stream media oppose Proposition 203 and want to suppress news of HB 2557 to minimize public opposition to the bill?  Early on the morning of January 27, 2011, I called and emailed an Arizona Republic reporter who has written a lot of stories about Prop 203 and medical marijuana in Arizona.   The reporter responded that he/she would check out my January 27, 2011, article called “Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203.”  No Republic story on the 27th, 28th or 29th, but it did have two  “who cares” stories on the front page of the Saturday, January 29, 2011, online version of the paper called “Valley cities fight unwanted garage-sale signs” and “Economy has 3 Valley chefs down, not out.”

What gives?  Why aren’t the big Arizona papers and TV channels covering this story?

By |2014-05-21T19:46:29-07:00January 29th, 2011|AZ Legislation, Legal Issues, Tax Issues|Comments Off on Arizona Main Stream Media Silent on HB 2557 & the Proposed 300% Tax on Medical Marijuana
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Medical Marijuana in Community Associations – A Smoking Hot Issue

My friend Beth Mulcahy is one of the premier homeowner association (HOA) attorneys in Arizona.  What follows is the text of a January 27, 2011, email message she sent to her clients and others in which she discusses issues Arizona’s new medical marijuana law creates for HOAs.

In late 2010, Arizona residents voted via Prop 203 to legalize medical marijuana. This new law will allow qualifying patients with certain debilitating medical conditions (such as cancer, HIV/AIDS, hepatitis C and multiple sclerosis) to receive up to 2 1/2 ounces of marijuana every two weeks from dispensaries or cultivate up to 12 marijuana plants if they live 25 miles or farther from a dispensary. Arizona became the fifteenth (15) state to approve medical marijuana. The approval of Prop 203 was a surprise, having passed by approximately 4,300 votes out of 1.67 million votes cast and being behind by 7,200 votes on Election Day in November, 2010.

The state health department released its first draft of medical-marijuana rules in December, 2010. The rules outline who may qualify for medical marijuana, establish operating criteria for dispensaries and provide strict guidelines for doctors who may recommend marijuana. The state health department must finish drafting the rules by April 13, 2011.The agency will then review applications from people who want to use medical marijuana or operate a dispensary. The program should be fully functioning by summer 2011, when dispensaries have had time to grow the plants.

Our firm has received questions regarding how this law will apply to community associations. At present, it is our firm’s opinion that this is a complicated issue and as association rules conflict with a unit/lot owners’ use of medical marijuana the issue will become more entangled. A major concern is that marijuana is not legal under federal law.

A few questions association boards should consider and discuss:

1. Should association boards allow residents to smoke medical marijuana on association common areas?

It is our firm’s position that association boards can pass rules pursuant to their association documents to prohibit smoking of medical marijuana on association common areas. It is important to note that under Arizona law, an owner would be allowed to smoke medical marijuana within the confines of their unit or lot.

2. Should association boards allow owners to grow medical marijuana on association common areas?

It is our firm’s position that growing of medical marijuana on association common areas can be prohibited by the association so long as rules to that effect are passed by the board.

3. What can the association do if neighbors complain about medical marijuana use by another owner within that owner’s unit?

This is a complicated situation and will need to be evaluated on a case by case basis. Is the medical marijuana use prohibiting the peaceful enjoyment of the use of their unit by the complaining owner?

4. Can a commercial space, in mixed use communities, be used as a medical marijuana dispensary?

Medical marijuana dispensaries may try to rent space in mixed use associations. Will other tenants complain about the type of individuals who patronize them? It is our firm’s opinion that an association would NOT have the right to prohibit the rental of space to medical marijuana dispensaries.

These are all tough questions. As this issue comes to the forefront for associations our firm suggests that boards and managers consult with our firm to discuss options and risks regarding use of medical marijuana within associations.

Articles that appeared in the November and December Arizona Republic were the source for this article.

The author, Beth Mulcahy, is the founder and senior partner of the Mulcahy Law Firm, P.C.  See the firm’s website for more information about the firm.

By |2011-01-27T19:14:24-07:00January 27th, 2011|Legal Issues|Comments Off on Medical Marijuana in Community Associations – A Smoking Hot Issue
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Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203

The voters of Arizona spoke when a majority approved Proposition 203.  Now a group of elected elites who know what is best for the people of Arizona introduced House Bill 2557 (aka the “Don’t Divert Money from the Drug Cartels Act”) on January 26, 2011, for the sole purpose of killing Arizona’s medical marijuana industry before it begins.  Maybe the goal of the elites is to kill the dispensary industry so that under Proposition 203 nobody will live within 25 miles of a dispensary so all licensed patients can grow their own throughout the entire state.

Yesterday Arizona’s Attorney General Tom Horne issued a press release that said Arizona could impose a sales tax on medical marijuana and he estimated Arizona would collect $40 million in badly needed revenue.  If HB 2557 passes, Arizona can kiss the medical marijuana industry good bye, which means no need for the 125 would be dispensaries to hire thousands of employees, security personnel, growers, transporters and the many other types of ancillary jobs that the industry would generate.

Here is the key language in HB 2557.  It will amend Arizona Revised Statutes Section 42-5010 by adding the following as new subsection A.5 to read:

The tax imposed by this article is levied and shall be collected at the following rates:

THREE HUNDRED PER CENT OF THE TAX BASE AS COMPUTED FOR THE BUSINESS OF EVERY PERSON ENGAGING OR CONTINUING IN THIS STATE IN THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION DESCRIBED IN SECTION 42-5077.

HB 2557 will add the following new section 42-5077 to Arizona’s statutes:

42-5077. Nonprofit medical marijuana dispensary classification

A.  THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION IS COMPRISED OF THE BUSINESS OF SELLING OR DISPENSING MEDICAL MARIJUANA TO  QUALIFYING PATIENTS PURSUANT TO TITLE 36, CHAPTER 28.1.

B.  THE TAX BASE FOR THE NONPROFIT MEDICAL MARIJUANA DISPENSARY CLASSIFICATION IS THE GROSS PROCEEDS OR GROSS INCOME DERIVED FROM THE BUSINESS.

C.  IF A PERSON WHO IS ENGAGED IN BUSINESS AS A NONPROFIT MEDICAL MARIJUANA DISPENSARY ALSO SELLS OTHER TANGIBLE PERSONAL PROPERTY AT RETAIL, THE PERSON’S BOOKS MUST SEPARATELY ACCOUNT FOR SALES OF THE OTHER TANGIBLE PERSONAL PROPERTY, AND IF NOT SO KEPT THE TAX UNDER THIS SECTION APPLIES TO  THE TOTAL OF THE PERSON’S ENTIRE GROSS PROCEEDS OR GROSS INCOME FROM THE BUSINESS.

If you want Arizona to have legalized medical marijuana, you must tell your legislators to impose a reasonable tax on medical marijuana of 5% – 7%.  Here’s the contact information for the Arizona legislators who introduced this bill (more…)

By |2017-02-11T17:28:53-07:00January 27th, 2011|AZ Legislation, Legal Issues, Tax Issues|Comments Off on Arizona Legislators Introduce HB 2557 to Overturn Voters Approval of Proposition 203
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Medical Marijuana Will be Taxed Says Arizona Attorney General Tom Horne

Here is the text of a January 26, 2011, press release by Arizona Attorney General Tom Horne:

HORNE TO RECOMMEND TAXATION OF MEDICAL MARIJUANA

Phoenix (Wednesday January 26, 2011) – Attorney General Tom Horne today announced that he is recommending to the Arizona Department of Revenue that medical marijuana, made legal in a recent initiative, be taxed by the State.

Horne stated, “I was opposed to the medical marijuana initiative during the 2010 election, but it was passed by the voters and the issue now presented is whether it should be taxed under existing law.”

He added, “Normally, there would be no tax on prescriptions. However, the legislation refers to doctors giving a ‘written certification’ rather than a prescription, an apparent effort, copied from other states, to protect doctors from discipline for giving prescriptions of substances prohibited under federal law. Since these are ‘written certifications’ rather than prescriptions, the sale of the substance can be taxed by the State, and we are recommending to the Department of Revenue that it tax the sales accordingly. We are informed by the Department of Revenue that they will take this advice, and tax the sales.”

The taxes are estimated to yield revenues to the State of Arizona in the approximate amount of $40 million per year. This number is projected, on a pro rata basis, to the Arizona population the statistics for Denver County, as reported by the Denver Post using the Phoenix sales tax rate.

By |2011-01-26T21:09:26-07:00January 26th, 2011|Legal Issues, Tax Issues|Comments Off on Medical Marijuana Will be Taxed Says Arizona Attorney General Tom Horne
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Must All Dispensary Owners, Officers & Directors be U.S. Citizens?

Question:  Must all owners, officers and members of the board of directors of an Arizona medical marijuana dispensary be a citizen of the United States?

Answer:  Apparently “the principal officer” or one board member must be a U.S. citizen as of today, January 26, 2011. It appears that no other owner, officer or director must be a U.S. citizen, except for  the one  “principal officer” or board member selected by the insiders to give proof of U.S. citizenship to the Arizona Department of Health Services.

Although Proposition 203 does not contain U.S. citizenship or Arizona residency requirements, the first draft of the Arizona Department of Health Services rules contain both requirements.  Rule R9-17-107.F.1.d.v(1) requires that after a dispensary applicant receives the written notice of preliminary approval from DHS, the applicant shall submit to DHS “a copy of  the principal officer or board member’s Arizona driver’s license or identification card issued before October 1, 1996, and one of the following:

(1)  Birth certificate verifying U.S. citizenship,
(2 ) U. S. Certificate of Naturalization, or
(3)  U. S. Certificate of Citizenship.”

My take from reading this poorly worded rule is that only one person who is an owner, officer or board member of an Arizona medical marijuana dispensary must be a United States citizen.  The term “principal officer” is used 47 times in the rules, but the term is not defined.

By |2011-01-26T21:00:21-07:00January 26th, 2011|DHS Rules, Legal Issues, Questions People Ask|Comments Off on Must All Dispensary Owners, Officers & Directors be U.S. Citizens?
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How Can a Non-Arizona Resident Who Wants to Own an Interest in an Arizona Medical Marijuana Dispensary Participate Before Becoming a Resident?

Question:  Arizona Department of Health Services’ first draft of the medical marijuana dispensary rules requires that all officers and directors of Arizona medical marijuana dispensaries be Arizona residents for at least three years.  I don’t satisfy the residency requirement so how can I be involved in a dispensary now and become an owner when I qualify?

Answer:  There are several ways.  If your goal is to own an interest in an Arizona medical marijuana dispensary, you must establish Arizona residency for at least three years so the sooner you move to Arizona, the sooner you will meet the residency requirement.  The current DHS rules contain a three year Arizona residency requirement to be an owner, officer or director of a dispensary.  Myself and others have suggested to DHS that it eliminate the residency requirement because the requirement is not contained in Proposition 203 and it is a violation of the equal protection clause of the United States Constitution.  DHS could increase or decrease the residency requirement or eliminate it altogether before it issues the final rules.

A person who has not lived in Arizona for three years could become a paid employee or an unpaid volunteer of a dispensary.  These positions are great learning experiences and can help to establish contacts and relationships with the dispensary owner that could lead to an ownership interest in a dispensary.  However, without a legally binding written contract between you and the nonprofit entity or the owner(s) of the nonnprofit entity to acquire an ownership interest in the dispensary, you probably would never become an owner.

Make a Loan with an Option to Convert the Debt to Equity

A better way for a non-Arizona resident to acquire an ownership interest in an Arizona medical marijuana dispensary is by the non-Arizona resident loaning money to the nonprofit entity and having a written option to convert the loan to an equity (ownership) position after the non-Arizona resident establishes residency and each of the 17 other requirements of ownership currently in the DHS rules.  For example, if you and another person want to own a dispensary and become equal 50/50 owners, the other person could loan or contribute $125,000 to the nonprofit entity and you could loan it $125,000.  The other person would initially be the sole owner of the dispensary.  Your loan documents would provide that once you satisfy all 18 requirements to be an owner of an Arizona medical marijuana dispensary, you would have the option to notify the entity and its owner that you exercise your option to purchase a fifty percent ownership interest in the entity in exchange for releasing the entity from its obligation to repay the loan.  A condition to actually becoming an owner would be that DHS would have to approve you becoming an owner.

During the period of time before the lender becomes eligible to become an owner of the dispensary, the lender could be a paid employee of the nonprofit entity.

What Documents are Needed to Evidence a Debt to Equity Conversion Option

Here are the documents that must be prepared and signed by the appropriate parties do create and document a transaction where the nonprofit entity borrows money and gives the lender an option to convert the debt to equity:

  1. Loan Agreement:  This document sets forth all of the terms and conditions of the loan and the rights and obligations of the parties with respect to the option to convert the debt to equity.  For example, it would state the conditions that must be satisfied before the borrower can exercise the option such as establish residency and each of the 17 other DHS requirements for ownership, state when the option would expire, require the borrower to become a signer on the entity’s governing document [Operating Agreement for an LLC and stockholders agreement for a corporation] and on a buy-sell agreement and state the conversion ratio for converting one dollar of debt into a specified percentage of ownership of the entity.
  2. Promissory Note:  The Note evidences the loan terms and repayment obligation of the nonprofit entity.  It could be interest only for a period of time.  If principal payments are made, the lender would receive a smaller ownership interest in the entity on converting the debt to equity.
  3. Security Agreement:  If the loan will be secured by any personal property of the entity, the lien is evidenced by a Security Agreement signed by borrower and lender.
  4. UCC-1 Financing Statement:  If the borrower obtains a lien on the entity’s personal property, the lender must file a UCC-1 Financing Statement with the Arizona Secretary of State
  5. Deed of Trust on Real Property:  If the nonprofit entity owns any real property, the loan could be secured by a lien on the real property.
  6. Lender’s Title Insurance:  If the loan is secured by a lien on the entity’s real property, the lender should obtain a policy of lender’s title insurance.
  7. Personal Guaranty:  The lender should require the other owners of the nonprofit entity to guaranty the Loan Agreement.
  8. Resolutions of an Action by Unanimous Consent:  The governing body of the entity (board of directors of a corporation or members of an LLC) must hold a duly called and noticed meeting and adopt a resolution authorizing the entity to enter into the Loan Agreement, the Promissory Note and any other documents and designating the person who has the authority to sign the documents on behalf of the entity.  In lieu of holding a meeting, the governing body can sign an Action by Unanimous Consent that adopts all of the necessary resolutions, but all members of the governing body must sign the Action by Unanimous Consent or it will not be valid and the governing body must then hold a duly called and noticed meeting.
  9. Employment Agreement:  Needed if the lender will work for the nonprofit entity and be paid compensation before becoming an owner of the entity.
  10. NonDisclosure & Confidentiality Agreement:  The parties should sign this document to prevent either party from disclosing anything about the loan and to keep information confidential.
By |2014-01-05T09:33:44-07:00January 25th, 2011|Legal Issues, Questions People Ask|Comments Off on How Can a Non-Arizona Resident Who Wants to Own an Interest in an Arizona Medical Marijuana Dispensary Participate Before Becoming a Resident?
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Should I Loan Seed Money to My Medical Marijuana Dispensary or Should I Give it to the Entity as a Capital Contribution?

Question:  I estimate that my Arizona medical marijuana dispensary will need $250,000 to open its retail store.  Should I loan the money to the nonprofit entity or should I pay it to the entity as a capital contribution?

Answer:  You should discuss this question with your accountant.  There are significant differences in the two primary methods (debt vs. equity) of inserting money into a business.  Here are some pros and cons associated with each method.

Debt:  You could loan the entity $250,000.  The loan should be evidenced by a Promissory Note signed by an authorized agent of the entity.  The governing body of the entity (members of an LLC or directors of a corporation) should hold a meeting (or sign an action by unanimous consent) and vote to approve the terms and conditions of the loan and designate the person who has the authority to sign the Promissory Note on behalf of the entity.  The loan should be commercially reasonable as to the interest rate, payment terms and maturity date.  If I were representing the lender, I would recommend that the Promissory Note be secured by a Security Agreement that encumbers all of the assets of the borrower.  If I were representing the borrower, I would suggest the loan be unsecured.

There are several advantages for the lender / owner who capitalizes the entity using a loan.  First and foremost, the entity becomes indebted to repay the loan according to its terms.  A loan creates a greater likelihood of being repaid before a capital contribution because the law of Arizona prohibits an Arizona entity from paying its owners and not paying creditors.  A loan may also be a better way to capitalize a medical marijuana entity because presumably Arizona’s medical marijuana laws and the Arizona Department of Health Services rules do not consider the entity’s repayment of a loan to be inconsistent with the require of the law and rules that the entity be operated on a nonprofit basis.

One problem with debt vs. equity is that although the entity has the funds, the infusion of capital does nothing for its balance sheet.  The assets of the entity increase by $250,000, but so does the entity’s debt, which means the loan does not increase the net worth of the entity.

If an owner does make a loan to the entity, it is critically important the the loan be properly documented with a good Promissory Note, Security Agreement and a UCC-1 Financing Statement filed with the Arizona Secretary of State (if the loan will be secured by a lien on personal property), and resolutions or an action by unanimous consent of the entity’s governing body.  If your entity needs to document a loan, call KEYTLaw business and contracts attorney Jeana Morrissey at 602-906-4953, ext. 4.

Equity:  Instead of loaning $250,000 to the entity, you could pay the money to the entity as a capital contribution.  Capital contributions have a lower priority the debt on the repayment totem pole.  The last people to be paid and recover their investment when a business goes bad are the owners.  Some organizational documents such as an Operating Agreement may provide that the owner does not have the right to demand that capital contributions be repaid.  Usually capital contributions do not accrue interest although it is possible to accrue interest if company documents provide for the accrual.

Because Arizona medical marijuana dispensaries must be operated on a nonprofit basis, it may also be more difficult to repay a capital contribution than a loan.  Currently the DHS rules do not give us any guidance as to whether an entity may freely repay owners their capital contributions so we do not know if a capital contribution in year 1 followed by a total repayment in the same year would be considered an improper use of entity profits contrary to the nonprofit character of the entity required by Arizona law.

An owner could also fund the entity with debt and equity.  In the above example, the owner could loan $125,000 to the entity and also make a capital contribution of $125,000.

By |2015-04-06T18:49:25-07:00January 24th, 2011|Legal Issues, Questions People Ask|Comments Off on Should I Loan Seed Money to My Medical Marijuana Dispensary or Should I Give it to the Entity as a Capital Contribution?
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Is it Legal for a Promoter to Ask Me to Invest $25,000 in a Syndicate that Will Seek to Own an Arizona Medical Marijuana Dispensary

Question:  An Arizona business has a website on which it is offering to put together a group of people to own minority interests in an entity that will seek to obtain a license to operate a medical marijuana dispensary in Arizona.  In exchange for paying $25,000 I would become a part owner with several other investors in the entity that will seek the license.  Is this legal?

Answer:  Maybe, but be cautious.  It appears that the people who are seeking the investors are soliciting investors to purchase a security.  Federal and state securities law regulate the offer and sale of securities.  The general rule is that no person or entity can offer to sell or actually sell a security unless the securities are registered with the United States Securities and Exchange Commission or offered and sold as a private offering under one of the SEC’s rules that provide for exceptions to the general rule.

In the famous United States Supreme Court case of Securities & Exchange Commission v. W. J. Howey Co. the Court ruled that the sale of real estate coupled with a mandatory leaseback of the land was a type of security called an “investment contract.”  The Court said that”

“an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

If Sure Thing Investments, Inc., solicits me to join nine other investors who will each contribute $25,000 to World Wide Widgets, LLC, and my only involvement with the company is as a silent investor, I have purchased a security, i.e., the 10% membership interest in the LLC.  Sure Thing Investments, Inc., and the people who put the deal together must comply with applicable federal and state securities laws or they will be liable to me  and the other investors for any loss I suffer plus be subject to sanctions by the SEC and each state where an investor resides.  Complying with securities law involves many things, including  a requirement that the promoter deliver to investors before purchase a written prospectus or private placement memorandum that contains all material facts concerning the investment and that does not fail to disclose a material fact.

Given that the medical marijuana industry is brand new in Arizona and that its core busi9ness involves violating federal law, it is especially important that promoters and prospective issuers of securities involving an Arizona medical marijuana dispensary provide all prospective investors with a detailed disclosure document that lists all of the many risks arising from the unusual type of business.

Note:  Federal law provides that no person or entity can be compensate or receive property of value for finding an investor who purchases a security unless the person or entity is licensed as a securities broker or licensed as a securities sales agent working for a licensed securities broker.  For example, if Joe solicits investors on his website to invest $25,000 to become one of ten people who form an Arizona limited liability company that seeks to obtain a license to operate an Arizona medical marijuana dispensary and the LLC pays Joe $500 for each investor he brings to the deal, Joe must be a licensed securities broker or a licensed securities salesman working for a licensed securities broker.

Query:  What if Joe finds the investors for the would be dispensary LLC, but the LLC does not pay Joe any money or property for finding investors.  Instead, the LLC hires Joe  for big bucks to assist the LLC in obtaining a dispensary license.  Must Joe be a broker or a salesman working for a broker?  I don’t know, but it is a good question to ask a securities law lawyer or the Securities Division of the Arizona Corporation Commission.  You could argue that Joe must be licensed because the only reason the LLC paid Joe the money was because of Joe’s efforts that caused the investors to form the LLC for the purpose of hiring Joe.  My advise to Joe is to consult with an experienced securities law lawyer and if necessary, get licensed.

Warning:  Any person or business that solicits investors over the internet is by definition involved in a public offering that must be registered with the Securities and Exchange Commission.  As an Arizona business lawyer I have had people come to me from time to time because they placed an ad in a newspaper soliciting investors and received a cease and desist letter from the Securities Division of the Arizona Corporation Commission.  If you know of a website that is making a public offer to sell a security that has not been registered with the SEC or that is exempt from registration, contact the SEC.  If you have any inquiries or complaints regarding salesmen, investment advisers or securities involving offers or sales of securities to an Arizona resident, call the Securities Division of the Arizona Corporation Commission at  (602) 542-0662.

See “Arizona Corporation Commission Takes Action Against Sellers of Unregistered Real Estate Investments,”  “But is it a security?” and “Federal Securities Laws Basics.

By |2017-02-12T07:38:36-07:00January 22nd, 2011|Legal Issues, Questions People Ask|Comments Off on Is it Legal for a Promoter to Ask Me to Invest $25,000 in a Syndicate that Will Seek to Own an Arizona Medical Marijuana Dispensary
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Why Every Arizona Medical Marijuana Dispensary Must Hire a Primary & an Alternate Medical Director

The rules of the Arizona Department of Health Services require that every Arizona medical marijuana dispensary have a medical director.  See “What is a Medical Director & Why Does Every Arizona Medical Marijuana Dispensary Need One?”  If an operating dispensary were to suddenly lose its medical director, the dispensary would be in jeopardy of losing its Dispensary Registration Certificate, i.e., its license to grow and sell medical marijuana.

A dispensary could lose its medical director if the doctor were to:

  • die
  • become incapacitated or incompetent
  • lose his or her license to practice medicine
  • refuse to provide services even though it might be a breach of contract
  • suffer health problems
  • or experience any of an infinite number of events that result in no further services.

I could be wrong, but I’m pretty sure that no dispensary owner would want to risk losing the Dispensary Registration Certificate because of the loss of its medical director.  Because the risk of the  medical director could stop providing services at any time and cause the dispensary to lose its license and because the financial consequences so great, every dispensary should enter into a written contract with at least one other doctor to be an alternate medical director who automatically becomes the primary medical director if for any reason the primary medical director ceases to be the medical director.

By |2012-08-18T09:21:18-07:00January 19th, 2011|Legal Issues, Medical Directors|Comments Off on Why Every Arizona Medical Marijuana Dispensary Must Hire a Primary & an Alternate Medical Director
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What is a Medical Director & Why Does Every Arizona Medical Marijuana Dispensary Need One?

Question:  I am an Arizona physician who is considering offering my services to be the medical director of an Arizona medical marijuana dispensary.  Does every dispensary need a medical director?  What are the duties of the medical director under the Arizona Department of Health Services rules?

Answer:  The Arizona Department of Health Services rules require that every Arizona medical marijuana dispensary hire a medical director.  Proposition 203 did not contain a requirement for a medical director, but DHS decided in its wisdom that every dispensary should spend a lot of money to hire a medical director who must be doctor of medicine who holds a valid and existing license to practice medicine pursuant to A.R.S. Title 32, Chapter 13 or its successor or a doctor of osteopathic medicine who holds a valid and existing license to practice osteopathic medicine pursuant to A.R.S. Title 32, Chapter 17 or its successor and who has been designated by a dispensary to provide medical oversight at the dispensary.  R 9-17-312.

The Arizona Department of Health Services rules (R 9-17-312) for Arizona medical marijuana dispensaries require that every dispensary contract with a medical director who shall provide oversight for the development and dissemination of educational materials for qualifying patients and designated caregivers.  Here is the text of R9-17-312:

A. A dispensary shall appoint an individual who is a physician to function as a medical director.

B. During hours of operation, a medical director or an individual who is a physician and is designated by the medical director to serve as medical director in the medical director’s absence is:

1. On-site, or

2. Able to be contacted by any means possible, such as by telephone or pager.

C. A medical director shall:

1. Develop and provide training to the dispensary’s dispensary agents at least once every 12 months from the initial date of the dispensary’s registration certificate on the following subjects:

a. Guidelines for providing information to qualifying patients related to risks, benefits, and sides effects associated with medical marijuana;

b. Guidelines for providing support to qualifying patients related to the qualifying patient’s self-assessment of the qualifying patient’s symptoms including a rating scale for pain, cachexia or wasting syndrome, nausea, seizures, muscle spasms, and agitation;

c. Recognizing signs and symptoms for substance abuse; and

d. Guidelines for refusing to provide medical marijuana to an individual who appears to be impaired or abusing medical marijuana; and

2. Assist in the development and implementation of review and improvement processes for patient education and support provided by the dispensary.

D. A medical director shall provide oversight for the development and dissemination of:

1. Educational materials for qualifying patients and designated caregivers that include:

a. Alternative medical options for the qualifying patient’s debilitating medical condition;

b. Information about possible side effects of and contraindications for medical marijuana including possible impairment with use and operation of a motor vehicle or heavy machinery, when caring for children, or of job performance;

c. Guidelines for notifying the physician who provided the written certification for medical marijuana if side effects or contraindications occur;

d. A description of the potential for differing strengths of medical marijuana strains and products;

e. Information about potential drug-drug interactions, including interactions with alcohol, prescription drugs, non-prescription drugs, and supplements;

f. Techniques for the use of medical marijuana and marijuana paraphernalia;

g. Information about different methods, forms, and routes of medical marijuana administration;

h. Signs and symptoms of substance abuse, including tolerance, dependency, and withdrawal; and

i. A listing of substance abuse programs and referral information;

2. A system for a qualifying patient or the qualifying patient’s designated caregiver to document the qualifying patient’s pain, cachexia or wasting syndrome, nausea, seizures, muscle spasms, or agitation that includes:

a. A log book, maintained by the qualifying patient and or the qualifying patient’s designated caregiver, to track the use and effects of specific medical marijuana strains and products;

b. A rating scale for pain, cachexia or wasting syndrome, nausea, seizures, muscles spasms, and agitation;

c. Guidelines for the qualifying patient’s self-assessment or, if applicable,assessment of the qualifying patient by the qualifying patient’s designated caregiver; and

d. Guidelines for reporting usage and symptoms to the physician providing the written certification for medical marijuana and any other treating physicians; and

3. Policies and procedures for refusing to provide medical marijuana to an individual who appears to be impaired or abusing medical marijuana.

E. A medical director shall not establish a physician-patient relationship with or provide a written certification for medical marijuana for a qualifying patient.

By |2011-02-12T08:51:04-07:00January 19th, 2011|DHS Rules, Legal Issues, Medical Directors, Questions People Ask|Comments Off on What is a Medical Director & Why Does Every Arizona Medical Marijuana Dispensary Need One?
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Beware of the Single Owner Arizona Medical Marijuana Dispensary

Question:  Should I be the sole owner of my Arizona medical marijuana dispensary?

Answer:  Probably not.  Although the Arizona Department of Health Services rules allow an Arizona medical marijuana dispensary to be owned by a single person (a sole proprietor) or a company that has only one owner, I strongly recommend that no dispensary owner be the sole owner of the business.  The reason every dispensary should have at least two owners is to prevent the lose of the valuable dispensary license if the sole owner were to die or to become ineligible to be an owner, officer or director of the business.

Two examples will illustrate the terrible consequences of having a sole owner dispensary business.

Example 1:  Homer Simpson is the sole owner of an Arizona LLC called Bart’s Greenies, LLC.  Homer invested $500,000 to get a dispensary license and open his dispensary in Scottsdale in the food court of the Fashion Square Mall and to set up his 20,000 square foot cultivation farm in Pine Top.  Homer unexpectedly dies from joy and pride while attending Bart’s graduation ceremony at the Penn State University Hershey School of Medicine where Bart received his M.D. degree.  Because the LLC no longer has an owner approved by the Arizona Department of Health Services to be an owner, the LLC’s dispensary license automatically evaporates and so does all of its value.  There is no LLC with a dispensary license to be inherited by Homer’s family.

Example 2:  Same facts as in Example 1 except Homer does not die.  Instead, Homer divorces Marge and defaults on his child support payments for Maggie.  Because Homer is no longer eligible to be an owner, officer or director of an Arizona medical marijuana dispensary the LLC’s dispensary license automatically evaporates and so does all of its value.

Solution:  I recommend that every Arizona medical marijuana dispensary organization have at least two owners so that if one of the owners were to die or cease to be eligible to own an interest in the business, the other owner could continue as the sole owner of the business so that the business does not automatically lose its dispensary license.  Although a husband and wife who jointly own a dispensary are technically do not have a sole owner business, they should consider having another nominal owner in case the husband and wife were killed in a common accident.

Caution 1:  The December 17, 2010, first draft of the proposed rules contains 18 requirements that must be satisfied for a person to become an owner, officer or director of an Arizona medical marijuana dispensary business.  If any owner, officer or director ever becomes ineligible to be an owner, officer or director, the business will automatically lose its license to operate the dispensary.  This risk of automatic termination is one very big reason why all entities that want to obtain a dispensary license need to purchase my Bylaws that contain provisions intended to protect against the loss of the license if an owner, officer or director ceases to be eligible to be an owner, officer or director.  For more about why all dispensaries need properly drafted Bylaws see “Bylaws for Arizona Medical Marijuana Dispensaries.”

Caution 2:  Whenever a business has multiple unrelated owners, the owners must enter into a buy-sell agreement that contains their exit strategy.  Medical marijuana dispensaries especially need a good buy-sell agreement that covers the automatic buy-out of any owner who ceases to be eligible to be an owner.

By |2012-05-13T16:24:48-07:00January 18th, 2011|Legal Issues, Questions People Ask|Comments Off on Beware of the Single Owner Arizona Medical Marijuana Dispensary
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Bylaws for Arizona Medical Marijuana Dispensaries

All Arizona Medical Marijuana Dispensaries Must Have Bylaws

Arizona law requires that all Arizona corporations (for profit and nonprofit) adopt Bylaws.  Since Proposition 203 became law on December 15, 2010, all organizations (not just corporations) that seek a license to own and operate a dispensary in Arizona must adopt Bylaws.  Arizona Revised Statutes Section 36-2806.A states:

“The Bylaws of a registered nonprofit medical marijuana dispensary shall contain such provisions relative to the disposition of revenues and receipts to establish and maintain its nonprofit character.”

Bylaws is the name given to the policies and procedures that govern the internal operation of a business organization.  The Merriam-Webster dictionary defines bylaws as “a rule adopted by an organization chiefly for the government of its members and the regulation of its affairs.”

Before Proposition 203 became the law of Arizona Bylaws were used almost exclusively by corporations.  As an Arizona business attorney, I have formed over 3,200 Arizona limited liability companies since I started counting in 2002.  Not one of the LLCs I formed prior to Proposition 203 have Bylaws because the Arizona laws that govern Arizona LLCs do not require Arizona LLCs to adopt Bylaws.  Arizona statutory law requires that all Arizona corporations adopt Bylaws.  Arizona Revised Statutes Section 10-206 (for profit corps) and Section 10-3206.A (nonprofit corps) both contain the following corporate requirement:

“The board of directors of a corporation shall adopt initial bylaws for the corporation.”

If you are part of an organization (regardless of the type of entity) that will seek to obtain a license to own and operate an Arizona medical marijuana dispensary, you must make sure that your organization has Bylaws that contain the specific language required by Arizona medical marijuana law and the Arizona Department of Health Services.  If your organization does not have the required Bylaws, it’s application for a dispensary license will be rejected.

See my article called “Bylaws – We Don’t Need No Stinking Bylaws or Do We?”

By |2017-02-12T07:10:46-07:00January 17th, 2011|Legal Issues|Comments Off on Bylaws for Arizona Medical Marijuana Dispensaries
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What Legal Contracts Does My Medical Marijuana Dispensary Need?

Question:  What are the various types of contracts needed by all Arizona medical marijuana dispensaries?

Answer:  The following is a list of the contracts that all Arizona medical marijuana dispensaries need.  Because of the unique nature of the business and the risk that an improper action by an employee, independent contract or dispensary agent could cause the loss of a dispensary’s license, it is critically important that the dispensary have very tight contracts that protect the dispensary.  Each contract must be drafted by an attorney who is familiar with and takes into consideration the legal requirements imposed on dispensaries by Arizona’s medical marijuana law and the Arizona Department of Health Services’ rules.  Each dispensary needs:

  1. Lease for the dispensary site
  2. Lease for the cultivation site
  3. Application for Employment
  4. Employment Agreement
  5. Contract with the primary medical director (see “Clauses to Include in a Contract between a Medical Director & a Dispensary)
  6. Contract with the alternate medical director (see “Why Every Arizona Medical Marijuana Dispensary Must Hire a Primary & an Alternate Medical Director“)
  7. Contract with Marijuana Grower Personnel
  8. Authorization to Conduct Background Check
  9. Dispensary Agent Agreement
  10. Employee & Dispensary Agent MMD Law Knowledge Test
  11. Employee Policy Manual
  12. Nondisclosure & Confidentiality Agreement
  13. Independent Contractor Agreement
  14. Premises Security Agreement for security guards
  15. Information Technology Agreement for computer services
  16. Patient Registration Form
  17. Patient Disclosure Form with Receipt
  18. Retail Sales Contract Form with disclosures
  19. Contract to Purchase Marijuana from another Dispensary
  20. Contract to Sell Marijuana to another Dispensary
  21. Marijuana Delivery Contract for anybody who delivers marijuana
  22. Buy-sell Agreement for the Owners of the Dispensary (the exit strategy)

Richard Keyt is an Arizona business lawyer and Arizona medical marijuana attorney.  I’ve practiced business law in Arizona since 1980 and prepared thousands of business contracts.

By |2019-06-14T08:27:46-07:00January 6th, 2011|Legal Issues, Questions People Ask|Comments Off on What Legal Contracts Does My Medical Marijuana Dispensary Need?
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How Does My Dispensary Tie Up Land for its Retail & Cultivation Sites?

Question: Must I know my Arizona medical marijuana dispensary and cultivation locations before I file my application with Arizona Department of Health Services to obtain a dispensary license?

Answer:  Yes.  Arizona Revised Statutes Section 36-2804 states:

“Not later than ninety days after receiving an application for a nonprofit medical marijuana dispensary, the department shall register the nonprofit medical marijuana dispensary and issue a registration certificate . . . if . . . The prospective nonprofit medical marijuana dispensary has submitted . . . an application, including:

(i) The legal name of the nonprofit medical marijuana dispensary.

(ii) The physical address of the nonprofit medical marijuana dispensary and the physical address of one additional location, if any, where marijuana will be cultivated, neither of which may be within five hundred feet of a public or private school existing before the date of the nonprofit medical marijuana dispensary application.”

Therefore, Section 36-2804 requires that the application state the name of the dispensary owner and the actual address where the dispensary will sell to patients and where it will grow its marijuana.  Now is the time for all prospective dispensaries to be looking for an buying or leasing the premises where they will operate and grow.  Once you find a site, if the site makes sense and if the zoning allows for the use of the site for a dispensary or cultivation site, you must tie up the site, i.e., enter into a legally binding lease for the premises or a contract to buy it.

Note:  Before you find your site, you must have formed you limited liability company so that it can be the party that signs the lease or purchase contract.  You do not want the personal liability that goes with being the singer on a lease or contract.   If you need me to form your Arizona limited liability company, see the links near the top of the right column of this website.

Because no applicant will know if the applicant will actually receive a dispensary license, it does not make sense for the dispensary to enter into either a lease or a contract to buy unless the lease or contract contains provisions that are unique to the medical marijuana business.  For example, you want a clause in your lease or purchase contract that gives you the option to terminate the lease or purchase option if you do not actually get a license or if you get a license and later lose the license and cannot get it back.  You’ll want a use clause that is appropriate for the business as well as clauses that allow you to make tenant improvements and take actions inside and outside the premises that are necessary to comply with Arizona’s medical marijuana law and the ADHS rules.

By |2012-08-18T09:12:17-07:00January 6th, 2011|Dispensary Leases, Legal Issues, Questions People Ask, Real Estate Issues|Comments Off on How Does My Dispensary Tie Up Land for its Retail & Cultivation Sites?
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Long Beach Pot Law Gets Legal Setback

Press Telegram:  “The future of Long Beach’s medical marijuana regulations – and potentially of medical marijuana throughout the state – is in question after an appeals court ruling Wednesday.  The 2nd District Court of Appeals ruled that a Los Angeles County Superior Court judge must reexamine his decision Nov. 2 upholding Long Beach’s new medical marijuana ordinance.  At issue is whether Long Beach’s issuance of permits for medical marijuana collectives is a violation of federal law, which considers marijuana an illegal drug.”

Whatever the outcome  of the case when it is reconsidered by the trial court, the losing party will surely appeal.  It appears that in the not too distant future a California appellate court will determine if federal law preempts California law.  If the appellate court answers the question in the affirmative, that could be the beginning of the end of California’s medical marijuana law and other states that have legalized medical marijuana can expect to have the same battle in their courts.

By |2017-10-07T09:54:50-07:00December 30th, 2010|California News, Legal Issues, Stories & Articles|Comments Off on Long Beach Pot Law Gets Legal Setback
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October 19, 2009, Department of Justice Guidelines to Federal Prosecutors on Medical Marijuana in States that Have Legalized Its Use

Department of Justice Guidelines for Federal Prosecutors in States that Legalize Medical Marijuana

On October 19 , 2009, “Attorney General Eric Holder announced formal guidelines for federal prosecutors in states that have enacted laws authorizing the use of marijuana for medical purposes. Those guidelines are contained in a memo from Deputy Attorney General David W. Ogden.”  The following is the text of the Department of Justice  medical marijuana letter.

October 19,2009

MEMORANDUM FOR SELECTED UNITED STATES ATTORNEYS

FROM: David W. Ogden, Deputy Attorney General

SUBJECT: Investigations and Prosecutions in States Authorizing the Medical Use of Marijuana

This memorandum provides clarification and guidance to federal prosecutors in States that have enacted laws authorizing the medical use of marijuana. These laws vary in their substantive provisions and in the extent of state regulatory oversight, both among the enacting States and among local jurisdictions within those States. Rather than developing different guidelines for every possible variant of state and local law, this memorandum provides uniform guidance to focus federal investigations and prosecutions in these States on core federal enforcement priorities. (more…)

By |2015-04-06T18:49:24-07:00December 30th, 2010|Legal Issues, Marijuana Crimes|Comments Off on October 19, 2009, Department of Justice Guidelines to Federal Prosecutors on Medical Marijuana in States that Have Legalized Its Use
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Bylaws – We Don’t Need No Stinking Bylaws or Do We?

Question:  What are Bylaws & Must My Dispensary Adopt Bylaws?

Answer:  Black’s law dictionary defines Bylaws as “a rule or administrative provision adopted by an organization for its internal governance and its external dealings.”  Bylaws have traditionally been a set of rules adopted by the Board of Directors of a corporation to govern the internal affairs of the corporation.   In fact, Arizona Revised Statutes Section 10-3206 requires all Arizona nonprofit corporations to have Bylaws.

Arizona enacted its limited liability company laws in 1992, but nothing in the Arizona LLC Act refers to Bylaws or requires Arizona LLCs to adopt Bylaws.  As a result, Arizona LLCs that have Bylaws are exceptions to the general rule that Arizona LLCs do not have Bylaws.  The Operating Agreement is the Arizona LLC’s governing document that replaces corporate Bylaws.  Because the most commonly formed entity in Arizona today is the LLC, and because many people who seek to obtain a license to own and operate an Arizona medical marijuana dispensary may form an Arizona LLC for that purpose, the question is does an LLC that seeks a license to own and dispensary need to adopt Bylaws?

The answer to that questions is Yes!  Arizona Revised Statutes Section 36-2806.A states: “The Bylaws of a registered nonprofit medical marijuana dispensary shall contain such provisions relative to the disposition of revenues and receipts to establish and maintain its nonprofit character.”  The rules of the Arizona Department of Health Services also require Bylaws and that the Bylaws contain certain provisions. Therefor, the law requires the dispensary to have Bylaws so you must make sure your nonprofit entity adopts ADHS acceptable Bylaws.

By |2012-05-13T16:26:38-07:00December 27th, 2010|Legal Issues, Questions People Ask|Comments Off on Bylaws – We Don’t Need No Stinking Bylaws or Do We?
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Possible Class Action Lawsuit vs. ADHS to Eliminate Arizona Residency Requirement

Possible Class Action Lawsuit Against the Arizona Department of Health Services

Several non-Arizona residents who want to apply for and obtain a license to operate a medical marijuana dispensary in Arizona have asked me if I would file a class action lawsuit against the Arizona Department of Health Services to force it to eliminate the requirement that all officers and directors of the dispensary be Arizona residents.  This requirement was invented by ADHS without any basis.  I am not aware of any other Arizona business that Arizona law requires that the owners be Arizona residents.

The people who have asked me about a lawsuit would like to share the cost of the lawsuit.  If you are interested in being a co-plaintiff in a class action lawsuit vs. the ADHS to eliminate the Arizona residency requirement, complete our comment form and I will contact you and put you on my list of possible co-plaintiffs.

By |2015-04-06T18:49:23-07:00December 23rd, 2010|Legal Issues|Comments Off on Possible Class Action Lawsuit vs. ADHS to Eliminate Arizona Residency Requirement
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Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?

Question:   Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?

Answer: Apparently not!  Although the text of Proposition 203 says that an Arizona medical marijuana dispensary must be a ““a not-for-profit entity that acquires, possesses, cultivates, manufactures, delivers, transfers, transports, supplies, sells or dispenses marijuana or related supplies and educational materials to cardholders,” and it refers to Bylaws (a corporate governing document), officers (typically associated with corporations) and directors (exclusively associated with corporations), the Arizona Department of Health Services expanded the definition of not-for-profit entity to include types of entities in addition to corporations.

The December 17, 2010, first draft of the proposed DHS rules states that an “Entity means a person as defined in A.R.S. § 1-215.”  Section 1-215 says that “Person” includes a corporation, company, partnership, firm, association or society, as well as a natural person.”  Since an Arizona limited liability company is a company, DHS apparently will allow LLCs to own dispensaries unless it changes the rules to eliminate LLCs.  Here is an additional provision in the first draft of the rules that sanctions the use of a limited liability company:

“R9-17-301. Individuals to Act for a Dispensary Regarding Requirements.  When a dispensary is required by this Article to provide information on or sign documents or ensure actions are taken, the following shall comply with the requirement on behalf of the dispensary: . . . 4. If the dispensary is a limited liability company, a manager or, if the limited liability company does not have a manager, a member of the limited liability company”

As an Arizona business and entity formation attorney who has formed over 2,800 Arizona entities, I am surprised, but very glad that DHS is not requiring that people form Arizona nonprofit corporations to own and operate medical marijuana dispensaries.  The only type of entity that is specifically recognized under Arizona as a nonprofit entity is the Arizona nonprofit corporation.  The big problem with an Arizona nonprofit corporation is that it does not have any owners.  It simply would not be right for the government to require people to spend substantial amounts of time and invest large amounts of money into a nonprofit corporation that does not have any owners.

If you want more background and analysis of this nonprofit entity issue, read my article called “Arizona Proposition 203 – Legalization of Medical Marijuana.”

Arizona Medical Marijuana Dispensaries Should be Arizona Limited Liability Companies

My recommendation is that all entities that seek to obtain a license to operate an Arizona medical marijuana dispensary be Arizona limited liability companies.  People who have already formed an Arizona nonprofit corporation with the intent to have it obtain the license should put the corporation on the shelf and form a new Arizona LLC to be the nonprofit entity that seeks and obtains the license.

I would love to form your Arizona LLC that will own and operate a medical marijuana dispensary.  My fee is $1,599, which includes the all important nonprofit LLC Bylaws.  See my articles called “Why Every Arizona Medical Marijuana Dispensary Must Have a Buy Sell Agreement,” “Bylaws – We Don’t Need No Stinking Bylaws or Do We?” and “Bylaws for Arizona Medical Marijuana Dispensaries.”

By |2017-02-12T07:05:51-07:00December 23rd, 2010|Legal Issues, Questions People Ask|2 Comments
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DHS Says Dispensaries Can Be Limited Liability Companies

Good news.  The first draft of the proposed Arizona medical marijuana rules issued by the Arizona Department of Health Services on December 17, 2010, says that the entity that owns and operates a medical marijuana dispensary can be a limited liability company (the preferred entity of choice in Arizona), a corporation, sole proprietorship (a mistake), general partnership (a mistake) or a limited partnership (not a mistake, but somewhat obsolete in Arizona).

Although the nonprofit corporation is the only type of entity recognized by Arizona statutory law as a nonprofit entity, the ADHS correctly did not interpret the language of Proposition 203 as requiring that medical marijuana dispensary nonprofits be Arizona nonprofit corporations.  The biggest problem with a nonprofit corporation used for a business is that nobody actually owns an Arizona nonprofit.  See my June 6, 2010, article  called “Arizona Proposition 203 – Legalization of Medical Marijuana” on whether MMD nonprofits must be Arizona nonprofit corporations in which I stated:

“Proposition 203 creates a big problem for people who are contemplating creating an MMD?  The $64,000 question is must an Arizona MMD be created as an Arizona nonprofit corporation or can it be one of the types of entities typically formed to make a profit, but operated as a nonprofit entity?  We will not know the answer to this question until DHS gives us the answer or it approves MMDs that are not Arizona nonprofit corporations.”

If you need an Arizona attorney to form your Arizona LLC, see the links on the right column of this website and hire Arizona medical marijuana attorney Richard Keyt, aka the Arizona medical marijuana lawyer, to form your Arizona LLC.

By |2011-01-18T19:26:35-07:00December 21st, 2010|Legal Issues, Stories & Articles|Comments Off on DHS Says Dispensaries Can Be Limited Liability Companies
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Must My Nonprofit Arizona Medical Marijuana Dispensary Be a Federal Tax-exempt Organization?

Question:  Must My Nonprofit Arizona Medical Marijuana Dispensary Be a Federal Tax-exempt Organization?

Answer:  No and thankfully no!  Arizona Revised Statutes Section 36-2806.A states: “A registered nonprofit medical marijuana dispensary need not be recognized as tax-exempt by the Internal Revenue Service.”  If Proposition 203 required dispensaries to become tax-exempt organizations, the IRS would deny every application because it would not allow any business engaged in violating federal law to become exempt from federal income taxes.  In addition, even if it were possible for a dispensary to obtain a tax exemption, the consequences would be disastrous for most dispensaries.  Tax-exempt organizations are prohibited from paying excess benefits to owners, directors, officers and insiders.  If excess benefits are paid, the tax penalties are severe – 100% of the excess benefit PER YEAR since the payment until the penalty is paid in full.

By |2017-02-11T17:03:09-07:00December 20th, 2010|Legal Issues, Questions People Ask, Tax Issues|Comments Off on Must My Nonprofit Arizona Medical Marijuana Dispensary Be a Federal Tax-exempt Organization?
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Department of Health Services Issues Proposed Medical Marijuana Rules

Proposed Arizona Medical Marijuana Rules / Regulations Issued by the Arizona Department of Health Services on December 17, 2010

Arizona Governor Jan Brewer signed a proclamation on December 14, 2010, that caused Arizona Proposition 203 to become law as of the following day.  The Arizona Department of Health Services now has 120 days ending on April 14, 2010, to prepare regulations that govern Arizona’s brand new medical marijuana patients and the dispensing and growing industry.  Today, December 17, 2010, DHS issued the first draft of its proposed Title 9, Health Services Chapter 17.Department of Health Services – Medical Marijuana Program.  Here are some of the interesting revelations I found in my quick skim through the proposed regulations:

  • “Entity” means a person as defined in A.R.S. § 1-215., which states:

“Person” includes a corporation, company, partnership, firm, association or society, as well as a natural person. When the word “person” is used to designate the party whose property may be the subject of a criminal or public offense, the term includes the United States, this state, or any territory, state or country, or any political subdivision of this state that may lawfully own any property, or a public or private corporation, or partnership or association. When the word “person” is used to designate the violator or offender of any law, it includes corporation, partnership or any association of persons.”

  • Each dispensary must have a “Medical director” who is a doctor of medicine who holds a valid and existing license to practice medicine pursuant to A.R.S. Title 32, Chapter 13 or its successor or a doctor of osteopathic medicine who holds a valid and existing license to practice osteopathic medicine pursuant to A.R.S. Title 32, Chapter 17 or its successor and who has been designated by a dispensary to provide medical oversight at the dispensary.
  • Dispensary registration fee = $5,000
  • Dispensary renewal fee = $1,000
  • Fee to change the location of a dispensary = $2,500
  • Fee to change the location of a cultivation site = $2,500
  • Fee to get or renew a qualifying patient card = $150
  • Fee to get or renew a designated caregiver card = $200
  • Fee to get or renew a dispensary agent card = $200
  • A registration packet for a dispensary is not complete until the applicant provides the Department with written notice that the dispensary is ready for an inspection by the Department.
  • Officers and board members of a dispensary must give DHS a copy of their Arizona driver’s license
  • Number of working days applicable to applications for a dispensary:  overall time frame = 90; time for applicant to complete application = 90; admin completeness 30; substantive review time = 60

Regulations Applicable to Arizona Medical Marijuana Dispensaries

  • Dispensaries can be individuals, corporations (for profit and nonprofit), limited liability companies, partnerships, joint ventures and any other business organization
  • “Each principal officer or board member of a dispensary is an Arizona resident and has been an Arizona resident for the two years immediately preceding the date the dispensary submits a dispensary certificate application.”  I am very surprised by this requirement.  Proposition 203 does not contain any language that restricts who can own a dispensary or that requires owners be residents of Arizona or any other state or country.
  • The application must state whether a principal officer or board member:

1.  Is a physician currently making qualifying patient recommendations

2.  Has not provided a surety bond or filed any tax return with a taxing agency – This does not make any sense.

3.  Has unpaid taxes, interest, or penalties due to a governmental agency.

4.  Has an unpaid judgment due to a governmental agency.

5.  Is in default on a government-issued student loan.

6.  Failed to pay court-ordered child support.

7.  Is a law enforcement officer.

8.  Is employed by or a contractor of the Department

  • The application must state the name and license number of the dispensary’s medical director
  • The application must state if the dispensary and, if applicable, the dispensary’s cultivation site are ready for an inspection by the Department
  • The application must state if the dispensary and, if applicable, the dispensary’s cultivation site are not ready for an inspection by the Department, the date the dispensary and, if applicable, the dispensary’s cultivation site will be ready for an inspection by the Department
  • The application must state the name and title of each principal officer and board member
  • The application must contain a copy of the business organization’s articles of incorporation, articles of organization, or partnership or joint venture documents, if applicable.
  • The application must contain an attestation signed and dated by the principal officer or board member that the principal officer or board member is an Arizona resident and has been an Arizona resident for at least two consecutive years immediately preceding the date the dispensary submitted the dispensary certificate application.
  • The application must include a copy of the certificate of occupancy or other documentation issued by the local jurisdiction to the applicant authorizing occupancy of the building as a dispensary and, if applicable, as the dispensary’s cultivation site.
  • The application must include a copy of the dispensary’s by-laws containing provisions for the disposition of revenues and receipts.
  • The application must include a business plan demonstrating the on-going viability of the dispensary as a non-profit organization.
  • The application must state whether a registered pharmacist will be onsite or on-call during regular business hours and if the dispensary will provide information about the importance of physical activity and nutrition onsite.
  • The dispensary must employ or contract with a medical director.
  • A dispensary shall cultivate at least 70% of the medical marijuana the dispensary provides to qualifying patients or designated caregivers.  This is a surprise and probably a problem and increased costs for many dispensaries.
  • A dispensary shall not provide more than 30% of the medical marijuana cultivated by the dispensary to other dispensaries.  Another surprise!
  • A medical director may only serve as a medical director for three dispensaries at any time.
  • The building used by a dispensary or the dispensary’s cultivation site shall have a flushable toilet with running water, soap in a dispenser and toilet tissue.
  • DHS will deny an application for a dispensary if a principal officer or board member:

1.   Is not a resident of Arizona or has not been a resident of Arizona for at least two consecutive years immediately preceding the date the application for the dispensary registration certificate is submitted.

2.  Is a physician currently making qualifying patient recommendations.

3.  Is a law enforcement officer.

4.  Is an employee of or a contractor with the Department.

  • The Department may deny an application for a dispensary registration certificate if a principal officer or board member of the dispensary:

1.  Has not provided a surety bond or filed any tax return with a taxing agency.

2.  Has unpaid taxes, interest, or penalties due to a governmental agency.

3.  Has an unpaid judgment owed to a governmental agency.

4.  Is in default on a government-issued student loan.

5.  Failed to pay court-ordered child support.

6.  Provides false or misleading information to the Department.

By |2017-02-12T07:05:50-07:00December 17th, 2010|Dept Health Services, DHS Rules, Legal Issues|Comments Off on Department of Health Services Issues Proposed Medical Marijuana Rules
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Arizona State Bar Says Arizona Lawyers May Represent Arizona Medical Marijuana Businesses Unless it Rules Otherwise

The following is the text of an email message the Arizona State Bar sent to its members on December 3, 2010:

Medical Marijuana and the Rules of Professional Conduct

There have been a number of reports regarding the implications of Arizona’s new medical marijuana law on the ethical rules that govern the conduct of attorneys in Arizona.

Although some reports may have created the perception that the State Bar of Arizona has taken an official position regarding this matter, the Bar has not taken an official position.

As has been widely reported, this new law has created many unsettled issues across the legal landscape.  The impact of this law on the ethical rules is equally unsettled.

The State Bar of Arizona will review the new law and provide guidance in advance of the law’s implementation, currently scheduled for late March 2011.  In the interim, the State Bar will not take regulatory action against attorneys for counseling or assisting clients in the implementation of the medical marijuana law during this period.

For questions or further information, contact Rick DeBruhl, Chief Communications Officer, State Bar of Arizona  at 602-340-7200 or [email protected].

Sincerely,

John F. Phelps
CEO/Executive Director

By |2012-08-18T09:15:33-07:00December 4th, 2010|Legal Issues, Stories & Articles|Comments Off on Arizona State Bar Says Arizona Lawyers May Represent Arizona Medical Marijuana Businesses Unless it Rules Otherwise
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DEA Position on Marijuana

If you want to know where the Drug Enforcement Agency stands on marijuana, including medical marijuana, read this July 2010 report from the DEA.  What follows is from the opening paragraphs of the report.

THE DEA POSITION ON MARIJUANA

The campaign to legitimize what is called ―medical‖ marijuana is based on two propositions: first, that science views marijuana as medicine; and second, that the DEA targets sick and dying people using the drug. Neither proposition is true. Specifically, smoked marijuana has not withstood the rigors of science–it is not medicine, and it is not safe. Moreover, the DEA targets criminals engaged in the cultivation and trafficking of marijuana, not the sick and dying. This is true even in the 14 states that have approved the use of ―medical‖ marijuana.

On October 19, 2009 Attorney General Eric Holder announced formal guidelines for federal prosecutors in states that have enacted laws authorizing the use of marijuana for medical purposes. The guidelines, as set forth in a memorandum from Deputy Attorney General David W. Ogden, makes clear that the focus of federal resources should not be on individuals whose actions are in compliance with existing state laws, and underscores that the Department will continue to prosecute people whose claims of compliance with state and local law conceal operations inconsistent with the terms, conditions, or purposes of the law. He also reiterated that the Department of Justice is committed to the enforcement of the Controlled Substances Act in all states and that this guidance does not ―legalize‖ marijuana or provide for legal defense to a violation of federal law.2 While some people have interpreted these guidelines to mean that the federal government has relaxed its policy on ―medical‖ marijuana, this in fact is not the case. Investigations and prosecutions of violations of state and federal law will continue. These are the guidelines DEA has and will continue to follow.

THE FALLACY OF MARIJUANA FOR MEDICINAL USE

SMOKED MARIJUANA IS NOT MEDICINE

There is no sound scientific evidence that smoked marijuana can be used safely and effectively as medicine. Congress enacted laws against marijuana in 1970 based in part on its conclusion that marijuana has no scientifically proven medical value. The Food and Drug Administration (FDA) is the federal agency responsible for approving drugs as safe and effective medicine based on valid scientific data. The FDA has not approved smoked marijuana for any condition or disease. The FDA noted that ―there is currently sound evidence that smoked marijuana is harmful, and ―that no sound scientific studies supported medical use of marijuana for treatment in the United States, and no animal or human data supported the safety or efficacy of marijuana for general medical use.

By |2015-04-06T18:49:10-07:00July 19th, 2010|Legal Issues|Comments Off on DEA Position on Marijuana
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