USA Today: “new pot shops that voters approve may not be able to survive a drug war-era tax code
This story out of Montana should be a wake up call for anybody who leases or is considering leasing land that would be used to grow, store or sell marijuana, medical or non-medical. I knew that the federal government has sued landlords who leased to medical marijuana dispensaries for the purpose of causing the landlords to forfeit the land, but this is the first case I have heard about where the landlord was convicted of a crime.
Billings Gazette: “A Flathead Valley landlord has been sentenced to a year in prison for his tenants’ medical marijuana operation.”
Noozhawk: “In their stepped-up battle against local marijuana dispensaries and growing operations that supply them, federal authorities are employing a powerful weapon: asset-forfeiture laws. The U.S. Attorney’s Office this week filed legal complaints for forfeiture against the property owners of two South Coast medical marijuana storefront dispensaries and one indoor farm. They allege that the owners should have known what the buildings were used for — growing and/or selling marijuana, which the government considers illegal under both federal and California law, even if the marijuana is considered medicinal.”
The letter from the U.S. attorney to property owners said:
“Accordingly, it is not a defense to either the referenced crime or to the forfeiture of property that the dispensary is providing ‘medical marijuana.’ Even under these circumstances, an owner of real property with knowledge or reason to know of illegal marijuana distribution occurring on real property that he owns or controls may have his interest in the property forfeited to the government without compensation.”
Arizona property owners who are considering leasing to a medical marijuana dispensary take note. The federal government has not only clearly stated its intention to confiscate real property used to grow, store or sell medical marijuana, it is now actively pursing forfeiture against property owners.
Noozhawk: “Multi-agency operation targets illegal storefront dispensaries and grow sites, with three asset-forfeiture lawsuits filed in U.S. District Court. Federal authorities and Santa Barbara police served search warrants at a medical marijuana dispensary and a grow house this week, and sent warning letters to all pot storefronts in the county that are still in business, threatening federal enforcement action if they don’t close down, according to the Santa Barbara Police Department. . . . As part of the enforcement effort, three asset-forfeiture lawsuits were filed this week in U.S. District Court in Los Angeles alleging that the owners ‘either knowingly allowed commercial marijuana stores to operate or knowingly allowed a significant indoor marijuana farm to function,’ according to the statement from the U.S. Attorney’s Office. According to the U.S. Attorney’s Office, the asset-forfeiture lawsuits were filed against the Miramar Collective in Summerland, Pacific Coast Collective and the indoor marijuana farm connected to Kessler.”
Note to Property Owners Considering Leasing to Arizona Medical Marijuana Dispensaries
The story above is a clear warning to landlords and property owners who allow or who are considering allowing medical marijuana dispensaries to operate on their real property. The federal government may seize the real estate and sue in federal court to take the land and its value from the owner.
The legal significance of the federal government now going after property owners extends beyond the loss of the property to the owners. This new government action should also have the very much intended consequence of shutting down medical marijuana dispensaries in every state that has legalized them.
The following is the text of a May 3, 2012, press release by the U.S. Attorney for the Central District of California:
In the latest series of actions against the commercial marijuana industry in California, federal authorities this week filed three asset forfeiture lawsuits against properties housing marijuana operations in Santa Barbara County, executed search warrants at four locations, and have sent warning letters to people associated with 10 other illegal marijuana stores in the county.
Three civil asset forfeiture complaints were filed yesterday afternoon in United States District Court in Los Angeles against properties in Santa Barbara and Summerland where marijuana is being grown or marijuana stores are currently operating. Prosecutors yesterday also sent letters to marijuana store operators and the owners of buildings where 10 marijuana stores currently operate in Goleta, Summerland and Santa Barbara.
The three forfeiture lawsuits filed this week allege that the owners either knowingly allowed commercial marijuana stores to operate or knowingly allowed a significant indoor marijuana farm to function. The buildings named in the forfeiture lawsuits house:
Miramar Collective on Ortega Hill Road in Summerland, which local authorities estimate was generating annual profits of approximately $840,000 in 2009, and whose owner is currently being prosecuted by the Santa Barbara County District Attorney’s Office on state narcotics charges;
Pacific Coast Collective on North Milpas in Santa Barbara, whose operator is currently being prosecuted in state court and, even though called “not for profit,” the business is incorporated and does not have non-profit status for tax purposes (a federal search warrant was executed yesterday at this location and at the residence of its suspected operator); and
an indoor marijuana farm on East Haley in Santa Barbara, where substandard and unpermitted electrical equipment has been used (federal and local authorities executed a federal search warrant today at this property and at the residence of its operator).
In conjunction with the filing of the asset forfeiture complaints, letters were mailed out yesterday to the property owners and operators of 10 additional marijuana stores that are either currently operating or were recently closed – six in Santa Barbara, three in Goleta and one in Summerland.
All known marijuana stores in Santa Barbara County are now the subject of federal enforcement actions.
This week’s enforcement actions in Santa Barbara County follow similar actions in recent months across the seven-county Central District of California. Starting in October 2011, prosecutors began filing asset forfeiture lawsuits and sending letters to marijuana operations in selected areas in Orange County, Riverside County, San Bernardino County and eastern Los Angeles County (see, for example: http://www.justice.gov/usao/cac/Pressroom/2012/014.html). Seven asset forfeiture complaints – four of which are still pending in United States District Court in Los Angeles – were filed as part of those actions that targeted more than 150 marijuana stores and grows. The majority of those stores are now closed, are the subject of eviction proceedings by landlords, or have been the subject of additional federal enforcement actions.
In October 2011, the four United States Attorneys in California announced coordinated enforcement actions targeting illegal marijuana cultivation and trafficking (see: http://www.justice.gov/usao/cac/Pressroom/2011/144a.html).
The United States Attorney’s Office is working in conjunction with the Drug Enforcement Administration and IRS – Criminal Investigation. The Santa Barbara Police Department assisted federal authorities this week during the execution of federal search warrants.
Release No. 12-056
Emphasis added.
Nonprofit entities that want to obtain a dispensary registration certificate (aka license) to sell medical marijuana in Arizona have a lot of tasks to accomplish before they can open for business. At this time, however, the single most important task for all would-be dispensaries is to locate a properly zoned place within the desired CHAA to operate the dispensary and tie it up with a lease or an option to lease.
Arizona’s medical marijuana law and the Arizona Department of Health Services rules provide that the application for a dispensary registration certificate must show the location where the dispensary will operate. In addition, Arizona Department of Health Services Rule R9-17-304 states:
To apply for a dispensary registration certificate, an entity shall submit to the Department the following
6.Documentation from the local jurisdiction where the dispensary’s proposed physical address is located that:
a. There are no local zoning restrictions for the dispensary’s location, or
b. The dispensary’s location is in compliance with any local zoning restrictions;
7. Documentation of:
a. Ownership of the physical address of the proposed dispensary, or
b. Permission from the owner of the physical address of the proposed dispensary for the entity applying for a dispensary registration certificate to operate a dispensary at the physical address;
Translation: The dispensary applicant must obtain and submit with the application for a dispensary registration certificate a written statement from the applicable zoning authority that the proposed dispensary premises is “groovy” and a written statement from the landlord that the applicant can operate a dispensary at the location designated in the application (or proof the applicant owns the land).
Actions Prospective Dispensaries Must Take Yesterday
Here are the actions every would be dispensary must take as soon as possible:
1. Hire a zoning attorney who can tell you which locations in your desired CHAA are properly zoned and meet the requirements of the ADHS rules. This step is very important because it is a total waste of time to search for a location and get it leased and find out the location is not properly zoned or too close to a school. The zoning attorney will also apply for the Rule R9-17-304.D.6 zoning comfort letter from the applicable zoning authority.
2. Visit only properly zoned sites that are not too close to a prohibited structure and identify where you want to operate the dispensary.
3. Sign a lease or an option to lease for your desired location (or enter into a contract to purchase it). Make sure the lease has language in it that requires the landlord to give you a written Rule R9-17-304.D.7 comfort letter not later than April 1, 2012.
Cities are severely limiting the areas where a dispensary can be located. When you add the complexity of understanding the applicable zoning ordinance with the further limiting CHAAs, the result is a very difficult problem simply to determine where dispensaries can be located within a CHAA. In many CHAAs, the number of usable sites is limited, which is causing a modern day equivalent to the Oklahoma land rush of the 1800s.
If you cannot find a location and legally tie it up with a lease or a lease option, it’s game over. If your dispensary has not yet found and tied up a site, you should immediately contact an experienced zoning lawyer to explain the zoning rules for your desired area and show you how the CHAAs interact with the zoning. You want the zoning attorney to give you a map that shows exactly where within a city and a CHAA the zoning is right for a dispensary. Use that map to find a site. Enter into a lease or an option to lease with the landlord. Have your zoning lawyer assist in completing the necessary city paperwork to get your site approved by the city.
Nothing else matters as much now as finding a site that is properly zoned and getting it under lease or an option to lease.
I recommend Maricopa County zoning attorney Michael Curley. Call him at 602-903-3077. You need a zoning lawyer to explain where you can lease your site and what locations are available in your desired CHAA.
See “Must My Dispensary Obtain a Conditional Use Permit from the City before it can File an Application for an Arizona Medical Marijuana Dispensary License?,” “How Does My Dispensary Tie Up Land for its Retail & Cultivation Sites?” and “CHAA on This!“
Arizona Republic: “”Medical-marijuana-dispensary applicants are having trouble securing lease agreements for suitable dispensary sites, Phoenix-area commercial-real-estate brokers and observers say. The challenge is twofold, they say: State-imposed restrictions limit the locations and types of real estate in which a dispensary can operate, and many commercial-property owners don’t want marijuana-dispensary tenants.”
Mike Wakefield of Wakefield Architects, gave us permission to republish his detailed analysis of the steps a prospective Arizona medical marijuana dispensary must follow to get permission from a city to open a dispensary. If your dispensary needs an architect and it probably does, contact Mike at 602-595-7276. His office is located at 3848 North Third Avenue, Suite 3092, Phoenix, AZ 85013.
3 STEPS FOR A DISPENSARY BUILDING TO OPERATE LEGALLY:
I. Local City / Town Application (Zoning)
II. State of Arizona Department of Health Services Application
III. Local City / Town Certificate of Occupancy (Building Permit)
I. Local City / Town Application
Specific to City / Town Ordinances (available via website – i.e. www.phoenix.gov)
II. State of Arizona Department of Health Services Application
DRAFT 01/31/2011
TITLE 9. HEALTH SERVICES
CHAPTER 17. DEPARTMENT OF HEALTH SERVICES – MEDICAL MARIJUANA PROGRAM
R9-17-304. Applying for Approval to Operate a Dispensary
To apply for approval to operate a dispensary, a person holding a dispensary registration certificate shall submit to the Department at least 60 days before the expiration of the dispensary registration certificate the following:
2. 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;
3. A sworn statement signed and dated by the individual or individuals in R9-17-301 certifying that the dispensary is in compliance with local zoning restrictions;
4. The distance to the closest public or private school from:
a. The dispensary; and
b. If applicable, the dispensary’s cultivation site;
5. A site plan drawn to scale of the dispensary location showing streets, property lines, buildings, parking areas, outdoor areas if applicable, fences, security features, fire hydrants if applicable, and access to water mains;
6. A floor plan drawn to scale of the building where the dispensary is located showing the:
a. Layout and dimensions of each room,
b. Name and function of each room,
c. Location of each hand washing sink,
d. Location of each toilet room,
e. Means of egress,
f. Location of each video camera,
g. Location of each panic button, and
h. Location of natural and artificial lighting sources;
7. If applicable, a site plan drawn to scale of the dispensary’s cultivation site showing streets, property lines, buildings, parking areas, outdoor areas if applicable, fences, security features, fire hydrants if applicable, and access to water mains; and
8. If applicable, a floor plan drawn to scale of each building at the dispensary’s cultivation site showing the:
a. Layout and dimensions of each room,
b. Name and function of each room,
c. Location of each hand washing sink,
d. Location of each toilet room,
e. Means of egress,
f. Location of each video camera,
g. Location of each panic button, and
h. Location of natural and artificial lighting sources.
III. Local City / Town Certificate of Occupancy (Building Permit)
1. Site Issues – Prior to obtaining a building permit, customers should perform “due diligence” to ensure the site complies with all zoning ordinance requirements. Key ordinance requirements include:
a. Distance of the structures to the property line or “building setback”
b. Percentage of the site covered by structures or “lot coverage”
c. Height of structures
d. All uses on-site (i.e. restaurant space, office area, etc.)
e. All parking and driveway aisles
f. Landscaping
2. Building Issues
a. Two complete sets of plans, drawn to scale, and if required per the Arizona Board of Technical Registration or local building department, signed and sealed by a licensed architect or engineer registered in Arizona. Plans include site plan, floor plan, plumbing and mechanical plan, electrical drawings, and structural drawings. Additional drawings, specifications, and calculations may be required depending on the scope of the project.
b. Description of the proposed project (new build, remodel, etc.) and the business operation.
c. Project address and legal description of the property (lot and block number, meets and bounds description). If an address has not been established, the city will assign one.
d. Owner’s name, mailing address, contact person and phone number.
e. Contractor name, address, phone number, contractor license number, state privilege tax number and city privilege tax number.
3. Inspections – In order for a building to obtain a Certificate of Occupancy, the structure must pass a series of inspections. In most cases, the inspections include, but are not limited to
a. Architectural inspections (where inspector checks if tenant space was built in accordance with an Architect’s stamped and approved drawings),
b. Electrical inspections,
c. Plumbing inspections,
d. Sprinkler inspections,
e. Fire alarm inspections,
f. Fire pump pressure test, &
g. Emergency egress.
Certificate of Occupancy Flow Chart
1) Submit building and site plans
2) Plan review
3) Approved or revisions requested
4) Revisions completed
5) Plans re-submitted
6) Second review
7) Permit fees paid
8) Permit is issued
9) Work commences
10) Inspections completed
11) Certificate of Occupancy (C of O) issued
My DHS Wish
I continue to talk to many people who are having a very hard time finding a location to operate their Arizona medical marijuana dispensary. The Arizona Department of Health Services has inadvertently created a nightmarish situation for would-be dispensary owners who do not own the real property on which to operate a dispensary. The DHS rules coupled with very restrictive city zoning ordinances and many landlords who simply do not want to lease to a medical marijuana dispensary result in many more prospective dispensary tenants than available properly zoned dispensary sites. A lot of people have told me that they believe that one or more big money outfits are going around Arizona tying up potential sites with the goal of reducing the number of prospective dispensaries that apply for a dispensary license.
A large number of nonprofit entities are all fighting to tie up a small number of properly zoned and available sites throughout Arizona. This means that there will not be very many dispensary applications filed by the application deadline. It is a supply and demand problem. The demand among would-be dispensaries is high and the supply of properly zoned sites with willing landlords is low. Econ 101 teaches that when demand exceeds supply, the cost of the item (rent) goes up. Higher rents mean higher prices passed on to patients. One of DHS’ goals should be to keep the patients cost of medical marijuana down, not be the cause of patients paying higher prices to purchase their medicine.
The current rules and restrictive city zoning ordinances create a bizzaro world where nonprofits that do not have a license to operate an Arizona medical marijuana dispensary are entering into leases and applying for zoning with cities and they will never get a dispensary license. For many would be dispensaries it is a total waste of time and money, not to mention a waste of the cash-strapped cities’ time and money.
DHS should clarify in the final version of the rules that would be dispensaries need only to affirm on their applications for a dispensary license that their dispensary and grow locations comply with applicable zoning ordinances without the need to actually apply for or receive a city use permit. The rules should also allow the winners of a license to change the location of their dispensaries and grow facilities after obtaining a dispensary registration certificate, but before obtaining the final dispensary license. This would allow a dispensary to change locations after obtaining a dispensary registration certificate if the city denies the zoning use permit or any other problem arises with the site location stated in the initial dispensary application.
DHS: Please amend the rules to solve this terrible problem that will reduce the number of actual dispensaries, increase the number of patients who grow their own and cause higher rents to be passed on to patients.
See “Phoenix Medical Marijuana Locations Reflect Restrictive Zoning.”
Answer: A Personal Guaranty is a promise by the guarantor to pay the debt of a third party or to satisfy an obligation of a third party. If an entity such as a corporation or a limited liability company signs a lease for real property, the general rule of Arizona law is that the owners of the entity are not liable for the debts or obligations of the entity, including the rent. Landlords understand the law so a prudent landlord will require the owners of the entity to sign a Personal Guaranty by which the signer becomes legally obligated to pay to the landlord any amounts due under the lease that are not paid by the tenant and to satisfy any obligations of the tenant under the lease that are not satisfied. The landlord usually wants all of the owners of the tenant entity to sign a Personal Guaranty.
Personal Guarantees of leases are not required by Arizona law. Whether or not the owners give a personal guaranty is negotiable with the landlord. In economic times that favor landlords, they almost always require the owners of the tenant entity to sign a Personal Guaranty unless the entity has a satisfactory financial statement. During economic times that favor tenants, i.e., now, the owners of the entity may refuse to sign a Personal Guaranty and a desperate landlord may nevertheless enter into the lease without any Personal Guarantees because the landlord needs the rental income.
Personal Guaranty Negotiating Advice
Here are some negotiating tips for owners of an entity that may reduce their liability for the entity’s defaults under the lease when the landlord insists that the owners sign a Personal Guaranty:
Important Fact About Personal Guarantees & Arizona Community Property
Arizona law provides that a Personal Guaranty signed only by one spouse is not effect against the assets of the non-signer spouse. If the landlord requires that both spouses sign the Personal Guaranty, try telling the landlord that the spouse who is not active in the business refuses to sign a guaranty.
Question: I know that in 2007 the U.S. Tax Court ruled in the CHAMPS case that Section 280E of the Internal Revenue Code prohibits deducting from gross income any business expenses that are paid or incurred in connection with trafficking in marijuana. Is there a way that my nonprofit entity that operates an Arizona medical marijuana dispensary can deduct any of its expenses from its gross income on the dispensary’s federal income tax return?
Answer: Yes. In the CHAMPS case, the IRS conceded that the taxpayer could deduct its cost of goods sold, which included $575,317 paid for marijuana. The fight in the CHAMPS case was over what business expenses the taxpayer could deduct. The IRS argued that the taxpayer had only one business – trafficking in marijuana – and therefore none of its business expenses other than its cost of goods sold were deductible. The taxpayer successfully argued that it operated two businesses – its medical marijuana sales business and its care-giver business. The Tax Court agreed with the taxpayer and allowed the taxpayer to allocate its expenses to its two separate businesses and deduct expenses attributable to the care-giver business.
If your Arizona medical marijuana dispensary wants to be able to deduct anything from its gross income above and beyond its cost of goods sold, the dispensary must engage in one or more trades or businesses that do not involve medical marijuana. Every would-be dispensary should carefully study the CHAMPS case and learn how CHAMPS operated its care-giver business, which was very extensive and real. The case illustrates that the sale of medical marijuana was in fact a small portion of everything that the dispensary offered to its patients. Note also that the salaries paid to management and staff were very nominal – $14,914 paid to officers and directors and $44,799 salaries paid to 25 employees of a dispensary that collected just over $1,000,000 in gross revenue.
Example 1: Dispensary 1 operates a 2,000 square foot retail dispensary in Phoenix where its sole activity is displaying its products and selling products to patients over the counter. This dispensary’s entire business involves trafficking in marijuana so it cannot deduct any of its expenses from its federal income tax return.
Example 2: Dispensary 2 operates a 2,000 square foot retail dispensary in Phoenix, but next door to the dispensary it has an additional 2,000 square feet of space where it provides other services and products to the public such as:
Dispensary 2 can now:
Consider this simple allocation of dispensary 2’s expenses:
For more on this important topic, see “IRS is in the Early Stages of a War to Kill Medical Marijuana Dispensaries.”
Although I have a masters degree in income tax law from New York University Law School, I am no longer a practicing tax lawyer. I recommend that every dispensary hire a good experienced tax CPA or tax lawyer to advise the dispensary on the federal and state income tax issues arising from the operation of a medical marijuana dispensary.
Circular 230 Notice: Pursuant to recently-enacted U.S. Treasury Department regulations, I am required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including websites linked to, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
Answer: Easy. Lease your property to more than one prospective dispensary owner. Consider the following two scenarios:
Scenario 1: You lease to prospective dispensary owner number 1. The prospective tenant includes a clause in the lease that allows the tenant to terminate the lease if the tenant does not obtain a dispensary license. The tenant does not obtain a license. Long term rental income = $0.
Scenario 2: You lease the same site to 20 prospective dispensary owners. Each prospective tenant includes a clause in the lease that allows the tenant to terminate the lease if the tenant does not obtain a dispensary license. One of the 20 prospective tenants obtains a license to operate an Arizona medical marijuana dispensary. Nineteen prospective tenants leases are canceled. Long term rental income = big $$. Of course, each lease should have appropriate language in the lease that notifies each prospective tenant that its lease only becomes effective if the tenant actually obtains the dispensary registration certificate.
Update: A visitor to this website sent me the following message:
“I thought of this a couple of weeks ago and checked with the AZ Department of Health Services. The first person I spoke with was an employee of the department. She told me that multiple license applications with the same address would all be rejected. I then spoke with Laura Oxley the head of the department. She said it was a good idea, but I should speak with Tom Salow the department attorney for medical marijuana. Tom said that what I was proposing was currently acceptable under the guidelines, but he expected the guidelines to change making it unacceptable in the next revision.”
If Tom Salow’s statement about is true, why would the Arizona Department of Health Services reject multiple applications for the same location? It would not make any sense. The only purpose behind such a rule would be to make it more difficult for prospective dispensaries to find a suitably zoned location and to cause a lot of landlords to waste time entering into leases with tenants that will never get a dispensary registration certificate. If DHS changes the rules to reject applications for the same location, it would be another instance of the Arizona Department of Health Services bureaucrats/desk jockeys being the problem, not part of the solution.
Medical Marijuana Growers Association: “Director Will Humble stated that he looks to use the CHAA map as a guideline for dispensary placement, but in doing so he is limiting caregivers and patients from cultivating medical marijuana for themselves, which, in turn, will limit the amount of medication that can be donated to a dispensary.”
Arizona Department of Health Services rules divide Arizona into 126 areas called Community Health Analysis Areas (CHAA). The rules limit the number of Arizona medical marijuana dispensaries in a CHAA to ONE! The goal of ADHS Director Will Humble is to disperse the 125 dispensaries throughout Arizona to minimize the number of patients who will be able to grow their own marijuana because the patient does not live within 25 miles of a dispensary.
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.
Arizona Republic: “A loophole in the state’s new medical-marijuana law could open thousands of neighborhood parks, playgrounds, greenbelts and artificial lakes to resident joint smokers, legal experts [the reporter quotes non-lawyer Alan Sobol] say. The law approved by Arizona voters in November prohibits marijuana smoking “in any public place,” but properties controlled by homeowners associations are considered private property.”
My opinion is this story is much ado about nothing written by a reporter who does not understand the difference between a “public place” and “private property.” Yes, homeowners associations’ common areas are on private property, but that does not mean that the common areas are not public places. Certainly the common areas are used by a restricted segment of the population, but nevertheless, the common areas are public places as to the members of the association and their invitees. An Arizona court could rule in the future that common areas of an HOA are not public places for the purposes of Arizona’s medical marijuana law, but I doubt a court would come to that conclusion.
See “Medical Marijuana in Community Associations – A Smoking Hot Issue.”
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.
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.
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.
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.
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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.
Arizona Republic: “The new proposal suggests distributing one dispensary to each Community Health Analysis Area, which divides the state based on geography and population. There are 126 of these areas in the state, close to the number of dispensaries allowed.”
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.