Eastern Arizona Courier: “Arizona is doing everything possible to avert problems with the controversial new law. The Arizona Department of Health Services completed public hearings for its draft rules for selling and dispensing medical marijuana. The city of Safford has given a first reading of its policy regulating where medical marijuana dispensaries and cultivation centers may operate.”
On February 25, 2011, the Arizona Department of Health Services published comments from the public on the January 31, 2011, second draft of the proposed rules that implement Arizona’s new medical marijuana laws. Here are the links to the comments.
The Department also received the comments below at the four public meetings held during February 14 to 17, 2011: Written Comment Forms
In addition, the Department received the following written comments: Group A and Group B
What follows are some comments I found interesting from the written comments submitted to the DHS.
“Probably the most unconstitutional provision of the 2nd draft of rules is contained in R9-17-303, where it requires each principal officer or board member of a dispensary to have been an Arizona resident for the three years immediately preceding the date the dispensary submits an application. Such residency requirements have repeatedly been held unconstitutional by the Supreme Court of the United States and other federal courts.”
“R9-17-303(B) Inset!: (9) A letter from a licensed financial institution indicating that the entity applying for the license has an open account with not less than $750,000.00 in cash (this is an estimated average cost associated with implementing the rigorous requirements of build-out, including all health and safety/security considerations, in compliance with DHS requirements and to operate over the fits! year of business) in an account. The letter must be updated one time and provided to the Department at the time the Department requests it prior to final approval of any Application. If the letter is not timely updated pursuant to this section then the application will be deemed incomplete.”
She also wants local sheriff’s department to approve the dispensary’s security plan after paying a fee. In addition, she said, the rules should “require that the appropriate jurisdiction complete a form certifying that the applicant’s location meets all of the local jurisdiction’s zoning restrictions necessary to operate as a medical marijuana dispensary including if applicable a use permit and any other special requirements under that jurisdictions land use regulations.”
Here email message to DHS’ Tom Salow ends with this curious statement:
“The information contained in this message is privileged and confidential It is intended only to be read by the individual or entity named above or their designee If the reader of this message is not the intended recipient, you are on notice that any distribution of this message, in any form is strictly prohibited If you have received this message in error, please immediately notify the sender by telephone at 480 505 3939 or by fax 480 505 3925 and delete or destroy any copy of this message Thank you”
I wonder if anybody will notify Ms. Rose about getting her message on the DHS website?
Arizona Republic: “The Glendale City Council on Tuesday unanimously passed regulations for medical marijuana facilities that operate in the city. . . . Glendale’s restrictions, which will take effect in 30 days, will put dispensaries in general office and certain commercial zones and cultivation and manufacturing facilities in light and heavy industrial zones.”
The title of this post if the title of an article published on Will Humble’s blog. His post starts:
“As we get closer to implementing the AZ Medical Marijuana Act in mid-April, I thought it might be a good idea to post some information that may be helpful to physicians and prospective qualifying patients. Over the last weeks, I’ve been sent a number of articles and sources of information about the medical use of marijuana. Probably the most comprehensive and well researched (and readable) reports I’ve seen was published in 2000 from the Institutes of Medicine called Marijuana as Medicine-The Science Beyond the Controversy.”
Today the State Bar of Arizona’s Committee on the Rules of Professional Conduct issued Ethics Rule 11-01 in which it said the following:
A lawyer may ethically counsel or assist a client in legal matters expressly permissible under the Arizona Medical Marijuana Act (“Act”), despite the fact that such conduct potentially may violate applicable federal law. Lawyers may do so only if: (1) at the time the advice or assistance is provided, no court decisions have held that the provisions of the Act relating to the client’s proposed course of conduct are preempted, void or otherwise invalid; (2) the lawyer reasonably concludes that the client’s activities or proposed activities comply fully with state law requirements; and (3) the lawyer advises the client regarding possible federal law implications of the proposed conduct if the lawyer is qualified to do so, or recommends that the client seek other legal counsel regarding those issues and appropriately limits the scope of the representation.
NOTE: This opinion is limited to the specific facts discussed herein. Because the opinion is based on the Act as currently in effect, subsequent legislative or court action regarding the Act could affect the conclusions expressed herein.
FACTS
In the 2010 general election, Arizona voters approved Proposition 203, titled “Arizona Medical Marijuana Act” (“Act”), which legalized medical marijuana for use by people with certain “chronic or debilitating” diseases. The proposition amended Title 36 of the Arizona Revised Statutes by adding §§ 36-2801 through -2819 and also amended A.R.S. § 43-1201. Arizona became the 16th jurisdiction (15 states and the District of Columbia) to adopt a medical-marijuana law.
Despite the adoption of Arizona’s Act, 21 U.S.C. § 841(a)(1) of the federal Controlled Substances Act (“CSA”) continues to make the manufacture, distribution or possession with intent to distribute marijuana illegal.
In an October 19, 2009, memorandum (“DOJ Memorandum”), the U.S. Department of Justice advised that it would be a better use of federal resources to not prosecute under federal law patients and their caregivers who are in “clear and unambiguous compliance” with state medical-marijuana laws. The DOJ Memorandum indicates that federal prosecutors still will look at cases involving patients and caregivers, however, if they involve factors such as unlawful possession or use of a firearm, sales to minors, evidence of money-laundering activity, ties to other criminal enterprises, violence, or amounts of marijuana inconsistent with purported compliance with state or local law.
Although characterizing patients and their caregivers as low priorities, the DOJ Memorandum does not characterize commercial enterprises the same way. In fact, the DOJ Memorandum says that the “prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority” of the DOJ. [1]
The DOJ Memorandum explains that the DOJ’s position is based on “resource allocation and federal priorities” and
does not “legalize” marijuana or provide a legal defense to a violation of federal law, nor is it intended to create any privileges, benefits, or rights, substantive or procedural, enforceable by any individual, party or witness in any administrative, civil, or criminal matter. Nor does clear and unambiguous compliance with state law or the absence of one or all of the above factors create a legal defense to a violation of the Controlled Substances Act. Rather, this memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion. (more…)
This fact sheet prepared by the City of Tucson gives a good summary of Tucson’s medical marijuana dispensary and cultivation site zoning requirements.
As I said on February 8, 2011, a “Prospective Dispensary’s Single Most Important Task Before April 30, 2012 is to find a site to operate the dispensary and enter into a lease with the landlord that ties up the site. The must read article linked to below describes the difficulty would-be-dispensary owners are having finding a site in Tucson. No site, no application, no dispensary!
Arizona Daily Star: “Now that Arizona voters have decided to allow the use of medical-marijuana, just where will those who qualify be able to buy it? With strict regulations set by Tucson and other local municipalities layered on top of state rules, that question has become a nagging one for potential dispensary operators. . . . An initial challenge – before talking to a potential landlord – is finding a bit of real estate. . . . So far, the city has received three official requests from operators looking to open up pot dispensaries, he said. All three were sent back to the applicants because they had problems that would have kept them from getting approved,”
Modern Times Magazine: “Now That Absolute Prohibition of Marijuana Has Ended, The Battle For Legal Profits Has Begun. . . . Nearly four months after the passage of the initiative that legalized medical marijuana dispensaries, three issues have dominated the debate: licensing requirements and eligibility, out-of-state participants, and the requirement that a licensed medical professional must be involved in the operation.”
Arizona Republic: “the [Peoria] council voted unanimously to allow dispensaries in areas zoned for commercial use. That is similar to zoning for pharmacies, medical offices and bars. Cultivation sites would be restricted to industrial areas.”
Eastern Arizona Courier: “To stay abreast of regulating where medical marijuana dispensaries and cultivation centers may locally operate, the city of Safford gave a first reading of its policy at its meeting Feb. 14. City Manager David Kincaid urged the council to begin action to implement the city’s regulations to avoid giving the opportunity for people to open such businesses for lack of city regulation.”
The East Valley Tribune is conducting an online poll on if people are for or against medical marijuana and the total legalization of marijuana. As of February 23, 2011, 53% voted for total legalization, 24% for medical marijuana and 23% opposed to the use of marijuana for any purpose. Take the poll.
ABC 15: “The ABC15 Investigators have discovered some patients currently seeking medical marijuana evaluations are getting the wrong information about our state’s new law. . . . ‘Rather than spend time trying to get a (qualified patient) card, which is really a waste of time right now, (patients) ought to spend time looking at the rules,’ [Arizona Department of Health Services Director Will] Humble said.”
For the week ending at midnight February 20, 2011, this website had 4,744 visitors, a new weekly record.
TriValleyCentral.com: “Nearly six weeks into a four-month window to come up with regulations for the local placement and operation of medical marijuana dispensaries, Pinal County officials presented the Board of Supervisors Wednesday with further details on how and where dispensaries may show up in Pinal.”
Phoenix New Times: “The first time I made brownies, I was living with my mom and nana. My mother had moved in to take care of nana, who had breast cancer, then bone cancer. . . . She didn’t know about the process of making “canna butter,” or oil, or about any other medicinal use for marijuana, so she did what she thought would work best, smashing some cheap marijuana to a powder with a mortar and pestle and putting it in capsules.”
Arizona Republic: “Three doctors have submitted plans for Scottsdale’s first medical-marijuana dispensary, which could be one of nine in the Northeast Valley. The Virtue Center, at 7301 E. Evans Road in the Scottsdale Airpark, is seeking a use permit from the city. . . . The principals have agreed to donate all profits to qualified charities, according to their use-permit application.”
In the Use Permit Application submitted to Scottsdale by the Applicant, the Rose Law Group, pc, repeatedly and incorrectly refers to the nonprofit entity as OF&C Corporation, when its actual legal name is O.F. & C., Inc. Oops! Question for zoning lawyers: If the law firm is the applicant, doesn’t that mean it is the party applying for the permit and the party that will receive the permit if it is issued rather than O.F. & C., Inc.?
The Use Permit Application contains this interesting statement:
“All directors have . . . agreed to donate all profits in excess of usual and customary business expenses to qualified charities in Arizona, including the proposed State fund to assist those in need of medicinal marijuana products who are unable to pay.”
What follows below is the abbreviated text of my letter to Will Humble dated February 18, 2011. You may also read or download a copy of the actual letter.
February 18, 2011
Will Humble, Director
Arizona Department of Health Services
150 N. 18th Avenue
Phoenix, AZ 85007
Re: Comments to the Arizona Department of Health Services’ Proposed Rules to be Promulgated Under Arizona Revised Statutes Section 36-2801, et. Seq., Arizona’s Medical Marijuana Laws
Dear Mr. Humble:
I am the creator of a website called “Arizona Medical Marijuana Law” found on the internet at www.arizonamedicalmarijuanalaw.com. The purpose of this website is to inform the public about the new law created by the voters’ approval of Proposition 203. Although this new website is just shy of seven weeks old, it will have close to 20,000 visitors this month because it contains a treasure trove of information about this new law.
I am an Arizona attorney who has been practicing business law in Arizona since 1980. Since I started counting in 2002, I have formed over 3,000 Arizona limited liability companies, for profit corporations and nonprofit corporations. As of the date of this letter, I have been hired by more than 30 groups that intend to apply for a dispensary registration certificate. What follows are my suggested changes and comments to the proposed Rules.
1. The Lottery. Eliminate the lottery and replace it with a selection system based on the quality of the application and the applicant. Our country has been a country where people succeeded on merit, not on government give-aways. DHS should pick the applicants that are best qualified and most likely to operate a successful business. The people of Arizona deserve the best dispensary owners, not a group of winners who are lucky to have their names drawn out of a hat. The application fee of $5,000 is sufficient to pay for a review and analysis of each application. State in detail the criteria on which applications will be graded. Create a point system and say that dispensary registration certificates will be awarded to the top 124 scores. Provide in the Rules that if any of the 124 applicants selected for a license fails to actually obtain its dispensary license within one year, the dispensary registration certificate will be revoked and a new dispensary registration certificate be offered to the applicant whose total score was 125th and go down the list if other entities fail to open their dispensaries within the designated time period.
I submit to you that selecting dispensary owners by a lottery is the surest way for DHS to get sued and to cost the State of Arizona a large amount of defense money it does not have. The current Rules are totally lacking in any guidance or requirements for conducting a lottery. Here are just a few of the almost unlimited problems with a lottery: (more…)
Draft rules issued by Arizona Department of Health Services contain regulatory requirements over the financial accounting operations of all dispensaries. The draft rules require financial accounting submissions to DHS to be in accordance with Generally Accepted Accounting Principles (GAAP), specifically defined in R17-101 – Definitions. DHS rule R9-17-315 requires an inventory control system and monthly internal audit(s) of the dispensary’s inventory in accordance with GAAP. The draft rules also require an annual financial statement audit in accordance with GAAP and generally accepted auditing standards (GAAS) conducted by an independent Certified Public Accountant. The audit requirements are contained in R9-17-307(3) and (4).
Our goal is to provide general guidance to entities that are anticipating submission of an application and receipt of an Arizona medical marijuana dispensary license. Due to the anticipated changes in rules as a result of the public meetings and comment occurring during February, 2011, the likelihood of additional or amended final rules should be anticipated.
What is a Financial Statement Audit?
The objective of a financial statement audit is to determine whether the financial statements are free of material misstatement. An audit includes examining, on a test basis:
Responsibilities and Functions of the Independent Auditor
The objective of an audit of financial statements by an independent auditor is the expression of an opinion on the fairness with which the following are presented in conformity with generally accepted accounting principles, in all material respects:
The auditor’s report is the medium through which they express their opinion or, if circumstances require, disclaim an opinion. In either case, the auditor states whether his audit has been made in accordance with generally accepted auditing standards. These standards require the auditor to state whether, in their opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements of the current period in relation to those of the preceding period.
Distinction Between Responsibilities of Auditor and Management
The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance those misstatements, whether caused by error(s) or fraud, that are not material to the financial statements are detected.
The financial statements are management’s responsibility. Management is responsible for:
The entity’s transactions and the related assets, liabilities, and equity are within the direct knowledge and control of management. The auditor’s knowledge of these matters and internal control is limited to that which is acquired through the audit.
The fair presentation of financial statements in conformity with generally accepted accounting principles is an implicit and integral part of management’s responsibility. The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management during the performance of the audit. However, the auditor’s responsibility for the financial statements he or she has audited is confined to the expression of his or her opinion on them.
About the Author
Lance Meilech is a Certified Public Accountant practicing with the firm of AddingMachine.com in Phoenix. He has earned a Masters in Taxation. As a licensed professional, he provides a full range of accounting and tax services, including accounting and tax services for Arizona medical marijuana dispensaries. He has more than twenty years experience in all aspects of taxation, accounting and audit, including income tax planning for closely-held businesses and high and middle net worth individuals. Lance has extensive experience with both federal and state tax audits and collection matters including offers in compromise. Lance’s clients include executives, attorneys, physicians, real estate professionals, small business and high net worth individuals.
However, neither this article nor the author purport hereby to offer legal, tax or accounting advice in any form. This article is not a comprehensive assessment of issues that might be experienced in a particular business operation. Each reader’s situation is dependent on his/her facts and circumstances. As a result, each reader should consult his or her own advisor for information concerning his or her specific situation or may contact the author at [email protected]. Call Lance at 602-943-2060 to schedule a free initial consultation or if you have questions about this article.
Answer: Yes unless the third draft of the Arizona Department of Health Services rules provides otherwise.
Arizona Republic: “Today is the last day for the public to respond to the state health department’s proposed medical-marijuana rules. About 150 people gave input at the Arizona Department of Health Services’ public forums this week, and the agency had received more than 1,000 comments as of Thursday afternoon. People can submit online comments until 5 p.m. today. The department will release the final version in about five weeks.”
Background
Voters in State of Arizona passed proposition 203, enacting legislation defined as Arizona’s Medical Marijuana Act. The Medical Marijuana Act authorizes the establishment of nonprofit medical marijuana dispensaries (“dispensaries”). These dispensaries are to be licensed, tightly regulated, and inspected and are intended to provide medical marijuana to qualified patients, with their doctor’s approval, or their designated caregivers.
Arizona’s Medical Marijuana Act is governed under Title 36, Public Health and Safety, Chapter 28.1 – Arizona Medical Marijuana Act. Arizona’s Department of Health Services (“DHS”) has enacted “draft” rules governing the program which are contained in Title 9, Health Services, Chapter 17, Department of Health Services – Medical Marijuana Program.
Draft rules issued by DHS contain regulatory requirements over the financial accounting operations of all dispensaries. The draft rules require financial accounting submissions to DHS to be in accordance with Generally Accepted Accounting Principles (GAAP), specifically defined in R17-101 – Definitions. DHS rule R9-17-315 requires an inventory control system and monthly internal audit(s) of the dispensary’s inventory in accordance with GAAP. The draft rules also require annual financial statement audit conducted by an independent Certified Public Accountant. The requirements are contained in R9-17-307(3) and (4).
Our goal is to provide general guidance to entities that are anticipating submission of an application and receipt of an Arizona medical marijuana dispensary license. Due to the anticipated changes in the draft rules as a result of the public meetings and comment occurring during February, 2011, the likelihood of additional or amended final rules should be anticipated.
Small Business Accounting System
Many new small business owners and entrepreneurs consider accounting and bookkeeping, a necessary evil; forced upon them by various federal, state and local governments. In this case, an Arizona Medical Marijuana dispensary’s perpetual existence will be closely related to how well the accounting system provides Arizona’s Department of Health Services the financial accounting information they require.
Accounting is an essential component of business, and evil or not, it is a critical business function that cannot be avoided. Remember, noncompliance with statute and regulation will eventually collapse an entity, with an entity’s officers possibly being subjected to civil fine(s), penalties and forfeitures. The accounting system is how a business tracks assets, liabilities, equity, revenues and expenses as a mechanism to evaluate if the company is financially successful. A well designed accounting system is:
Organized set of computerized and manual accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for management decisions.
It is an information system that should be embraced by small business owners and entrepreneurs as a means of providing a “snapshot of the business”, through the production and analysis of periodic and timely prepared financial statements. It’s also one of the most important management decision making tools used in any business.
Accounting System – Practical Considerations (more…)
Phoenix New Times posted comments by people reacting to Ray Stern’s two part stories about the Arizona Department of Health Services public hearing on its January 31, 2011, second draft of the rules held at the ASU law school on February 15, 2011. Read Ray’s stories “Medical Marijuana Policy Hearing in Tempe Draws Large Crowd,” “Speakers at Medical Marijuana Hearing Criticize Strong Regulations” and “Live-Blogging Continues at Prop 203 Hearing in Temp.”
Phoenix New Times: “A state lawmaker wants to scratch out the anti-discrimination clause in Arizona’s medical marijuana law and give immunity to employers who fire qualified patients. The callous bill [HB 2541] by State Representative Kimberly Yee, R-Phoenix, also seeks to ban people from using medical weed “in a condominium or planned community common area that is open to use by the public.”
Here’s a portion of HB 2541:
“No cause of action is or may be established for any person against an employer who has established a policy and initiated a testing program in accordance with this article for any of the following:
ACTIONS BASED ON THE EMPLOYER’S GOOD FAITH BELIEF THAT AN EMPLOYEE USED OR POSSESSED ANY DRUG WHILE ON THE EMPLOYER’S PREMISES OR DURING THE HOURS OF EMPLOYMENT
ACTIONS BASED ON THE EMPLOYER’S GOOD FAITH BELIEF THAT AN EMPLOYEE HAD AN IMPAIRMENT WHILE WORKING WHILE ON THE EMPLOYER’S PREMISES OR DURING HOURS OF EMPLOYMENT”
HB 2541 is sponsored only by Representative Kimberly Yee , Republican; [email protected]; phone: 602-926-3024; fax: 602-417-3110.
Answer: Maybe. 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;
The rule does not specifically state that a Certificate of Occupancy must accompany the application for a dispensary registration certificate, but the local zoning authority may require the dispensary to get a CO as a condition to getting the documentation required by Rule R9-17-304.
Bottom line: Every would-be dispensary owner needs to consult with a good zoning attorney about this issue and for advice and assistance if making sure that the dispensary’s desired location complies with local zoning requirements. See “Prospective Dispensary’s Single Most Important Task Before April 30, 2012.”
Phoenix New Times: “Most Arizona residents prefer larger cultivation facilities for medical pot and residency requirements for dispensary owners, says a poll commissioned by the folks who brought you Prop 203. Joe Yuhas of the Arizona Medical Marijuana Association spoke of the poll results today at the medical marijuana rules hearing in Tempe, and gave us a handout afterward. Yuhas is a partner of the Riester PR firm, and he and Andrew Myers have been the most visible supporters of the state’s new medical marijuana law.”
From the City of Peoria: “Medical Marijuana Pre-Application Meeting appointments are now being accepted for February 22, 2011 and after. Application and materials must be submitted in person in order to be assigned a Pre-Application Meeting time. Please call 623-773-7601 for further details. Click here for application. Medical Marijuana text amendment proposed final draft, click here to view.”
Verde Independent: “The Sedona City Council became the first Verde Valley community to approve a local Medical Marijuana Ordinance, Feb. 8. While the state initiative was approved by Arizona voters during the last election, local governments are allowed to regulate where the drug may be sold in their communities.”
Read the Sedona medical marijuana zoning ordinance.
Payson Roundup: “With towns and cities across the state amending zoning codes to restrict marijuana dispensaries to certain areas of town, Star Valley will take its first look at the issue tonight. Although the town council is not expected to make any final decisions, it is expected to discuss possible locations for a dispensary and cultivation facilities.”
Ray Stern of the Phoenix New Times has an excellent two part article in which he reports on what he heard at the Arizona Department of Health Services public hearing held on February 15, 2011, at ASU’s Sandra Day O’Connor School of Law, which has little public parking. Ray has names and actual comments made by speakers. Ray was live blogging from the event, which is what I wanted to do, but could not because the law school’s Great Hall was not so great – there were no outlets to plug my laptop into.
See “Medical Marijuana Policy Hearing in Tempe Draws Large Crowd,” “Speakers at Medical Marijuana Hearing Criticize Strong Regulations” and “Live-Blogging Continues at Prop 203 Hearing in Temp.”