The Arizona Department of Health Services published its final medical marijuana rules (92 pages).

Here are my first impressions of the provisions that apply to would-be dispensaries:

• DHS took my recommendation and added the owners of entities to its definition of board members who must satisfy the eligibility requirements to obtain a dispensary license.  R9-17-301.B adds the owners of limited liability companies, partnerships and members of a cooperative to the list of board members.  The section starts, “in addition to the individual or individuals identified in the dispensary’s by-laws as board members of the dispensary the following individuals are considered board members: If a corporation is applying for a dispensary registration certificate, the officers of the corporation”  Wow!  This subsection is astonishing because it shows how totally unaware of the business world DHS is.  First, the Bylaws do not normally name the members of the board of directors.  Second, the shareholders of the corporation are not considered principal officers or directors – only the officers of the corporation are deemed to be board members!!!!!!!!!!!!!!!!!!!!!  DHS open the door a mile wide.  People with excluded felonies and non-Arizona residents  apparently can be shareholders of a for profit corporation that seeks a dispensary license.

• R9-17-302.A states, “If more than one dispensary registration certificate application. . . is received for a single CHAA, the Department shall review the dispensary registration certificate applications for the CHAA to determine if:

1.  Each applicant, principal officer, or board member associated with a dispensary registration certificate application has submitted Arizona state income tax returns for the previous three years with the dispensary registration certificate application;

2. Each applicant, principal officer, or board member associated with a dispensary registration certificate application:

a. Is current on paying court-ordered child support;

b. Is not delinquent paying taxes, interest, or penalties due to a governmental agency;

c. Does not have an unpaid judgment due to a governmental agency; and

d. Is not in default on a government-issued student loan;

3. Each individual who has 20% or more interest in the dispensary is the applicant or a principal officer or board member of the dispensary;

4. Each applicant, principal officer, or board member has never filed for personal or corporate bankruptcy; and

5. Documentation, from an in-state financial institution or an out-of-state financial institution, demonstrating that the dispensary has at least $150,000 available to begin operating was submitted with the dispensary registration certificate application.

Holy money bags Batman!  I didn’t see that one coming.  I guess the big money players won.  Mom & pops lose.  This new and outrageous rule apparently means that applicants for a dispensary license must have at least $150,000 in a bank account to get in the lottery.

What’s with the bankruptcy exclusion?  Many good people have been forced to file for bankruptcy.  There is no relationship to bankruptcy and being involved with a medical marijuana dispensary.  It’s just a DHS excuse to limit the possible pool of owners for what reason I cannot imagine.

R9-17-302.A.3 seems to require that every person who owns 20% or more of an entity (including a for profit corporation) that applies for a dispensary license must be a principal officer or a board member.

• There are major changes in the way dispensary registration certificates will be awarded.  The lottery may or may not be used, depending on the actual to be determined facts associated with each CHAA.  DHS may award a dispensary registration certificate based on if there are no qualified applicants or multiple applicants at each of the five levels set forth in R9-17-302.A.  Think of R9-17-302.A as containing five review levels.  If only one qualified applicant exists at the A(1) level, that applicant gets a dispensary registration certificate.  If there are multiple qualified applicants at a R9-17-302.A level, they move to the next round/level.  For example, if there are multiple qualified applicants that meet the requirements of A(1), A(2) and A(3), they move to the A(4) level and if only one qualified applicant meets the A(4) level, that applicant gets the dispensary registration certificate.  If there are multiple qualified applicants that satisfy A(1), A(2), A(3), A(4) and A(5) then “the Department shall randomly select one of the dispensary registration applications” to get the dispensary registration certificate.  So, the lottery lives!

• Looks like there will be a dispensary in all 124 of the 126 CHAAs.  If there are no qualified applicants for a dispensary registration certificate in a CHAA, DHS will select an applicant from another CHAA and award the dispensary registration certificate to that “lucky” or ‘unlucky” applicant.  R9-17-302.B.3 states, “If the Department determines that none of the reviewed dispensary registration certificate applications meets the criteria in subsection (A)(1), the Department shall randomly select one dispensary certificate registration application and allocate a dispensary registration certificate to that applicant.”

• Multiple dispensary applications are allowed with one catch.  R9-17-302.C states,  “If an applicant submits more than one dispensary registration certificate application, the documentation in subsection (A)(5) needs to demonstrate there is at least $150,000 available for each dispensary registration certificate application submitted.”

• R9-17-303.C states, “A city or town that contains more than one CHAA may request the reassignment of a dispensary registration certificate allocation from one CHAA to another CHAA under the jurisdiction of the city or town by submitting a written request to the Department by June 1, 2011”

• DHS pushed back the start date for accepting applications for a dispensary registration certificate to June 1, 2011.  R9-17-303.D states, “The Department shall accept dispensary registration certificate applications for 30 calendar days beginning June 1, 2011.”

• R9-17-304.A states, “An individual shall not be an applicant, principal officer, or board member on:

1. More than one dispensary registration certificate application for a location in a single CHAA, or

2. More than five dispensary registration certificate applications for locations in different CHAAs”

DHS sanctions multiple applications for dispensaries so long as the applications are in different CHAAs, no more than five applications are submitted and the applicant can get a letter from a bank that it has at least $150,000 for each dispensary application.  Big money wins again!  Shame on DHS for misleading people who don’t have $150,000 cash in the bank into believing for months that they could possibly obtain an Arizona medical marijuana dispensary license.

• R9-17-304.D.5 states,”As required in A.R.S. § 36-2804(B)(1)(d), a sworn statement signed and dated by the individual or individuals in R9-17-301 certifying that the dispensary is in compliance with any local zoning restrictions.”

Note:  DHS appears to have taken my suggestion and that of Alan Sobol to clarify that dispensary applicants do not have to get final city or county zoning approval to be able to file an application for a dispensary registration certificate.  Rule R9-17-304.D.5 combined with R9-17-305.A give dispensary applicants a two stage zoning process.  R9-17-305.A requires final zoning approval only after the would-be dispensary obtains a dispensary registration certificate.  Unfortunately DHS took my suggestion and will allow the winner of a dispensary registration certificate to change its dispensary site to a different location within its CHAA if  final zoning is denied or some other reason exists to move to a different location arises.  Getting final zoning approval is a good thing to do before getting a dispensary registration certificate, but not a requirement to filing an application as some people said.

• DHS actually set minimum requirements for a business plan.  R9-17-304.D.7 states that the application for a dispensary registration certificate must contain “A business plan demonstrating the on-going viability of the dispensary on a not-for-profit basis that includes:

a. A description of and total dollar amount of expenditures already incurred to establish the dispensary or to secure a dispensary registration certificate by the individual or business organization applying for the dispensary registration certificate,

b. A description and total dollar amount of monies or tangible assets received for operating the dispensary from entities other than the individual applying for the dispensary registration certificate or a principal officer or board member associated with the dispensary including the entity’s name and the interest in the dispensary or the benefit the entity obtained,

c. Projected expenditures expected before the dispensary is operational,

d. Projected expenditures after the dispensary is operational, and

e. Projected revenue;”

• DHS apparently clarified that applicants for a dispensary registration certificate do not need to jump through all the city and county zoning hoops just t be eligible to apply for a dispensary license.  R9-17-305.A states, “To apply for approval to operate a dispensary, a person holding a dispensary registration certificate shall submit to the Department, at least 60 calendar days before the expiration of the dispensary registration certificate, the following:

2. A copy of documentation issued by the local jurisdiction to the dispensary authorizing occupancy of the building as a dispensary and, if applicable, as the dispensary’s cultivation site, such as a certificate of occupancy, a special use permit, or a conditional use permit;

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”

• Finally, we get some guidance on what it means for a dispensary to operate on a not-for-profit basis.  R9-17-310.A states, “A dispensary shall:

13. Not lend any part of the dispensary’s income or property without receiving adequate security and a reasonable rate of interest;

14. Not purchase property for more than adequate consideration in money or cash equivalent;

15. Not pay compensation for salaries or other compensation for personal services that is in excess of a reasonable allowance;

16. Not sell any part of the dispensary’s property or equipment for less than adequate consideration in money or cash equivalent; and

17. Not engage in any other transaction that results in a substantial diversion of the dispensary’s income or property.”

• R9-17-316.B states, “A dispensary shall only acquire marijuana from:

1. The dispensary’s cultivation site,

2. Another dispensary or another dispensary’s cultivation site,

3 A qualifying patient authorized by the Department to cultivate marijuana, or

4 A designated caregiver authorized by the Department to cultivate marijuana.”