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Phoenix to Consider 1st Requests for Medical-marijuana Dispensaries

Arizona Republic:  “The rush is on to open medical-marijuana dispensaries.  On Thursday, a Phoenix hearing officer will consider nine requests for use permits to open medical-marijuana operations.  Eight of the applications are for dispensaries and one is for cultivation.”

Wow!  After all this time only eight dispensary zoning applications for Arizona’s largest city.  DHS:  Take note.  Your rules and the CHAAs coupled with city zoning is making it impossible for would-be dispensaries to find a site to operate an Arizona medical marijuana dispensary.

By |2012-08-18T10:00:34-07:00March 9th, 2011|Stories & Articles, Zoning|Comments Off on Phoenix to Consider 1st Requests for Medical-marijuana Dispensaries
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Feds Warnings to Oakland & Its Plan to Allow Large Scale Growing of Pot May Affect All Prospective Arizona Medical Marijuana Dispensary Owners

The New York Times had a story on March 2, 2011, entitled “Oakland’s Plan to Cash in on Marijuana Farms Hits Federal Roadblock,” which everybody who is contemplating becoming an owner in an Arizona medical marijuana dispensary should read.  The story said:

“an exchange of letters between the city attorney and federal law enforcement officials has made it exceedingly clear that Washington will not tolerate plans for the large-scale marijuana farms the City Council approved last July. . . . just weeks before the city was set to issue the permits, the Council voted to stall the plan after the city’s attorney, John Russo, and a county district attorney warned the Council that the marijuana cultivation ordinance thwarted state law and that city officials could be held criminally liable.

On Jan. 14, Mr. Russo wrote a letter to the United States Department of Justice seeking guidance on the city’s legal standing. In a response, Melinda Haag, United States attorney for the Northern District of California, warned that ‘individuals who elect to operate ‘industrial cannabis cultivation and manufacturing facilities’ will be doing so in violation of federal law.’ The letter went on to say that the Justice Department was ‘carefully considering civil and criminal legal remedies regarding those who seek to set up industrial marijuana growing warehouses‘.”

If you are considering becoming an owner of a medical marijuana dispensary in Arizona, you must read and consider U.S. Attorney for the Northern District of California Melinda Haag’s letter of February 1, 2011, to John A. Russo, the then Oakland, California, City Attorney.  Here are some pertinent quotes that every dispensary and grower of any quantity, but especially large quantities of marijuana should read and consider carefully:

“I have consulted with the Attorney General and the Deputy Attorney General about the Oakland Ordinance.”

“growing, distributing, and possessing marijuana in any capacity, other than as part of a federally authorized research program, is a violation of federal law regardless of state laws permitting such activities.”

“The prosecution of individuals and organizations involved in the trade of any illegal drugs and the disruption of drug trafficking organizations is a core priority of the Department. This core priority includes prosecution of business enterprises that unlawfully market and sell marijuana.”

“we will enforce the CSA vigorously against individuals and organizations that participate in unlawful manufacturing and distribution activity involving marijuana, even if such activities are permitted under state law.”

“the Department is carefully considering civil and criminal legal remedies regarding those who seek to set up industrial marijuana growing warehouses in Oakland pursuant to licenses issued by the City of Oakland. Individuals who elect to operate “industrial cannabis cultivation and manufacturing facilities” will be doing so in violation of federal law. Others who knowingly facilitate the actions of the licensees, including property owners, landlords, and financiers should also know that their conduct violates federal law. Potential actions the Department is considering include injunctive actions to prevent cultivation and distribution of marijuana and other associated violations of the CSA; civil fines; criminal prosecution; and the forfeiture of any property used to facilitate a violation of the CSA.”

Clearly the Department of Justice intends to take legal action against those it believes are involved in the “industrial growing of marijuana.”  The problem for all Arizona dispensaries that intend to grow marijuana is what  is the difference between nonindustrial growing of marijuana and industrial growing of marijuana?  This problem and the risk of criminal prosecution is especially great for Arizona medical marijuana dispensaries that intend to grow excess amounts of marijuana to sell to other dispensaries.

If Arizona medical marijuana dispensary owners think they can take cover under the Department of Justice memo of October 19, 2009, think again.  This memo said only that the U.S. has a better use of its resources than to prosecute individuals (such as patients and caregivers) who are using medical marijuana in compliance with state law.  The memo does not say that the Department of Justice will not prosecute  medical marijuana dispensaries and their owners who are complying with state law.  It says just the opposite.

“prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the Department. To be sure, claims of compliance with state or local law may mask operations inconsistent with the terms, conditions, or purposes of those laws, and federal law enforcement should not be deterred by such assertions when otherwise pursuing the Department’s core enforcement priorities.”

For a related story, see “Medical Marijuana Cultivation Plan Antagonizes Feds in Oakland — and Arizona’s Plan is Similar.”

By |2012-08-18T09:14:08-07:00March 5th, 2011|Federal Dispensary Attacks, Legal Issues, Marijuana Crimes, Stories & Articles|Comments Off on Feds Warnings to Oakland & Its Plan to Allow Large Scale Growing of Pot May Affect All Prospective Arizona Medical Marijuana Dispensary Owners
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Pot Dispensaries Turn Against L.A.’s Marijuana Tax Proposal

Los Angeles Times:  “Measure M on Tuesday’s ballot would add a 5% marijuana tax to sales at pot dispensaries. Owners of the collectives once supported the idea but are now angry about the upcoming lottery to decide which ones can remain open. . .. Measure M would require the city’s dispensaries to pay a 5% business tax on gross receipts, which is 10 times more than the city’s highest tax.”

By |2019-06-14T08:24:53-07:00March 5th, 2011|California News, Stories & Articles|Comments Off on Pot Dispensaries Turn Against L.A.’s Marijuana Tax Proposal
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Arizona Gila River Tribe’s Marijuana-law Request Dismissed

Arizona Republic:  “Gila River Indian Community officials have asked Pinal County supervisors not to locate pot dispensaries within a mile of their borders because they don’t recognize medical marijuana and will prosecute anyone who tries to sell or use it on tribal land.”

By |2011-03-04T08:25:05-07:00March 4th, 2011|Stories & Articles|Comments Off on Arizona Gila River Tribe’s Marijuana-law Request Dismissed
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What is a Nondisturbance Agreement & Why Do Dispensary Tenants Need It?

One of the important provisions included in my Addendum to Lease between a landlord and a tenant that intends to operate an Arizona medical marijuana dispensary is a condition that requires the landlord to deliver to the tenant a Nondisturbance Agreement from every person or entity that holds a deed of trust or a mortgage on the premises.  If your not-for-profit dispensary entity intends to lease premises for the dispensary or the growing facility, a Nondisturbance Agreement from every lienholder is a must have document.  This document protects the tenant from being evicted if the landlord loses the real property in a foreclosure.

Under Arizona real estate law, when the landlord defaults on a lien that encumbers real estate, the lienholder can foreclose and the land is sold to the highest bidder.  The legal consequences of a foreclosure is that the foreclosure terminates / extinguishes the interests in the land of every party whose interest is of a lower priority than the foreclosed lien.  Translation:  If a lienholder whose lien was recorded before the tenant entered into a lease forecloses, the foreclosure terminates the lease.

Solution:  If the premises your nonprofit entity leased or intends to lease are encumbered by one or more Deeds of Trust or Mortgages, the entity must get a Nondisturbance Agreement from every lienholder.  This is an agreement signed by the lienholder in which the lienholder promises that if the lienholder forecloses on its lien, it will honor the tenants lease as long as the tenant does not default on the lease.

Example 1.  Landlord borrows $X from Lender on January 1, 2011.  The loan is secured by a Deed of Trust that encumbers the land of which the leased premises is a part.  The Deed of Trust is recorded on January 3, 2011.  Landlord leases premises to dispensary on March 4, 2011.  Landlord defaults on the payments due to Lender on January 1, 2013.  Lender forecloses by selling the property at an auction held by the trustee under the Deed of Trust on May 1, 2013.   The foreclosure terminates the lease as of May 1, 2013.  If the tenant cannot make a deal with the new owner to stay in the premises, the tenant will be out on the street and the dispensary will die.  If the tenant can work out a new lease with the new owner, the new rent will probably be a lot higher because the new owner has the tenant over a barrel.

Example 2.  Same facts as above except the lease required the landlord to get a Nondisturbance Agreement from the Lender and the Lender signed and delivered the Nondisturbance Agreement to the tenant.   The tenant recorded the Nondisturbance Agreement on March 4, 2011.   The foreclosure does not terminate the lease and the new owner becomes the new landlord and cannot evict the tenant as long as the tenant satisfies all of the tenant’s obligations under the lease.

Warning #1:  During these difficult economic times, many landlords are defaulting on their loans.  Do not take a chance that you might lose your entire investment in your Arizona medical marijuana dispensary because your landlord defaults on a loan.  Your dispensary must get a Nondisturbance Agreement from every lender that holds a lien that was perfected before the date of the lease because the failure to do so could cause the loss of your entire investment in the dispensary if the landlord defaults and the property is sold at a foreclosure sale.

Warning #2:  You can ask the landlord to disclose the existence of liens and the name and address of the lienholder(s), but the only safe way to determine if a lien, Deed of Trust or Mortgage encumbers your leased premises is to pay a title insurance company to give you a status report that lists all liens and encumbrances on the leased premises.  If the landlord tells you there are no liens and you don’t verify that fact independently, you’ll wish you had purchased a status report from a title insurance company when the property sells at a foreclosure auction and your dispensary is evicted from the premises.

Solution:  Every would be dispensary that leases premises that are encumbered by a lien must protect itself from potential eviction due to the landlord’s default on a lien by obtaining a Nondisturbance Agreement signed by the lienholder.

If you have already signed a lease, it’s not too late to ask the landlord to ask the lender to give you a Nondisturbance Agreement, but the landlord and the lender are less likely to to it if it is not a condition to the effectiveness of the lease.

By |2012-08-18T09:16:24-07:00March 4th, 2011|Dispensary Leases, Legal Issues|Comments Off on What is a Nondisturbance Agreement & Why Do Dispensary Tenants Need It?
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Coming in March & April – KEYTLaw Dispensary Client Workshops

Arizona’s newest industry reminds me of what the Oklahoma land rush of the 1800s must have been like.  Thousands of people racing in all directions at the same time trying to beat out the competition for a valuable asset.  There is a lot to learn and know to own and operate an Arizona medical marijuana dispensary.  Useful information about this new industry is hard to come by.

As a service to the 40+ not for profit companies I have formed that intend to apply for a license to operate an Arizona medical marijuana dispensary, I am holding four workshops over the next two months for my dispensary clients that want to share their knowledge and learn from other would-be dispensaries.  The goal is for everybody to learn more about all of the issues that every dispensary must solve to apply for a license and open a dispensary.  I encourage all of my dispensary clients to attend and participate.  Dispensaries that are not in the same CHAA clearly are not competing against each other for a license.  Dispensaries that are in the same CHAA should realize that only one of them will win the lottery so sharing of information does not increase the chances that a nonprofit entity will will the lottery.

I encourage all of my dispensary clients to attend these free workshops and share knowledge.  One of the goals will be for everybody to work together to create a business plan and the four policies and procedures that must be submitted with the application for a dispensary.  One option is for the group to hire somebody to create the five documents and share the cost.  Let’s divide the task of creating these five documents among the 40+ dispensaries and prevent each dispensary from spending time and money creating all of these required documents.

KEYTLaw dispensary clients:  Mark the following dates on your calendar.  We will start at 9 am and end at 11 am.  People who are interested will then go some where nearby for lunch.  The workshops will be held at 8765 W. Kelton Ln, Bldg A-1, Ste 102, Peoria, AZ 85382.

March 12, 2011
March 26, 2011
April 9, 2011
April 23, 2011

By |2014-01-05T09:59:59-07:00March 2nd, 2011|Stories & Articles|Comments Off on Coming in March & April – KEYTLaw Dispensary Client Workshops
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Avondale Pot Policies Passed

West Valley News:  “Avondale is prepared for pot.  The City Council on Tuesday approved a resolution and ordinance establishing regulations and zoning for medical marijuana dispensaries and related uses. . . . Research conducted by the city of Avondale shows five general locations within the city where medical marijuana facilities could locate. Those vicinities are:”  The story also lists ten negative secondary effects of medical marijuana dispensaries, but none of the statements is supported by any studies or evidence that the alleged effects are common.

By |2015-04-06T18:50:20-07:00March 2nd, 2011|Zoning|Comments Off on Avondale Pot Policies Passed
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Alan Sobol’s Excellent March 1, 2011, Letter to Will Humble

What follows below is the text of a March 1, 2011, letter from Alan Sobol and the Arizona Association of Dispensary Professional, Inc., to Arizona Department of Health Services Director Will Humble.  Alan asks that DHS immediately clarify two huge problems that almost all prospective dispensaries face:

  • The requirement of Proposition 203 and the Arizona Department of Health Services rules that the application for a dispensary license show the actual address of the dispensary.
  • Confusion in the rules as to whether all owners of the dispensary must meet the Arizona residency requirement.

I agree with Alan on all three issues.  It’s a landlord and zoning zoo out there for prospective dispensaries, but it doesn’t have to be.  Rather than have 5,000 would be dispensaries scramble to tie up 5,000 sites, file 5,000 zoning applications, pay 5,000 city and county zoning fees and have cities and counties waste their scarce and valuable resources processing 5,000 zoning applications, the DHS rules should provide that prospective dispensaries be required to list on its application the actual location of the dispensary after they obtain a dispensary registration certificate, but before they apply for their final inspection necessary to obtain the license.

Under the current rules 5,000 prospective dispensaries are all competing for the limited number of sites that meet local zoning requirements.  The result is landlords can charge higher rent because the demand is much bigger than the supply of properly zoned sites.  Yesterday somebody told me that there are only two properly zoned sites in Surprise and one is leased and the other is in foreclosure.  It makes no sense for any prospective dispensary to waste its time and resources and the time and resources of a city or county zoning department unless the dispensary has obtained a dispensary registration certificate.  Require dispensary applicants to disclose the location of their sites and affirm the zoning only after they win the lottery and get a dispensary registration certificate.

Alan’s third issue is valid.  In my February 18, 2011, letter to Will Humble I suggested that the rules be amended to clarify that all eligibility requirements for any principal officer and director be expanded to include apply to all owners.

Here’s Alan Sobol’s March 1, 2011, letter.  DHS please listen and help.

March 1, 2011

Arizona Department of Health Services
Office of the Director:
150 North 18th Avenue
Phoenix, Arizona 85007

RE: Open letter To Director Humble.  The Market Place is in Chaos, Please help!!

Dear Mr. Humble

I am writing to you at the request of the members of the Arizona Association of Dispensary Professionals, (AADP). With over 6100 members we are the largest trade association of its kind in the State of Arizona. Collectively, we represent the largest percentage of Dispensary applicants in Arizona. Upon information and belief we have at least one member/applicant in almost every AZDHS CHAA.

We are writing to you regarding our great concern for the current chaotic market conditions across the State of Arizona. We adamantly believe these conditions are a direct result of the confusion unintentionally caused your agency. (more…)

By |2011-03-02T07:42:57-07:00March 2nd, 2011|Legal Issues, Stories & Articles|Comments Off on Alan Sobol’s Excellent March 1, 2011, Letter to Will Humble
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If the Feds Get Their Way, Big Pharma Could Sell Pot — But Your Dime Bag Would Still Send You to Jail

AltnerNet:  “We should be very wary about the DEA allowing regulation and marketing of pharmaceutical products containing plant-derived THC.   ‘Marijuana has no scientifically proven medical value.’ So stated the United States Drug Enforcement Administration (DEA) on page six of a July 2010 agency white paper, titled “DEA Position on Marijuana.  Yet only four months after the agency committed its ‘no medical pot’ stance to print, it announced its intent to allow for the regulation and marketing of pharmaceutical products containing plant-derived THC — the primary psychoactive ingredient in cannabis.

By |2019-06-14T08:24:52-07:00March 1st, 2011|Stories & Articles|Comments Off on If the Feds Get Their Way, Big Pharma Could Sell Pot — But Your Dime Bag Would Still Send You to Jail
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Where’s the Weed At?

Arizona State Press:  “Although medical marijuana will be regulated for the most part at a state level, cities face challenges with zoning laws and proximity to dispensaries. Most have held open city council meetings allowing the public to voice their opinion on this controversial change.  The City of Tempe passed all of its regulation restrictions nearly a month ago, Senior Planner at the city of Tempe Ryan Levesque says.”

By |2019-06-14T08:24:52-07:00March 1st, 2011|Stories & Articles|Comments Off on Where’s the Weed At?
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