About Anonymous

This author has not yet filled in any details.
So far Anonymous has created 2 blog entries.

Why DHS’ Lottery to Pick 125 Dispensary Winners is a Mistake

I believe that the proposed AZDHS rule whereby the Department will allocate Medical Marijuana Dispensaries to applicants by lottery is a big mistake, for the following reasons:

  • The rules require an applicant to submit a number of items with their application. Included are a business plan, an inventory plan, a security plan and other items. The Department might receive an application from one applicant including a business plan that is thorough and persuasive concerning the likely success of the applicant’s proposed operation of a dispensary. Another applicant might submit a sheet that says “Business Plan” at the top, but which contains little that is helpful or persuasive concerning the applicant’s likelihood of success. Since the Department’s rules contain nothing to help evaluate or rate or differentiate between the 2 submissions, each will be entitled to be submitted with an equal chance to be chosen from the lottery. (assuming some form of the other required items have been included with each application.)
  • The fact that, per the proposed rule, the business plan and other required submissions will not be read, evaluated or scored renders the required submission of those documents meaningless.
  • The Department is charging a fee of $5,000 to file an application. Only $1,000 would be refunded to an applicant who submitted a complete application and whose application was therefore submitted to the lottery. People have speculated that 2,000 or more applications could be filed. If 2,000 applications were submitted at $5,000 each, the gross would be $10,000,000. If every one of the applications were complete (unlikely), 1,875 refunds of $1,000 each ($1,875,000) would need to be made. The net would be a minimum of $8,125,000. Since some of the applications would likely be incomplete and the applicant would not receive a refund, the net would probably be even more. With this large amount of funds, certainly the Department should have the resources to read, evaluate and score the applications received.
  • If AZDHS awards the right to obtain a license to an obviously unqualified applicant because AZDHS has been unwilling to read, evaluate and score the applications received, even though it has received millions of dollars in application fees from applicants, it will subject itself to legal action by qualified applicants who were denied the right to obtain a license or even the opportunity to have their applications and evidence of qualifications evaluated.
  • The lottery proposal encourages gaming of the system or even fraud. I have heard of groups who intend to submit 20 or more applications. A group of investors could file applications by each of the individuals in the group with an agreement that if any of them were successful, the unsuccessful individuals would be brought into partnership with the successful applicant. There could even be straw applicants submitting applications on behalf of undisclosed principals. All of this would be incentivized by the unwillingness of the Department to read, evaluate and score the applications received.
  • The people who drafted the ballot measure made a great effort to make the Arizona Medical Marijuana system subject to comprehensive and sensible regulations in order to avoid some of the “free for all” problems occurring in some of the other States that have previously allowed Medical Marijuana. Providing a system where applications and the attached submissions are read, evaluated and scored will result in the most qualified applicants being chosen for the limited number of licenses. Refusing to evaluate the applications will promote the opposite, leading to instability in the industry and problems for law enforcement the public and the Agency.
  • If unqualified applicants are chosen by lottery for the right to submit the additional items necessary to receive permission to operate, and are unable to perform because they lack the resources or are incompetent, the dispensary permit could sit idle for a year until the next opportunity for the Department to receive applications. This would deny the public access to a dispensary in that area and would allow patients with cards to grow their own medical marijuana if they were more than 25 miles from the closest other dispensary.
  • Awarding licenses to unqualified applicants will likely cause problems with patient services as well as unpaid bills and other problems related to failure of dispensary businesses due to lack of qualifications of the applicants.
  • If the Department is unwilling to evaluate the suitability and qualifications of the applicants, it should at least require a bond or a posting of a cash deposit, to guarantee performance by a successful applicant. This should be required as a condition of submitting the initial application.
  • The nature of the business as well as the regulations imposed by the Statute and the Agency rules guarantee that it will be expensive to open and operate a dispensary. If a prospective applicant does not have the financial resources to be able to successfully open and operate a dispensary, he or she should get the backing of someone who does. This is no different from any other business opportunity. While those without resources might complain that it is unfair to deny them the chance to receive a license, it is just as unfair to choose someone without the qualifications, competence and resources necessary to be successful, on the basis of a “game of chance” over someone who has the qualifications, competence and resources required to be successful. It is also unfair to the public who will be using the services of dispensaries to impose upon them, based on a “game of chance”, prospective dispensary operators who are not likely to be competent and/or successful in providing good service to the patients.
  • If the State of Arizona wanted to have a low regulation industry and let the market choose the winners and losers, it could do that. Arizona has not made that choice, though. Arizona has chosen a highly regulated system involving very limited access to licenses. The regulations imposed by the State increase the resources and competence required to operate successfully. With this type of system, the State Agency has the responsibility to do what is necessary to increase the odds that the very limited number of business opportunities will be given to those who are likely to be able to perform.
By |2011-02-04T16:15:32-07:00February 4th, 2011|DHS Rules|Comments Off on Why DHS’ Lottery to Pick 125 Dispensary Winners is a Mistake

CHAA on This!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

___________________________

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

By |2011-02-11T19:20:52-07:00February 3rd, 2011|CHAAs, DHS Rules, Legal Issues, Real Estate Issues, Stories & Articles|Comments Off on CHAA on This!