WZZM ABC TV 13: “Allegan county prosecutors will now decide whether to bring criminal charges against the owners of a medical marijuana dispensary in Holland. Police raided The Mix, a storefront on S. Washington last Thursday, based on what they believe was evidence that marijuana was being illegally sold.”
I heard a news report on the radio yesterday that quoted Arizona state legislator Steve Farley as saying that HB 2557 will be modified to tax sales of medical marijuana a a mere 100%. Whoopee! See Ray Stern’s story called “Medical Marijuana Tax Proponent Aims Lower; State Rep. Steve Farley Now Wants 100 Percent Tax, Not 300 Percent.”
The following is the text of a February 7, 2011, report from the House Ways & Means committee about HB 2557. The Bill is now sponsored by only three legislators – Farley, Ash, Chabin:
Overview
HB 2557 creates a nonprofit medical marijuana dispensary transaction privilege tax classification and imposes a transaction privilege tax (TPT) and a use tax on dispensaries.
History
Approved by the voters at the November 2, 2010 general election, Proposition 203, known as the Arizona Medical Marijuana Act, allows qualifying patients with debilitating medical conditions to obtain certain amounts of marijuana from nonprofit medical marijuana dispensaries.
TPT is Arizona’s version of sales tax. Under this tax, the seller is responsible for remitting to the state the entire amount of tax due based on the gross proceeds or gross income of the business. While the tax is commonly passed on to the consumer at the point of sale, it is ultimately the seller’s responsibility to remit the tax. Currently, there are 16 different transaction privilege tax classifications that are mostly taxed at a rate of 6.6 percent (except the mining classification) of their respective tax bases.
Use tax is paid by persons who use, store or consume any tangible personal property upon which tax has not been collected by a retailer. Scenarios in which use tax is collected include out-of-state retailers or utility businesses making sales to Arizona purchasers, Arizona purchasers buying goods using a resale certificate where the goods are used, stored or consumed in Arizona contrary to the purpose stated on the certificate, or where a purchase is made in another state and the sales tax or excise tax imposed is less than the Arizona use tax rate.
fiscal impact
A fiscal note prepared in 2010 by the Joint Legislative Budget Committee for SB 1222 (medical marijuana; transaction privilege tax) estimated that annual reported medical marijuana sales in Arizona would be $25,500,000.
Provisions
- Establishes a transaction privilege tax classification for nonprofit medical marijuana dispensaries, comprised of the business of selling or dispensing medical marijuana to qualified patients.
- States that the tax base for the nonprofit medical marijuana dispensary classification is the gross proceeds or gross income derived from the business.
- Sets the tax rate for the tax base at 300 percent.
- Stipulates that anyone engaged in business as a nonprofit medical marijuana dispensary who sells other tangible personal property at retail must separately account for those sales.
- Specifies that if separate records of sales of other tangible personal property are not kept, the tax shall apply to the person’s entire gross proceeds or gross income from the business.
- Excludes the tax revenues collected under the nonprofit medical marijuana dispensary classification from being designated for the statutory distribution base of TPT revenues (A.R.S. § 42-5029).
- Exempts medical marijuana dispensed by a registered nonprofit medical marijuana dispensary from the TPT imposed under the retail transaction privilege classification.
- Levies an excise (use) tax on the storage, use or consumption of tangible personal property purchased from a nonprofit medical marijuana dispensary at a tax rate of 300 percent of the sales price.
- Specifies that for manufactured buildings used in the state but purchased outside Arizona, the tax rate is a percentage of 65 percent of the sales price.
- Makes technical and conforming changes.
Watch the video of the portion of the February 8, 2011, Ways & Means committee hearing dealing with HB 2557. Click on the last link on the bottom left.
Funkmaster Flex: “The first and only state-approved medical marijuana institution for higher education is coming to Arizona. Gus Escamilla, CEO and founder of Greenway University, has already established a campus in Denver and plans to open a second one in Phoenix.”
Will Humble’s blog: “A number of published studies have found that using marijuana (and other psychoactive substances) is associated with an earlier onset of psychotic illness (notice I said “is associated with” rather than “causes”). National mental health surveys have repeatedly found more substance use, especially cannabis use, among people with a diagnosis of a psychotic disorder.
The blog post contains this very strange statement:
“it makes sense to have some professional medical oversight at dispensaries to help protect the health status of the patients with debilitating medical conditions that will be using the dispensaries.”
Has Will Humble read his own rules? The medical director is a figurehead with no real involvement with the dispensary or its patients. The medical director who will rarely be present in a dispensary is not hired to provide professional medical oversight for dispensaries. How can a doctor who will not see, examine, communicate with or have anything to do with a dispensary’s patients possibly “protect the health status of the patients?”
Under the Arizona Department of Health Services rules, the duties of the medical director are almost exclusively to provide pamphlets, brochures and informational materials for use by the dispensary and/or distribution to patients. The medical director is more like the librarian of a medical library that recommends reading materials related to medical marijuana.
Arizona Republic: “What started out as a routine traffic stop Sunday night led patrol officers to seize 332 potted marijuana plants worth up to $1 million, making it the largest marijuana grow operation bust in Chandler history“
Ray Stern, Phoenix New Times: “A plan to oversee medical marijuana cultivation centers in Oakland drew fire from the feds last week — yet the plan is similar to that being developed in Arizona. The way we read it, the February 1 letter from Melinda Haag, U.S. Attorney for California’s Northern District, (see below), to the city of Oakland could signal possible problems for Arizona’s medical pot program,”
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.”
Thanks again to all who visit this site. Yesterday 1,055 visitors came to this site, which is a new daily record. The week ending Sunday, February 6, 2011, set a weekly record with 3,576 visitors.
KSAZ Fox 10: “Now that medical marijuana is legal in the state of Arizona, cities are trying to figure out the rules about where marijuana dispensaries can be located. One city [Surprise] has plans to restrict them to industrial areas, but some say that’s unfair to the patients who need it.”
City Councilman Wants Pot Dispensaries Out of Industrial Areas: MyFoxPHOENIX.com
Listen to the audio of Steve Goldstein’s February 4, 2011, interview of Will Humble and Andrew Myers on NPR, KJZZ (91.5 FM) radio. Here is my summary of the interview. Will Humble said:
1. Disperse dispensaries so areas with fewer people will have better access to a dispensary
2. Spread dispensaries throughout the state so as to minimize the ability of people to grow because they do not live within 25 miles of a dispensary
3. Prevent the clustering of dispensaries in the urban core
Here’s my take on what Will Humble’s want-a-be-aid Andrew Myers said in the joint interview:
At this point Will Humble added that the lottery selection method is his pragmatic choice. ADHS’ budget was cut 43% over the last three years. He doesn’t want ADHS to be in a dispute resolution phase with people who think their application is better than another applicant that won a license. ADHS doesn’t have the resources to examine every application and issue licenses based on quality of the applicant.
The interviewer asked the two men he was interviewing if there is any truth to allegations that Andrew Myers and the Arizona Medical Marijuana Association are in cahoots with Will Humble and ADHS. Will said he learned that if you don’t have anything nice to say then don’t say it. Andrew then said the allegation is ridiculous. For more on this topic see “Arizona Association of Dispensary Professionals Declares War on Arizona Department of Health Services, Marijuana Policy Project & the Arizona Medical Marijuana Association.”
To learn more about the Arizona Medical Marijuana Association, read “What is the Arizona Medical Marijuana Association?“
azmarijuana.com: “My staff has compiled as much Medical Marijuana zoning information that they could get their hands on.”
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.”
Rim Country Gazette: “The Arizona Department of Health Services published a new set of draft rules for the Medical Marijuana Program on its website”
East Valley Tribune: “The East Valley could become home to about 14 medical marijuana dispensaries by late summer under rules proposed by state regulators. . . . The health department’s proposal would limit Tempe to two dispensaries, one north of Southern Avenue and one south of there. Mesa would have five dispensaries. The agency also calls for dividing Chandler and Gilbert into two parts, with one dispensary per area. The communities of Apache Junction, Queen Creek and Ahwatukee Foothills would each be allowed one.”
East Valley Tribune: “Sun Citians’ interest in where Surprise decides to locate its four medical marijuana dispensaries is a clear one: safety. Thursday night, Surprise planning commissioners discussed ground rules for locating the dispensaries and public safety concerns for both those frequenting the establishments and others who live near the facilities.”
A representative of an organization that is sponsoring a public meeting ostensibly to educate people about Arizona’s new medical marijuana laws invited me to be a speaker at the event, but only if I paid a fee for the privilege. I declined. I am happy to speak for free to large groups about topics on which I am knowledgeable, but I don’t want to be associated with events whose priority is to make money rather than educate. Speakers should be chosen based on their knowledge, not on whether they pay the sponsor a fee. The reason speakers pay a fee to speak is because their primary purpose in speaking is to sell themselves and/or their products or services. I submit that the audience wants speakers whose primary purpose is to educate, not generate business. Before going to an educational event, ask the sponsor if the speakers are speaking for free or if they are speaking because they paid the sponsor a fee.
Answer: Yes. Big time! If you want to operate a pure charity then the language is appropriate. Here is some common language I have seen in Articles of Incorporation of Arizona nonprofit corporations:
“This corporation is organized exclusively for charitable purposes such as religious, educational, literary and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, as amended, or the corresponding section of any future federal tax code (the “Code”).
“The Corporation is not organized and shall not be operated for pecuniary gain or profits. No part of the net earnings of the Corporation shall inure to the benefit of or be distributable to its directors, officers, members, or any other private person; provided that the Corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth herein.”
You definitely do not want the above language in the Articles of Incorporation for a corporation that intends to own and operate an Arizona medical marijuana dispensary. The first problem with the above language is that it is used in Articles of Incorporation of nonprofit corporation. You should not be using a nonprofit corporation to own your dispensary because Arizona nonprofit corporations do not have owners/shareholders. See “Is It a Mistake to Form an Arizona Nonprofit Corporation to Operate an Arizona Medical Marijuana Dispensary?“
The second problem is the above language is appropriate in the Articles of Incorporation of an Arizona nonprofit corporation only if the corporation intended to become a tax-exempt organization under the Internal Revenue Code. If you intend for your nonprofit corporation that will own a medical marijuana dispensary to file an IRS Form 1023 or 1024 and apply for tax-exempt organization status with the IRS you should know that:
The third big problem arises from the language in the second paragraph quoted above. The language is used in the Articles of Incorporation of nonprofit corporations that want to become tax-exempt organizations because it is required by the IRS. Tax-exempt organizations are prohibited by the Internal Revenue Code from paying excess benefits to insiders such as officers, directors and members. Violations of the excess benefit rules are taxed at the rate of 100% of the excess amount for every year the excess is not repaid to the organization.
If the insiders of an Arizona nonprofit corporation that intends to own an Arizona medical marijuana dispensary want to be able to be paid more than reasonable compensation and most do, then the corporation’s basic governing document, its Articles of Incorporation, should not limit the insiders compensation to reasonable amounts. Consider the insider who provides no services, but receives $5,000 a month from the corporation. The payment is a violation of the corporation’s Articles of Incorporation and makes the directors and officers who are responsible for the payment liable to the corporation for exceeding their authority.
Bottom line: Neither Proposition 203 nor the Arizona Department of Health Services rules require dispensaries to be nonprofit corporations. The rules say that the entity must be operated on a not-for-profit basis, but do not require any specific type of entity. Dispensaries may be a for profit corporation (I don’t recommend this type of entity), a nonprofit corporation (ditto), a general partnership (the worst type of entity to form), a limited partnership (ok, but now obsolete in Arizona), a sole proprietorship (bad choice) or a limited liability company (yes – this is the one!). See “Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?” If you formed any type of entity other than an Arizona limited liability company to own an Arizona medical marijuana dispensary, you need to dump it and switch to an Arizona limited liability company.
Answer: Yes because Arizona nonprofit corporations do not have owners/shareholders. Why would you invest a lot of money in an entity that you cannot own and cannot leave to your heirs if you were to die? For the reasons mentioned below, you should ask your attorney to refund the money if he or she formed your nonprofit corporation after December 17, 2010. See “Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?”
For profit Arizona corporations are owned by their shareholders. Arizona limited liability companies are owned by their members. Arizona partnerships are owned by their partners. Arizona nonprofit corporations do not have shareholders. If authorized in the Articles of Incorporation, an Arizona nonprofit corporation can have members and the criteria and characteristics of members can be set forth in the Articles of Incorporation or in the corporation’s bylaws. However, members are not shareholders/owners and are not treated as such by Arizona’s nonprofit corporate statutes.
Admission: Before the Arizona Department of Health Services issued its first draft of the rules on December 17, 2010, it was my opinion that Arizona medical marijuana dispensaries had to be Arizona nonprofit corporations. I formed a number of Arizona nonprofit corporations for my clients before DHS issued the first draft of the rules because the only type of nonprofit entity recognized by Arizona statutes is the nonprofit corporation.
Proposition 203 stated that a dispensary had to be a nonprofit “organization,” which I thought was a strange choice of words. Last December I asked the lawyer for the Marijuana Policy who is in charge of the model medical marijuana code on which Proposition 203 was based why Proposition 203 used the word organization instead of corporation, limited liability company and/or partnership. She said she did not know. I could tell she did not understand the significance of the fact Arizona nonprofit corporations do not have shareholders/owners.
Before December 17, 2010, I recommended to clients that they form an Arizona nonprofit corporation to own the dispensary because Proposition 203 was uncertain and because the nonprofit corporation is the only type of nonprofit entity authorized under Arizona law. I told my clients in writing of this issue.
When the first draft of the rules was issued on December 17, 2010, it clarified that a dispensary could be owned by any type of entity recognized by Arizona law. Since that date, I recommend to everybody that they form an Arizona limited liability company to own a dispensary and that the LLC be operated on a not-for-profit basis.
If you formed a nonprofit corporation to own your dispensary, it is not too late to replace it with an Arizona LLC. If your nonprofit corporation has already entered into one or more leases, get approval from your landlord to allow the tenant’s rights to be assigned by the corporation to the new LLC.
P.S. If you find a lawyer today who advises you to form a nonprofit corporation to operate your dispensary, run away as fast as you can.
Ray Stern’s article in the Phoenix New Times is a must read for everybody who is interested in Arizona’s budding medical marijuana industry:
“What’s obvious to outsiders is that competition in the potential billion-dollar-industry already has become ember-hot. With only 124 dispensaries possible, the game has turned into something like Monopoly. In this variation, players must go around the board once, spending money yet buying nothing, before the final rules are known.”
“Dispensaries must be nonprofit. But pot shops in California are nonprofit, too, and this hasn’t stopped people from making small fortunes selling legal weed. Could the nonprofit business owners and their employees simply be paying themselves high salaries? ‘Bingo,’ says Jamie Reyes, manager of the Inglewood Wellness Center in California.”
“Ramona Sanchez, spokeswoman for the Drug Enforcement Administration in Phoenix, refuses to say whether the DEA plans to bust people who buy, sell, or trade seeds that could be used to kick off Arizona’s medical pot program. No part of the marijuana law, or any of the rules proposed so far, give direct guidance to entrepreneurs on how to create an initial product to sell to patients.”
Ray Stern of the Phoenix New Times wrote a blog post on February 2, 2011, that discusses the folly of Arizona Department of Health Services’ new plan to disperse medical marijuana dispensaries throughout Arizona without any regard to reality. Ray says:
“this plan is — we’ve gotta say it — half-baked. To keep Arizonans who qualify for medical marijuana from growing their own pot, the DHS plan makes a mockery of normal business sense.”
See “CHAA on This!“
Phoenix New Times: “The voter-approved medical marijuana system doesn’t go far enough for one Republican lawmaker. Under a bill introduced by Representative John Fillmore of Apache Junction, possession of two ounces or less of marijuana — by anyone — would become a petty offense and carry a fine of only $100.”
Kingman Daily Miner: “The latest draft of the proposed state rules governing the use and sale of medical marijuana was released Monday. . . . The biggest change in the draft rules is the idea that the Arizona Department of Health Services will section the state off into 126 different dispensary districts based on population. Each district would have at least one dispensary”
Verde Independent: “Patients who want marijuana won’t have to have visited their doctor four times during the past year to get the necessary recommendation. State Health Director Will Humble said Monday he scrapped that requirement from the rules he first proposed in December for Arizona’s medical marijuana laws approved by voters.”
Arizona Republic: “The state health department on Monday released its second draft of medical-marijuana rules, which propose a process for selecting and distributing dispensaries and reduce up-front costs for dispensary applicants. . . . Changes to medical-marijuana rules would:”
Phoenix New Times: “Docs who write high numbers of recommendations [for medical marijuana] will be singled out for review, and if any of the recommendations “look at all suspicious, those (doctors) can count on getting a friendly call from me or someone else at the agency,” said Dr. Laura Nelson, DHS chief medical officer. . . . If officials determine that a physician is over-writing recommendations, they’ll complain to the appropriate governing board.”
Thanks for your support. Yesterday this site had a new record number of visitors – 610. For the month of January 2011, we had 10,432 visitors to this brand new website.
MedCare Cooperative Association: “Preliminary rules on medical marijuana released Monday indicate that Lake Havasu City should get at least one dispensary.”
The second draft of the Arizona Department of Health Services medical marijuana rules apparently divided Arizona into 126 areas where dispensaries can be located. These areas are called “Community Health Analysis Areas (CHAAs).” See the map of the CHAAs. Read DHS Director Will Humble’s January 28, 2011, explaination of CHAAs in which he states:
“Several years ago, our public health statistics team divided the State into 126 Community Health Analysis Areas to help us analyze data for various disease monitoring programs. The initial trigger to develop the CHAAs was a 1988 law that directed the ADHS to use the data in the cancer registry to identify areas and populations that need investigation.”
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.”