Arizona Republic: “With state health officials still designing rules to regulate the cultivation, distribution and possession of medical marijuana, police departments in Arizona say there is little they can do to prepare to enforce the law until those guidelines are complete.”
Several non-Arizona residents who want to apply for and obtain a license to operate a medical marijuana dispensary in Arizona have asked me if I would file a class action lawsuit against the Arizona Department of Health Services to force it to eliminate the requirement that all officers and directors of the dispensary be Arizona residents. This requirement was invented by ADHS without any basis. I am not aware of any other Arizona business that Arizona law requires that the owners be Arizona residents.
The people who have asked me about a lawsuit would like to share the cost of the lawsuit. If you are interested in being a co-plaintiff in a class action lawsuit vs. the ADHS to eliminate the Arizona residency requirement, complete our comment form and I will contact you and put you on my list of possible co-plaintiffs.
Answer: Apparently not! Although the text of Proposition 203 says that an Arizona medical marijuana dispensary must be a ““a not-for-profit entity that acquires, possesses, cultivates, manufactures, delivers, transfers, transports, supplies, sells or dispenses marijuana or related supplies and educational materials to cardholders,” and it refers to Bylaws (a corporate governing document), officers (typically associated with corporations) and directors (exclusively associated with corporations), the Arizona Department of Health Services expanded the definition of not-for-profit entity to include types of entities in addition to corporations.
The December 17, 2010, first draft of the proposed DHS rules states that an “Entity means a person as defined in A.R.S. § 1-215.” Section 1-215 says that “Person” includes a corporation, company, partnership, firm, association or society, as well as a natural person.” Since an Arizona limited liability company is a company, DHS apparently will allow LLCs to own dispensaries unless it changes the rules to eliminate LLCs. Here is an additional provision in the first draft of the rules that sanctions the use of a limited liability company:
“R9-17-301. Individuals to Act for a Dispensary Regarding Requirements. When a dispensary is required by this Article to provide information on or sign documents or ensure actions are taken, the following shall comply with the requirement on behalf of the dispensary: . . . 4. If the dispensary is a limited liability company, a manager or, if the limited liability company does not have a manager, a member of the limited liability company”
As an Arizona business and entity formation attorney who has formed over 2,800 Arizona entities, I am surprised, but very glad that DHS is not requiring that people form Arizona nonprofit corporations to own and operate medical marijuana dispensaries. The only type of entity that is specifically recognized under Arizona as a nonprofit entity is the Arizona nonprofit corporation. The big problem with an Arizona nonprofit corporation is that it does not have any owners. It simply would not be right for the government to require people to spend substantial amounts of time and invest large amounts of money into a nonprofit corporation that does not have any owners.
If you want more background and analysis of this nonprofit entity issue, read my article called “Arizona Proposition 203 – Legalization of Medical Marijuana.”
My recommendation is that all entities that seek to obtain a license to operate an Arizona medical marijuana dispensary be Arizona limited liability companies. People who have already formed an Arizona nonprofit corporation with the intent to have it obtain the license should put the corporation on the shelf and form a new Arizona LLC to be the nonprofit entity that seeks and obtains the license.
I would love to form your Arizona LLC that will own and operate a medical marijuana dispensary. My fee is $1,599, which includes the all important nonprofit LLC Bylaws. See my articles called “Why Every Arizona Medical Marijuana Dispensary Must Have a Buy Sell Agreement,” “Bylaws – We Don’t Need No Stinking Bylaws or Do We?” and “Bylaws for Arizona Medical Marijuana Dispensaries.”
Here’s Sedona’s time line for adopting its medical marijuana zoning ordinance:
Planning and Zoning Commission Discussion:
Tuesday, January 4, 2011- 5:30 p.m. in City Hall Council Chambers
Thursday, January 13, 2011 – 3:30 p.m. in Vultee Conference Room
Planning and Zoning Commission Public Hearing and possible recommendation to City Council:
Tuesday, January 18, 2011 – 5:30 p.m. in Council Chambers
City Council Public Hearings and possible adoption:
Tuesday, February 8, 2011 – 4:30 p.m. in Council Chambers (tentative)
Tuesday, February 22, 2011 – 4:30 p.m. in the Council Chambers (tentative)
Good news. The first draft of the proposed Arizona medical marijuana rules issued by the Arizona Department of Health Services on December 17, 2010, says that the entity that owns and operates a medical marijuana dispensary can be a limited liability company (the preferred entity of choice in Arizona), a corporation, sole proprietorship (a mistake), general partnership (a mistake) or a limited partnership (not a mistake, but somewhat obsolete in Arizona).
Although the nonprofit corporation is the only type of entity recognized by Arizona statutory law as a nonprofit entity, the ADHS correctly did not interpret the language of Proposition 203 as requiring that medical marijuana dispensary nonprofits be Arizona nonprofit corporations. The biggest problem with a nonprofit corporation used for a business is that nobody actually owns an Arizona nonprofit. See my June 6, 2010, article called “Arizona Proposition 203 – Legalization of Medical Marijuana” on whether MMD nonprofits must be Arizona nonprofit corporations in which I stated:
“Proposition 203 creates a big problem for people who are contemplating creating an MMD? The $64,000 question is must an Arizona MMD be created as an Arizona nonprofit corporation or can it be one of the types of entities typically formed to make a profit, but operated as a nonprofit entity? We will not know the answer to this question until DHS gives us the answer or it approves MMDs that are not Arizona nonprofit corporations.”
If you need an Arizona attorney to form your Arizona LLC, see the links on the right column of this website and hire Arizona medical marijuana attorney Richard Keyt, aka the Arizona medical marijuana lawyer, to form your Arizona LLC.
San Pedro Valley News Sun: “The City of Benson is taking a wait and see approach, as the state continues to sort out guidelines and code regulations for the medical marijuana measure passed by Arizona voters in November. . . . Luis Garcia, the city’s building official, said . . . Benson . . . will wait to propose a set of regulations before the Planning and Zoning Commission, or the City Council.”
One of the top priorities during the implementation of the Arizona Medical Marijuana Act in the coming months is to ensure good rules are developed (called Administrative Code) so medical marijuana can be regulated effectively. Rules that are clear, objective, well-researched, and that balance competing interests are absolutely critical in order to effectively implement a responsible medical marijuana program.
The goal is to develop rules that will ensure qualified patients have access to marijuana for their medical condition while preventing (to the extent possible) recreational marijuana users from accessing marijuana through the Act’s provisions. In addition, the rules should ensure that marijuana dispensaries act responsibly and have adequate security and inventory controls.
In order to achieve these goals we need your help. Input is needed from all Arizona residents so the most responsible set of regulations are in place to balance competing interests. Please consider reviewing the informal draft rules, either individually or with other members of your community, and submit your feedback using the electronic comment form. For additional information and tips on how to provide input, review Director Humble’s Call for Public Comment.
Answer: No and thankfully no! Arizona Revised Statutes Section 36-2806.A states: “A registered nonprofit medical marijuana dispensary need not be recognized as tax-exempt by the Internal Revenue Service.” If Proposition 203 required dispensaries to become tax-exempt organizations, the IRS would deny every application because it would not allow any business engaged in violating federal law to become exempt from federal income taxes. In addition, even if it were possible for a dispensary to obtain a tax exemption, the consequences would be disastrous for most dispensaries. Tax-exempt organizations are prohibited from paying excess benefits to owners, directors, officers and insiders. If excess benefits are paid, the tax penalties are severe – 100% of the excess benefit PER YEAR since the payment until the penalty is paid in full.
Arizona Republic: “The state health department released its first draft late Thursday, providing a glimpse at how the program may work in Arizona. The rules spell out who may qualify for medical marijuana, establish operating criteria for dispensaries and provide strict guidelines for doctors who may recommend marijuana.” Read the December 17, 2010, first draft of Arizona Department of Health Services’ proposed Medical Marijuana Regulations and DHS’ Call for Public Comment and Electronic Comment Form.
Phoenix New Times: “Before the release of draft rules on Proposition 203, Will Humble, the director of the state Department of Health Services, estimated 100,000 people a year might qualify for medical marijuana. Now, under the proposed regulations, only 10,000 to 20,000 people a year would qualify, he said in a news conference today. . . . The voters approved Proposition 203, and now the state wants to smother the new law with over-bearing rules.”
Read the text of the December 17, 2010, first draft of the Arizona Department of Health Service’s proposed medical marijuana regulations at Medical-Marijuana-Draft-Rules-101217.
Arizona Governor Jan Brewer signed a proclamation on December 14, 2010, that caused Arizona Proposition 203 to become law as of the following day. The Arizona Department of Health Services now has 120 days ending on April 14, 2010, to prepare regulations that govern Arizona’s brand new medical marijuana patients and the dispensing and growing industry. Today, December 17, 2010, DHS issued the first draft of its proposed Title 9, Health Services Chapter 17.Department of Health Services – Medical Marijuana Program. Here are some of the interesting revelations I found in my quick skim through the proposed regulations:
“Person” includes a corporation, company, partnership, firm, association or society, as well as a natural person. When the word “person” is used to designate the party whose property may be the subject of a criminal or public offense, the term includes the United States, this state, or any territory, state or country, or any political subdivision of this state that may lawfully own any property, or a public or private corporation, or partnership or association. When the word “person” is used to designate the violator or offender of any law, it includes corporation, partnership or any association of persons.”
1. Is a physician currently making qualifying patient recommendations
2. Has not provided a surety bond or filed any tax return with a taxing agency – This does not make any sense.
3. Has unpaid taxes, interest, or penalties due to a governmental agency.
4. Has an unpaid judgment due to a governmental agency.
5. Is in default on a government-issued student loan.
6. Failed to pay court-ordered child support.
7. Is a law enforcement officer.
8. Is employed by or a contractor of the Department
1. Is not a resident of Arizona or has not been a resident of Arizona for at least two consecutive years immediately preceding the date the application for the dispensary registration certificate is submitted.
2. Is a physician currently making qualifying patient recommendations.
3. Is a law enforcement officer.
4. Is an employee of or a contractor with the Department.
1. Has not provided a surety bond or filed any tax return with a taxing agency.
2. Has unpaid taxes, interest, or penalties due to a governmental agency.
3. Has an unpaid judgment owed to a governmental agency.
4. Is in default on a government-issued student loan.
5. Failed to pay court-ordered child support.
6. Provides false or misleading information to the Department.
Will Humble is the Director of the Arizona Health Services. The following is from a December 17, 2010, post on his blog:
“One of our top priorities as we implement the AZ Medical Marijuana Act over the coming months is to ensure that we develop good Rules (called Administrative Code) so we can regulate medical marijuana effectively. Rules that are clear, objective, well-researched, and that balance competing interests are absolutely critical in order to effectively implement a responsible medical marijuana program. Our goal is to develop rules that’ll ensure qualified patients have access to marijuana for their medical condition while preventing (to the extent possible) recreational marijuana users from accessing marijuana through the Act’s provisions. In addition, we want to develop Rules that ensure that marijuana dispensaries act responsibly and have adequate security and inventory controls. In order to achieve these goals we will need your help.”
Read the entire post.
Kingman Daily Miner: “Commissioners vote to send most restrictive zoning alternative to Council. People interested in opening a medical marijuana dispensary within the city limit may be facing some strict guidelines. The city of Kingman Planning and Zoning Commission recommended adopting the most stringent out of three possible zoning recommendations for the dispensaries Tuesday night.”
Arizona Republic: “The Scottsdale Planning Commission on Wednesday backed a text amendment establishing regulations to comply with a new state law that legalizes growing, manufacturing and dispensing medical marijuana in the city. . . .The commission voted, 5-1, to recommend dispensing, manufacturing and growing be allowed without a conditional use permit in the special campus zoning district as part of a hospital or medical campus. Also, dispensing and manufacturing would be allowed in the commercial office zoning district with a conditional use permit.”
Prescott Daily Courier: “the city [Prescott] has drafted an ordinance that would allow medical marijuana in accordance with the state ballot issue, Proposition 203. Planning Director George Worley stressed, however, that the city’s draft is still in the very preliminary stages, and that the UDC likely would rewrite the document before it goes back to Planning and Zoning.”
Prescott Daily Courier: The draft ordinance includes restrictions “such as limiting dispensaries to 1,000 square feet, with no more than half of the total being used for storage. The draft ordinance also would restrict the hours of operation, and ban the use of marijuana on the premises and the sale of paraphernalia. Dispensaries would be allowed in C-2 and C-3 (medium- and heavy-commercial) districts, while cultivation sites will be allowed only in C-3 districts.”
Arizona Republic: “The national marijuana-policy group that largely bankrolled Arizona’s medical-marijuana initiative held an educational forum Monday to explain key parts of the law, federal marijuana statutes and how medical-marijuana programs were implemented in other states”
Kingman Daily Miner: Kingman, Arizona, “City zoners will look at proposals Tuesday for cultivating, dispensing pot. The commission will be presented with three alternatives ranging from most to least restrictive that it may alter as it sees fit prior to issuing its recommendation. . . . Alternative 1, the most restrictive of the three, would allow for the cultivation of marijuana in the Rural Residential zoning district only and at least 2,500 feet from any alternative residential zoning, with dispensing allowed only in the I-2: Heavy Industrial zoning district. Any such dispensing facility would be limited to just a single, permanent structure no larger than 100 square feet, and sales of marijuana could only take place between 10 a.m. and 4 p.m. Monday through Friday.
Arizona Republic: “Now that Arizona has become the 15th state to approve the use of medical marijuana, Valley school leaders say it will likely fall in the prescription-drug category, and any abuses will be handled the same as other prescription medications. . . . Medical marijuana will be yet another challenge to schools as they urge students to stay away from drugs, especially since prescription-drug abuse is most common among young people.”
Arizona Republic: “The City Council decided Thursday morning it would rather see medical marijuana dispensaries in industrial zones than in retail districts. . . . the council told Sheffield to draft rules that would allow dispensaries in C3 and industrial areas, but not in C2 retail zones.”
The Bay Citizen: “In an ominous portent of the clash between federal and state law over medical marijuana, the IRS is auditing the Bay Area’s largest medical pot dispensary, Harborside Health Center . . . . a Nov. 15 letter that Harborside sent to Sen. Barbara Boxer asking for tweaks in tax laws that can result in near-crippling taxes on pot dispensaries . . . . Harborside has exploded in popularity with 58,000 members . . . . The dispensary brings in around $20 million in revenue each year”
The Phoenix City Council voted on December 8, 2010, to approve its medical marijuana zoning ordinance. Here are some of the requirements of the new zoning ordinance that apply to the retail dispensary location:
Here are some of the requirements of the new zoning ordinance that apply to the dispensary’s medical marijuana cultivation facility location:
Arizona Republic: “Peoria leaders discussed a proposed city ordinance to deal with the location of dispensaries, cultivation facilities and other issues. Several council members raised concerns about the distance of such facilities from homes, where people might be allowed to smoke and even the quality of what’s cultivated. Peoria estimates three to five dispensaries and at least one cultivation facility could open in the city.”
East Valley Tribune: “Mesa won’t let medical marijuana shops open in most of its commercial districts, with city leaders saying they don’t want the substance sold near neighborhoods or in prominent locations. Instead, the shops will be forced to industrial areas and just one kind of commercial use.”
Read Flagstaff’s December 8, 2010, proposed medical marijuana zoning ordinance. See a map of Flagstaff that shows proposed minimum separation requirements for medical marijuana dispensaries in Flagstaff.
San Pedro Valley News Sun: “Now that Proposition 203 has been passed by voters, the Arizona Department of Health Services staff is in the process of setting up the rules that will apply to patients, caregivers and dispensaries. According to the department’s website, other states that have already passed such laws will be a resource for Arizona.”
Phoenix New Times: “Sheriff Joe Arpaio supports medicinal use of the good ganja? Well, at least that’s what the former DEA agent did during this clip from the 2007 documentary American Drug War: The Last White Hope. In it, Arpaio was asked his opinion on medical marijuana, as he stands in Tent City, surrounded by prisoners in bumble-bee stripes.
The following is the text of an email message the Arizona State Bar sent to its members on December 3, 2010:
Medical Marijuana and the Rules of Professional Conduct
There have been a number of reports regarding the implications of Arizona’s new medical marijuana law on the ethical rules that govern the conduct of attorneys in Arizona.
Although some reports may have created the perception that the State Bar of Arizona has taken an official position regarding this matter, the Bar has not taken an official position.
As has been widely reported, this new law has created many unsettled issues across the legal landscape. The impact of this law on the ethical rules is equally unsettled.
The State Bar of Arizona will review the new law and provide guidance in advance of the law’s implementation, currently scheduled for late March 2011. In the interim, the State Bar will not take regulatory action against attorneys for counseling or assisting clients in the implementation of the medical marijuana law during this period.
For questions or further information, contact Rick DeBruhl, Chief Communications Officer, State Bar of Arizona at 602-340-7200 or [email protected].
Sincerely,
John F. Phelps
CEO/Executive Director
Read Tucson’s proposed medical marijuana dispensary zoning ordinance.