Question: Should I be the sole owner of my Arizona medical marijuana dispensary?
Answer: Probably not. Although the Arizona Department of Health Services rules allow an Arizona medical marijuana dispensary to be owned by a single person (a sole proprietor) or a company that has only one owner, I strongly recommend that no dispensary owner be the sole owner of the business. The reason every dispensary should have at least two owners is to prevent the lose of the valuable dispensary license if the sole owner were to die or to become ineligible to be an owner, officer or director of the business.
Two examples will illustrate the terrible consequences of having a sole owner dispensary business.
Example 1: Homer Simpson is the sole owner of an Arizona LLC called Bart’s Greenies, LLC. Homer invested $500,000 to get a dispensary license and open his dispensary in Scottsdale in the food court of the Fashion Square Mall and to set up his 20,000 square foot cultivation farm in Pine Top. Homer unexpectedly dies from joy and pride while attending Bart’s graduation ceremony at the Penn State University Hershey School of Medicine where Bart received his M.D. degree. Because the LLC no longer has an owner approved by the Arizona Department of Health Services to be an owner, the LLC’s dispensary license automatically evaporates and so does all of its value. There is no LLC with a dispensary license to be inherited by Homer’s family.
Example 2: Same facts as in Example 1 except Homer does not die. Instead, Homer divorces Marge and defaults on his child support payments for Maggie. Because Homer is no longer eligible to be an owner, officer or director of an Arizona medical marijuana dispensary the LLC’s dispensary license automatically evaporates and so does all of its value.
Solution: I recommend that every Arizona medical marijuana dispensary organization have at least two owners so that if one of the owners were to die or cease to be eligible to own an interest in the business, the other owner could continue as the sole owner of the business so that the business does not automatically lose its dispensary license. Although a husband and wife who jointly own a dispensary are technically do not have a sole owner business, they should consider having another nominal owner in case the husband and wife were killed in a common accident.
Caution 1: The December 17, 2010, first draft of the proposed rules contains 18 requirements that must be satisfied for a person to become an owner, officer or director of an Arizona medical marijuana dispensary business. If any owner, officer or director ever becomes ineligible to be an owner, officer or director, the business will automatically lose its license to operate the dispensary. This risk of automatic termination is one very big reason why all entities that want to obtain a dispensary license need to purchase my Bylaws that contain provisions intended to protect against the loss of the license if an owner, officer or director ceases to be eligible to be an owner, officer or director. For more about why all dispensaries need properly drafted Bylaws see “Bylaws for Arizona Medical Marijuana Dispensaries.”
Caution 2: Whenever a business has multiple unrelated owners, the owners must enter into a buy-sell agreement that contains their exit strategy. Medical marijuana dispensaries especially need a good buy-sell agreement that covers the automatic buy-out of any owner who ceases to be eligible to be an owner.