Arizona State Bar Association Says Arizona Attorneys Can Represent Arizona Medical Marijuana Dispensaries

Today the State Bar of Arizona’s Committee on the Rules of Professional Conduct issued Ethics Rule 11-01 in which it said the following:

A lawyer may ethically counsel or assist a client in legal matters expressly permissible under the Arizona Medical Marijuana Act (“Act”), despite the fact that such conduct potentially may violate applicable federal law.  Lawyers may do so only if: (1) at the time the advice or assistance is provided, no court decisions have held that the provisions of the Act relating to the client’s proposed course of conduct are preempted, void or otherwise invalid; (2) the lawyer reasonably concludes that the client’s activities or proposed activities comply fully with state law requirements; and (3) the lawyer advises the client regarding possible federal law implications of the proposed conduct if the lawyer is qualified to do so, or recommends that the client seek other legal counsel regarding those issues and appropriately limits the scope of the representation.

NOTE: This opinion is limited to the specific facts discussed herein. Because the opinion is based on the Act as currently in effect, subsequent legislative or court action regarding the Act could affect the conclusions expressed herein.


In the 2010 general election, Arizona voters approved Proposition 203, titled “Arizona Medical Marijuana Act” (“Act”), which legalized medical marijuana for use by people with certain “chronic or debilitating” diseases.  The proposition amended Title 36 of the Arizona Revised Statutes by adding §§ 36-2801 through -2819 and also amended A.R.S. § 43-1201.  Arizona became the 16th jurisdiction (15 states and the District of Columbia) to adopt a medical-marijuana law.

Despite the adoption of Arizona’s Act, 21 U.S.C. § 841(a)(1) of the federal Controlled Substances Act (“CSA”) continues to make the manufacture, distribution or possession with intent to distribute marijuana illegal.

In an October 19, 2009, memorandum (“DOJ Memorandum”), the U.S. Department of Justice advised that it would be a better use of federal resources to not prosecute under federal law patients and their caregivers who are in “clear and unambiguous compliance” with state medical-marijuana laws.  The DOJ Memorandum indicates that federal prosecutors still will look at cases involving patients and caregivers, however, if they involve factors such as unlawful possession or use of a firearm, sales to minors, evidence of money-laundering activity, ties to other criminal enterprises, violence, or amounts of marijuana inconsistent with purported compliance with state or local law.

Although characterizing patients and their caregivers as low priorities, the DOJ Memorandum does not characterize commercial enterprises the same way.  In fact, the DOJ Memorandum says that the “prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority” of the DOJ. [1]

The DOJ Memorandum explains that the DOJ’s position is based on “resource allocation and federal priorities” and

does not “legalize” marijuana or provide a legal defense to a violation of federal law, nor is it intended to create any privileges, benefits, or rights, substantive or procedural, enforceable by any individual, party or witness in any administrative, civil, or criminal matter.  Nor does clear and unambiguous compliance with state law or the absence of one or all of the above factors create a legal defense to a violation of the Controlled Substances Act.  Rather, this memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion. (more…)

By |2017-02-11T17:32:52-07:00February 23rd, 2011|Legal Issues, Stories & Articles|1 Comment

Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?

Question:   Must an Arizona Medical Marijuana Dispensary be a Nonprofit Corporation?

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.”

Arizona Medical Marijuana Dispensaries Should be Arizona Limited Liability Companies

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.”

By |2017-02-12T07:05:51-07:00December 23rd, 2010|Legal Issues, Questions People Ask|2 Comments

DHS Says Dispensaries Can Be Limited Liability Companies

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.

By |2011-01-18T19:26:35-07:00December 21st, 2010|Legal Issues, Stories & Articles|Comments Off on DHS Says Dispensaries Can Be Limited Liability Companies

Arizona State Bar Says Arizona Lawyers May Represent Arizona Medical Marijuana Businesses Unless it Rules Otherwise

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].


John F. Phelps
CEO/Executive Director

By |2012-08-18T09:15:33-07:00December 4th, 2010|Legal Issues, Stories & Articles|Comments Off on Arizona State Bar Says Arizona Lawyers May Represent Arizona Medical Marijuana Businesses Unless it Rules Otherwise
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