Three IEDs in DHS’ Actual Final Rules Detonate & Blow Many Would-Be Arizona Medical Marijuana Dispensaries Away

Let the litigation begin.  The Arizona Department of Health Services had 120 days to create the rules to implement Arizona’s medical marijuana law.  During that time DHS produced FOUR versions of its rules, but it saved its three  improvised explosive devices until the 120th day.  When the smoke clears from the DHS final rule bombs and allows would-be dispensaries to check their damage, many will find that they are too crippled to continue the race to the dispensary license finish line.

Today, the DHS submitted its final rules to the Arizona Secretary of State, but not without making three new rules that will prevent many would-be dispensaries from actually filing an application for a dispensary license.  Here’s what DHS did:

The Zoning Comfort Letter Bomb

The first bomb is contained in new rule R9-17-304(D)(6), which reads: “To apply for a dispensary registration certificate, an entity shall submit to the Department the following . . . . Documentation from the local jurisdiction where the dispensary’s proposed physical address is located that:

a. There are no local zoning restrictions for the dispensary’s location, or

b. The dispensary’s location is in compliance with any local zoning restrictions

DHS issued the following FAQ on this issue:

Do I need a certificate of occupancy from my city in order to apply? No, applicants do not need to submit a certificate of occupancy in the initial application. They must attest to meeting zoning requirements and provide documentation from the local government saying either there are no local zoning requirements or the location meets the requirements. However, if chosen as the dispensary for a specific CHAA, a copy of a certificate of occupancy or other documentation issued by the local jurisdiction will be necessary when requesting approval to operate the dispensary.”

The legal significance of this new rule is that the decision on which entity will get a dispensary license will be determined at the city or local zoning level.   The rule does not give any guidance on what it means to be “in compliance with any local zoning restrictions.”  Each local zoning authority will decide the conditions on which it will give its zoning comfort letter.  The zoning authorities are  able to give one comfort letter per CHAA if they so desire.  Any would-be dispensary that fails to get a zoning comfort letter by June 30, 2011, is precluded from filing an application to get a dispensary license.   Each local zoning authority is now free to determine who will get its zoning comfort letter.  This new rule is an abrogation of DHS’ duty to select the qualified dispensaries and a shameful dereliction of its duty.

For a an actual example of how the cities are now able to select who will own a medical marijuana dispensary within their jurisdictions, see “Fountain Hills Faces Medical-marijuana Challenge.”  Fountain Hills has only accepted one zoning application so no other would-be dispensaries will be able to operate in Fountain Hills.  Result:  Fountain Hills will determine who owns the dispensary in Fountain Hills, not DHS.

The Landlord Comfort Letter Bomb

New rule R9-17-304(D)(7 ) reads: “To apply for a dispensary registration certificate, an entity shall submit to the Department the following . . . . Documentation of:

a. Ownership of the physical address of the proposed dispensary, or

b. Permission from the owner of the physical address of the proposed dispensary for the entity applying for a dispensary registration certificate to operate a dispensary at the physical address;

DHS went backwards.  The second draft of the rules created a nightmarish situation for prospective dispensaries because a large number of prospective tenants were all trying to enter into leases for a very small number of possible sites.  The law of supply and demand made it impossible for most prospective dispensaries to find a properly zoned site and tie it up with a lease.  This caused rents to soar way above market because the laws of economics applies to medical marijuana dispensaries and available rental space like it does to every other commodity.  It was because of this hellish situation that I wrote an article on February 8, 2011, called “Prospective Dispensary’s Single Most Important Task Before May 30, 2011.”

Once again would be dispensaries will be engaged in a mad scramble to get a comfort letter from a landlord.  Many will not be successful or will be successful only at great expense in time and money.  Most landlords will demand real money to get a letter.  Few will give away comfort letters.  A commercial real estate broker who has been successful in getting leases for would-be dispensaries told me today that some landlords are demanding $5,000 to give a tenant a comfort letter for the purpose of getting local zoning approval.  He also said that he has seen rents for dispensaries as high as $27 a foot, which is more than the going rate for class A office space in the Camelback corridor.

I predict that no prudent landlord will simply issue a comfort letter that satisfies the vague language in the new rule.  I am a real estate lawyer and if I were advising a landlord and asked to draft a comfort letter that said the landlord will give the dispensary permission to lease the premises for a medical marijuana dispensary, I would put in language the makes it clear that the letter does not create a legal obligation on the part of the landlord to lease the premises to the dispensary.  Without actually having a signed lease with the dispensary, every landlord should be concerned that a comfort letter does not obligate the landlord to lease the premises.  I would also advise my landlord client to charge a substantial fee to get a comfort letter.

Query:  If the landlords issue comfort letters that clearly state they are not binding on the landlord, then what is the purpose of requiring the prospective dispensaries to get the comfort letter?  Maybe I’ve missed something, but the only reason I can see for this new requirement is to reduce the number of applicants for dispensary licenses and increase the applicants’ costs of doing business.  Landlords once again have the upper hand which means the dispensaries will pay higher rents and the patients will pay more for their medicine.

See “Arizona Medical-marijuana Dispensaries Face Property Hurdles.”

The Bank Comfort Letter Bomb

Last, but not least, are new rules R9-17-302.A.5 and R9-17-304.D.1.f.ii.  This last minute bomb was triggered by a question that should never have been asked of Will Humble last week at the April 5, 2011, forum in Phoenix.  The first final rules issued by DHS on March 28, 2011, added a new requirement that said the dispensary application had to include:

“Documentation, from an in-state financial institution or an out-of-state financial institution, demonstrating that the dispensary has at least $150,000 available to begin operating was submitted with the dispensary registration certificate application.”

Unfortunately for many would-be dispensaries, a man asked Will Humble if it would be ok to deposit money in the bank, get the letter from the bank and immediately take the money out of the bank.  Mr. Humble was visibly stunned by the question as he visualized a hole a mile wide in his capital requirement plan.  Because of that question, RR9-17-304.D.1.f.ii requires the applicant for a dispensary license to submit “documentation that:

(1) Is from an in-state financial institution or an out-of-state financial institution;

(2) Is dated within 30 days before the date the dispensary registration certificate application was submitted; and

(3) Demonstrates that the entity applying for the dispensary registration certificate or a principal officer of the entity has at least $150,000 under the control of the entity or principal officer to begin operating the dispensary and has had control of the $150,000 for at least 30 days before the date the dispensary registration certificate application was submitted

In-state financial institution” means the same as in A.R.S. § 6-101Out-of-state financial institution” means the same as in A.R.S. § 6-101.

A client asked me the if Charles Schwab or Merrill Lynch are “out-of-state financial institutions?  A.R.S. § 6-101 states that “Out-of-state financial institution means a state or federal bank, savings bank, savings and loan association or holding company with its home office in a state other than this state.”  I don’t believe these types of institutions are banks or S & Ls, but could they be “holding companies?”  I have no clue what the term “holding company” means.  It appears, however, that a person who has sufficient assets in Merrill Lynch or a similar financial institution could not use that type of entity as an out of state financial institution for the purposes of this new rule.

This rule is outrageous, unreasonable, unfair and just plain wrong.  Whether or not the reasoning behind the rule is good is something we could debate, but that is not my problem with the rule.  I despise this rule because it is much too late in the process to issue the rule and simply not enough time for many prospective dispensaries to be able to comply with this new rule issued on the last day of the 120 days DHS had to finalize its rules.

The last day applicants may submit applications for dispensary registration certificates is June 30, 2011.

Note carefully requirement number 3.  It could be a nuclear bomb!  Either the entity applicant or A PRINCIPAL OFFICER OF THE ENTITY (whichever one actually has the funds) must show that it/he/she has had control of the $150,000 for at least 30 days before the dispensary application is submitted to DHS.

Bottom line:  DHS may have just opened the litigation flood gates and may have cost the State of Arizona mega-millions in damages for promulgating unreasonable rules that have no basis in Proposition 203.

What do you think?  What am I missing?  Am I wrong.  Add your comments below.

By |2017-02-11T17:21:23-07:00April 14th, 2011|Banking Issues, Legal Issues|1 Comment

DHS’ Final Arizona Medical Marijuana Rules Now Final

As Will Humble said last week, the March 28, 2011, “final” version of the rules have been changed.  Today the Arizona Department of Health Services submitted to actual final rules to the Arizona Secretary of State.  Here is the  Department of Health Services summary of the changes made to the March 28, 2011, rules.

R9-17-302(A)(5) and R9-17-304(D)(1)(f)(ii)
The 03/28/11 rules allowed applicants for a dispensary registration certificate to submit documentation of $150,000 available to begin operating. The rule was clarified by requiring the documentation to be dated within 30 days before submitting the application, the monies to be under the control of the entity submitting the application or a principal officer of the entity, and the documentation to demonstrate that the monies had been under the control of the entity or principal officer for at least 30 days before the application was submitted.

R9-17-304(D)(1)
Two subsections were added: One subsection requires an applicant for a dispensary registration certificate to submit documentation from the local jurisdiction where the proposed dispensary is located that the local jurisdiction does not have any zoning restrictions or that the proposed dispensary location complies with the zoning restrictions. A second subsection requires an applicant for a dispensary registration certificate to submit documentation that the applicant owns the location of the proposed dispensary or has permission from the owner of the location to operate a dispensary at the location.

R9-17-313(E)
The 03/28/11 rules prohibited a medical director from providing a written certification for medical marijuana for a qualifying patient obtaining marijuana from the dispensary associated with the medical director. Because there is no way for a medical director to ensure that a qualifying patient would not obtain medical marijuana from the dispensary associated with the medical director, the rule was amended to prohibit a medical director from providing written certifications for medical marijuana to any qualifying patient.

By |2011-04-18T09:03:19-07:00April 14th, 2011|DHS Rules|1 Comment

Arizona Department of Health Services Publishes the Final Medical Marijuana Rules

The Arizona Department of Health Services published its final medical marijuana rules (92 pages).

Here are my first impressions of the provisions that apply to would-be dispensaries:

  • DHS took my recommendation and added the owners of entities to its definition of board members who must satisfy the eligibility requirements to obtain a dispensary license.  R9-17-301.B adds the owners of limited liability companies, partnerships and members of a cooperative to the list of board members.  The section starts, “in addition to the individual or individuals identified in the dispensary’s by-laws as board members of the dispensary the following individuals are considered board members: If a corporation is applying for a dispensary registration certificate, the officers of the corporation”  Wow!  This subsection is astonishing because it shows how totally unaware of the business world DHS is.  First, the Bylaws do not normally name the members of the board of directors.  Second, the shareholders of the corporation are not considered principal officers or directors – only the officers of the corporation are deemed to be board members!!!!!!!!!!!!!!!!!!!!!  DHS open the door a mile wide.  People with excluded felonies and non-Arizona residents  apparently can be shareholders of a for profit corporation that seeks a dispensary license.
  • R9-17-302.A states, “If more than one dispensary registration certificate application. . . is received for a single CHAA, the Department shall review the dispensary registration certificate applications for the CHAA to determine if:

1.  Each applicant, principal officer, or board member associated with a dispensary registration certificate application has submitted Arizona state income tax returns for the previous three years with the dispensary registration certificate application;

2. Each applicant, principal officer, or board member associated with a dispensary registration certificate application:

a. Is current on paying court-ordered child support;

b. Is not delinquent paying taxes, interest, or penalties due to a governmental agency;

c. Does not have an unpaid judgment due to a governmental agency; and

d. Is not in default on a government-issued student loan;

3. Each individual who has 20% or more interest in the dispensary is the applicant or a principal officer or board member of the dispensary;

4. Each applicant, principal officer, or board member has never filed for personal or corporate bankruptcy; and

5. Documentation, from an in-state financial institution or an out-of-state financial institution, demonstrating that the dispensary has at least $150,000 available to begin operating was submitted with the dispensary registration certificate application.

Holy money bags Batman!  I didn’t see that one coming.  I guess the big money players won.  Mom & pops lose.  This new and outrageous rule apparently means that applicants for a dispensary license must have at least $150,000 in a bank account to get in the lottery.

What’s with the bankruptcy exclusion?  Many good people have been forced to file for bankruptcy.  There is no relationship to bankruptcy and being involved with a medical marijuana dispensary.  It’s just a DHS excuse to limit the possible pool of owners for what reason I cannot imagine.

R9-17-302.A.3 seems to require that every person who owns 20% or more of an entity (including a for profit corporation) that applies for a dispensary license must be a principal officer or a board member.

  • There are major changes in the way dispensary registration certificates will be awarded.  The lottery may or may not be used, depending on the actual to be determined facts associated with each CHAA.  DHS may award a dispensary registration certificate based on if there are no qualified applicants or multiple applicants at each of the five levels set forth in R9-17-302.A.  Think of R9-17-302.A as containing five review levels.  If only one qualified applicant exists at the A(1) level, that applicant gets a dispensary registration certificate.  If there are multiple qualified applicants at a R9-17-302.A level, they move to the next round/level.  For example, if there are multiple qualified applicants that meet the requirements of A(1), A(2) and A(3), they move to the A(4) level and if only one qualified applicant meets the A(4) level, that applicant gets the dispensary registration certificate.  If there are multiple qualified applicants that satisfy A(1), A(2), A(3), A(4) and A(5) then “the Department shall randomly select one of the dispensary registration applications” to get the dispensary registration certificate.  So, the lottery lives!
  • Looks like there will be a dispensary in all 124 of the 126 CHAAs.  If there are no qualified applicants for a dispensary registration certificate in a CHAA, DHS will select an applicant from another CHAA and award the dispensary registration certificate to that “lucky” or ‘unlucky” applicant.  R9-17-302.B.3 states, “If the Department determines that none of the reviewed dispensary registration certificate applications meets the criteria in subsection (A)(1), the Department shall randomly select one dispensary certificate registration application and allocate a dispensary registration certificate to that applicant.”
  • Multiple dispensary applications are allowed with one catch.  R9-17-302.C states,  “If an applicant submits more than one dispensary registration certificate application, the documentation in subsection (A)(5) needs to demonstrate there is at least $150,000 available for each dispensary registration certificate application submitted.”
  • R9-17-303.C states, “A city or town that contains more than one CHAA may request the reassignment of a dispensary registration certificate allocation from one CHAA to another CHAA under the jurisdiction of the city or town by submitting a written request to the Department by June 1, 2011”
  • DHS pushed back the start date for accepting applications for a dispensary registration certificate to June 1, 2011.  R9-17-303.D states, “The Department shall accept dispensary registration certificate applications for 30 calendar days beginning June 1, 2011.”
  • R9-17-304.A states, “An individual shall not be an applicant, principal officer, or board member on:

1. More than one dispensary registration certificate application for a location in a single CHAA, or

2. More than five dispensary registration certificate applications for locations in different CHAAs”

DHS sanctions multiple applications for dispensaries so long as the applications are in different CHAAs, no more than five applications are submitted and the applicant can get a letter from a bank that it has at least $150,000 for each dispensary application.  Big money wins again!  Shame on DHS for misleading people who don’t have $150,000 cash in the bank into believing for months that they could possibly obtain an Arizona medical marijuana dispensary license.

Note:  DHS appears to have taken my suggestion and that of Alan Sobol to clarify that dispensary applicants do not have to get final city or county zoning approval to be able to file an application for a dispensary registration certificate.  Rule R9-17-304.D.5 combined with R9-17-305.A give dispensary applicants a two stage zoning process.  R9-17-305.A requires final zoning approval only after the would-be dispensary obtains a dispensary registration certificate.  Unfortunately DHS took my suggestion and will allow the winner of a dispensary registration certificate to change its dispensary site to a different location within its CHAA if  final zoning is denied or some other reason exists to move to a different location arises.  Getting final zoning approval is a good thing to do before getting a dispensary registration certificate, but not a requirement to filing an application as some people said.

  • DHS actually set minimum requirements for a business plan.  R9-17-304.D.7 states that the application for a dispensary registration certificate must contain “A business plan demonstrating the on-going viability of the dispensary on a not-for-profit basis that includes:

a. A description of and total dollar amount of expenditures already incurred to establish the dispensary or to secure a dispensary registration certificate by the individual or business organization applying for the dispensary registration certificate,

b. A description and total dollar amount of monies or tangible assets received for operating the dispensary from entities other than the individual applying for the dispensary registration certificate or a principal officer or board member associated with the dispensary including the entity’s name and the interest in the dispensary or the benefit the entity obtained,

c. Projected expenditures expected before the dispensary is operational,

d. Projected expenditures after the dispensary is operational, and

e. Projected revenue;”

  • DHS apparently clarified that applicants for a dispensary registration certificate do not need to jump through all the city and county zoning hoops just t be eligible to apply for a dispensary license.  R9-17-305.A states, “To apply for approval to operate a dispensary, a person holding a dispensary registration certificate shall submit to the Department, at least 60 calendar days before the expiration of the dispensary registration certificate, the following:

2. A copy of documentation issued by the local jurisdiction to the dispensary authorizing occupancy of the building as a dispensary and, if applicable, as the dispensary’s cultivation site, such as a certificate of occupancy, a special use permit, or a conditional use permit;

3. A sworn statement signed and dated by the individual or individuals in R9-17-301 certifying that the dispensary is in compliance with local zoning restrictions”

  • Finally, we get some guidance on what it means for a dispensary to operate on a not-for-profit basis.  R9-17-310.A states, “A dispensary shall:

13. Not lend any part of the dispensary’s income or property without receiving adequate security and a reasonable rate of interest;

14. Not purchase property for more than adequate consideration in money or cash equivalent;

15. Not pay compensation for salaries or other compensation for personal services that is in excess of a reasonable allowance;

16. Not sell any part of the dispensary’s property or equipment for less than adequate consideration in money or cash equivalent; and

17. Not engage in any other transaction that results in a substantial diversion of the dispensary’s income or property.”

  • R9-17-316.B states, “A dispensary shall only acquire marijuana from:

1. The dispensary’s cultivation site,

2. Another dispensary or another dispensary’s cultivation site,

3 A qualifying patient authorized by the Department to cultivate marijuana, or

4 A designated caregiver authorized by the Department to cultivate marijuana.”

 

By |2011-04-03T22:43:13-07:00March 28th, 2011|DHS Rules, Video|Comments Off on Arizona Department of Health Services Publishes the Final Medical Marijuana Rules

Richard Keyt’s Suggested Changes to the DHS Rules

What follows below is the abbreviated text of my letter to Will Humble dated February 18, 2011.  You may also read or download a copy of the actual letter.

February 18, 2011

Will Humble, Director
Arizona Department of Health Services
150 N. 18th Avenue
Phoenix, AZ 85007

Re:  Comments to the Arizona Department of Health Services’ Proposed Rules to be Promulgated Under Arizona Revised Statutes Section 36-2801, et. Seq., Arizona’s Medical Marijuana Laws

Dear Mr. Humble:

I am the creator of a website called “Arizona Medical Marijuana Law” found on the internet at www.arizonamedicalmarijuanalaw.com. The purpose of this website is to inform the public about the new law created by the voters’ approval of Proposition 203. Although this new website is just shy of seven weeks old, it will have close to 20,000 visitors this month because it contains a treasure trove of information about this new law.

I am an Arizona attorney who has been practicing business law in Arizona since 1980. Since I started counting in 2002, I have formed over 3,000 Arizona limited liability companies, for profit corporations and nonprofit corporations. As of the date of this letter, I have been hired by more than 30 groups that intend to apply for a dispensary registration certificate. What follows are my suggested changes and comments to the proposed Rules.

1. The Lottery. Eliminate the lottery and replace it with a selection system based on the quality of the application and the applicant. Our country has been a country where people succeeded on merit, not on government give-aways. DHS should pick the applicants that are best qualified and most likely to operate a successful business. The people of Arizona deserve the best dispensary owners, not a group of winners who are lucky to have their names drawn out of a hat. The application fee of $5,000 is sufficient to pay for a review and analysis of each application. State in detail the criteria on which applications will be graded. Create a point system and say that dispensary registration certificates will be awarded to the top 124 scores. Provide in the Rules that if any of the 124 applicants selected for a license fails to actually obtain its dispensary license within one year, the dispensary registration certificate will be revoked and a new dispensary registration certificate be offered to the applicant whose total score was 125th and go down the list if other entities fail to open their dispensaries within the designated time period.

I submit to you that selecting dispensary owners by a lottery is the surest way for DHS to get sued and to cost the State of Arizona a large amount of defense money it does not have. The current Rules are totally lacking in any guidance or requirements for conducting a lottery. Here are just a few of the almost unlimited problems with a lottery: (more…)

By |2011-03-04T20:54:58-07:00February 18th, 2011|DHS Rules|2 Comments

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!

Arizona Department of Health Services Issues 1/31/11 Draft of Its Medical Marijuana Rules

Today, January 31, 2011, Arizona Department of Health Services posted its second draft of its proposed Arizona medical marijuana rules.  Check back.  I will review the second draft of the rule as soon as possible and put up a new article.  Here are my first impressions of changes made to the first draft of the rules:

  • New:  “CHAA” means a Community Health Analysis Area, a geographic area based on population, established by the Department for use by public health programs.
  • New:  The walls of the cultivation site must prevent anybody from seeing the plants from outside the walls of the facility.
  • New:  There is a two stage process.  Stage 1:  Dispensary applies for and received a dispensary registration certificate.  Stage 2:  apply for a approval to operate a dispensary.  A dispensary that has a DRC may apply for a   The Department shall accept dispensary registration certificate applications for 30 calendar days beginning May 1, 2011.
  • Change:  The two year residency requirement went from two years to three years.
  • Change:  A business plan demonstrating the on-going viability of the dispensary as on a non-profit organization not-for-profit basis.  Very interesting!
  • ChangeThe dispensary is not required to grow any of its marijuana.
  • Change:  Medical directors can serve an unlimited number of dispensaries rather than just three.
  • Change: Eliminated the requirement for dispensary agents with respect to surety bonds and failure to file a tax return.
  • New:  Revoke a dispensary registration certificate if it operates before obtaining approval to operate a dispensary from the Department.

DHS asks the public to submit comments to the proposed rules.

Related story “CHAA on This!”

By |2011-02-03T16:17:09-07:00January 31st, 2011|DHS Rules|Comments Off on Arizona Department of Health Services Issues 1/31/11 Draft of Its Medical Marijuana Rules

Text of the Public Comments to the 1st Draft of the Rules

On December 17, 2010, the Arizona Department of Health Services posted a draft of the medical marijuana rules for public comment.  Read the following comments received by ADHS  via its online survey from December 17, 2010, through January 7, 2011:

The Department also received the additional comments below:

By |2011-01-18T19:12:41-07:00January 15th, 2011|DHS Rules|Comments Off on Text of the Public Comments to the 1st Draft of the Rules

Arizona Pharmacy Alliance Comments on Medical Marijuana Rules

Mindy D. Smith, the Chief Executive Officer of the Arizona Pharmacy Alliance sent a letter dated January 7, 2011, to Will Humble, Director of the Arizona Department of Health Services, in which she states the AzPA’s suggested changes to the December 17, 2010, first draft of Arizona’s medical marijuana rules.

By |2011-01-18T19:15:03-07:00January 7th, 2011|DHS Rules|Comments Off on Arizona Pharmacy Alliance Comments on Medical Marijuana Rules

Arizona Medical Marijuana: Public Comments to be Weighed when Redrafting Rules

Arizona Republic:  “More than 1,000 people have commented on the proposed medical-marijuana rules so far, responding most heavily to a handful of areas that include the definition of doctor-patient relationships and medical directors and limitations on where dispensaries get marijuana. . . .Department officials identified the top 10 suggestions as of Wednesday, including:”

By |2011-01-18T19:22:51-07:00January 6th, 2011|DHS Rules, Stories & Articles|Comments Off on Arizona Medical Marijuana: Public Comments to be Weighed when Redrafting Rules

Would be Referring Doctor Not happy with First Draft of Rules

Arizona Medical Marijuana:  “The Green Leaf recently asked Dr. Ed Suter, a board certified physician and medical marijuana activist, to share his thoughts on the first draft of medical marijuana regulations released on Dec. 17 by the Arizona Department of Health Services.  Here’s his reaction:”

By |2017-02-11T17:26:04-07:00January 3rd, 2011|DHS Rules, Stories & Articles|Comments Off on Would be Referring Doctor Not happy with First Draft of Rules

Call for Public Comment to the Proposed Medical Marijuana Rules

Arizona Department of Health Services Asks Public to Comment on the Proposed Medical Marijuana Rules

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.

By |2015-04-06T18:49:23-07:00December 21st, 2010|Dept Health Services, DHS Rules|Comments Off on Call for Public Comment to the Proposed Medical Marijuana Rules

Proposed Rules on Medical Marijuana Tougher Than Voter-Approved Law; Estimate of Potential Patients Lowered

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.”

By |2010-12-20T19:56:17-07:00December 17th, 2010|DHS Rules, Stories & Articles|Comments Off on Proposed Rules on Medical Marijuana Tougher Than Voter-Approved Law; Estimate of Potential Patients Lowered

Department of Health Services Issues Proposed Medical Marijuana Rules

Proposed Arizona Medical Marijuana Rules / Regulations Issued by the Arizona Department of Health Services on December 17, 2010

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:

  • “Entity” means a person as defined in A.R.S. § 1-215., which states:

“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.”

  • Each dispensary must have a “Medical director” who is a doctor of medicine who holds a valid and existing license to practice medicine pursuant to A.R.S. Title 32, Chapter 13 or its successor or a doctor of osteopathic medicine who holds a valid and existing license to practice osteopathic medicine pursuant to A.R.S. Title 32, Chapter 17 or its successor and who has been designated by a dispensary to provide medical oversight at the dispensary.
  • Dispensary registration fee = $5,000
  • Dispensary renewal fee = $1,000
  • Fee to change the location of a dispensary = $2,500
  • Fee to change the location of a cultivation site = $2,500
  • Fee to get or renew a qualifying patient card = $150
  • Fee to get or renew a designated caregiver card = $200
  • Fee to get or renew a dispensary agent card = $200
  • A registration packet for a dispensary is not complete until the applicant provides the Department with written notice that the dispensary is ready for an inspection by the Department.
  • Officers and board members of a dispensary must give DHS a copy of their Arizona driver’s license
  • Number of working days applicable to applications for a dispensary:  overall time frame = 90; time for applicant to complete application = 90; admin completeness 30; substantive review time = 60

Regulations Applicable to Arizona Medical Marijuana Dispensaries

  • Dispensaries can be individuals, corporations (for profit and nonprofit), limited liability companies, partnerships, joint ventures and any other business organization
  • Each principal officer or board member of a dispensary is an Arizona resident and has been an Arizona resident for the two years immediately preceding the date the dispensary submits a dispensary certificate application.”  I am very surprised by this requirement.  Proposition 203 does not contain any language that restricts who can own a dispensary or that requires owners be residents of Arizona or any other state or country.
  • The application must state whether a principal officer or board member:

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

  • The application must state the name and license number of the dispensary’s medical director
  • The application must state if the dispensary and, if applicable, the dispensary’s cultivation site are ready for an inspection by the Department
  • The application must state if the dispensary and, if applicable, the dispensary’s cultivation site are not ready for an inspection by the Department, the date the dispensary and, if applicable, the dispensary’s cultivation site will be ready for an inspection by the Department
  • The application must state the name and title of each principal officer and board member
  • The application must contain a copy of the business organization’s articles of incorporation, articles of organization, or partnership or joint venture documents, if applicable.
  • The application must contain an attestation signed and dated by the principal officer or board member that the principal officer or board member is an Arizona resident and has been an Arizona resident for at least two consecutive years immediately preceding the date the dispensary submitted the dispensary certificate application.
  • The application must include a copy of the certificate of occupancy or other documentation issued by the local jurisdiction to the applicant authorizing occupancy of the building as a dispensary and, if applicable, as the dispensary’s cultivation site.
  • The application must include a copy of the dispensary’s by-laws containing provisions for the disposition of revenues and receipts.
  • The application must include a business plan demonstrating the on-going viability of the dispensary as a non-profit organization.
  • The application must state whether a registered pharmacist will be onsite or on-call during regular business hours and if the dispensary will provide information about the importance of physical activity and nutrition onsite.
  • The dispensary must employ or contract with a medical director.
  • A dispensary shall cultivate at least 70% of the medical marijuana the dispensary provides to qualifying patients or designated caregivers.  This is a surprise and probably a problem and increased costs for many dispensaries.
  • A dispensary shall not provide more than 30% of the medical marijuana cultivated by the dispensary to other dispensaries.  Another surprise!
  • A medical director may only serve as a medical director for three dispensaries at any time.
  • The building used by a dispensary or the dispensary’s cultivation site shall have a flushable toilet with running water, soap in a dispenser and toilet tissue.
  • DHS will deny an application for a dispensary if a principal officer or board member:

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.

  • The Department may deny an application for a dispensary registration certificate if a principal officer or board member of the dispensary:

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.

By |2017-02-12T07:05:50-07:00December 17th, 2010|Dept Health Services, DHS Rules, Legal Issues|Comments Off on Department of Health Services Issues Proposed Medical Marijuana Rules