Arizona Off to the Races

Unlike states like South Dakota and New Jersey, who are experiencing stumbling blocks with respect to the implementation of their voter backed adult-use cannabis referendums, Arizona has already hit the ground running. By way of background, Arizona’s Proposition 207 was passed by 60% of voters, and broadly legalized the possession and use of marijuana for adults aged 21 years and older, permitted individuals to grow no more than 6 marijuana plants, and designated the Arizona Department of Health Services (“DHS”) with the responsibility to pass rules and regulations for the implementation of an adult use marketplace. And DHS has not wasted any time, introducing a first set of rules and regulations in December, followed up by a second draft more recently, and announcing an application round for the first set of adult-use operators.

The adult-use application round has solicited two types of early applicants: (1) an entity seeking to operate a marijuana establishment in a county with fewer than two registered nonprofit medical marijuana dispensaries; or (2) a nonprofit medical marijuana dispensary that is registered and in good standing with the DHS. The DHS will accept applications from January 19, 2021 through March 9, 2021. While the majority of adult-use licenses are anticipated to go to the roughly 120 existing medical marijuana operators in Arizona, several more will be focused on otherwise underserved and underutilized rural areas of the State. For instance, as it relates to early applicants applying to operate in otherwise underserved and underutilized counties, the proposed rules identify a process for license approval as follows:

  • If a County does not contain either a dispensary or marijuana establishment and receives two or fewer marijuana establishment license applications, DHS must allocate a marijuana establishment license to each applicant.
  • If a County contains one dispensary and no marijuana establishments, and only one marijuana establishment license application is received, DHS must allocate a marijuana establishment license to that applicant.
  • If more marijuana establishment license applications are received for a county than the number of licenses that DHS is allowed to issue per the above, then DHS must allocate a marijuana dispensary license based on a random drawing to:
    • Two applicants if the county does not contain either a dispensary or marijuana establishment; and
    • One applicant if the county contains one dispensary and no marijuana establishments.

DHS also envisions issuing up to 26 marijuana establishment licenses to applicants who qualify under the Social Equity Ownership Program, i.e., those entities owned by individuals disproportionately impacted by the prohibition era, though that program is subject to additional rulemaking. Beyond that, DHS anticipates that after issuing licenses to early applicants and those qualifying under the Social Equity Ownership Program, it will cap the number of licenses to ensure that there is no more than one marijuana establishment license for every 10 registered pharmacies in Arizona.

While other States continue to fight and equivocate in the Courts and the Legislature over the implementation of adult-use programs, Arizona and DHS are moving forward full bore on administrative rules, and, most importantly, early adult-use licenses. As a result, many predict that recreational marijuana sales in Arizona could start as soon as March 20, 2021, i.e., barely five (5) months after the voters of Arizona unequivocally voiced their support for the adult-use program.

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