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Medical Marijuana Dispensary Update

With the legal challenges largely resolved, the dispensary application process will move forward. Competition to obtain one of the approximately 125 dispensary registration certificates is expected to be very intense.

In previous articles concerning the Arizona Medical Marijuana Act (AMMA), we discussed land use issues for dispensary owners (and land owners) and the dispensary application requirements and process. We also touched on the numerous federal and state court cases that had been filed by the State of Arizona and various pro-medical marijuana organizations.

Of these cases, the most noteworthy were Arizona, et al. v. Holder, et al., filed in federal district court for Arizona, and Compassion First, LLC, et al. v. State of Arizona, et al., filed in Maricopa County Superior Court.

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In Arizona, the State, citing concerns that its employees could face federal prosecution for approving dispensary applications, requested that the court clarify whether federal anti-drug laws could co-exist alongside the AMMA, or whether the federal laws invalidated the AMMA. As a result of the lawsuit, which was filed just prior to the date that dispensary applications were due to be accepted, the Arizona Department of Health Services (DHS) suspended the dispensary application process pending a resolution of the litigation. The federal government and the Arizona Medical Marijuana Association both filed motions to dismiss the lawsuit on several grounds, including that the lawsuit was premature. On January 4, 2012, the court granted the motions to dismiss but gave the State the opportunity to re-file its complaint to resolve the problems identified in the motions. Gov. Brewer opted not to re-file the lawsuit and directed DHS to begin accepting dispensary applications.

In Compassion First, a number of pro-AMMA groups filed suit against the State, claiming that the State acted unlawfully in refusing to accept dispensary applications and that the rules enacted by DHS regarding eligibility to run a dispensary were invalid. On January 17, 2012, the Court granted the pro-AMMA groups’ motion for summary judgment and, in so doing, invalidated several of the regulations setting forth eligibility requirements for dispensary applicants, including the (a) residency and Arizona tax return requirements, (b) prohibition on prior personal or corporate bankruptcies, and (c) requirement that applicants be current on child support obligations. The Court’s order also directed DHS to enforce the lawful provisions of the AMMA and to implement new regulations that conform to the lawful provisions.

The decisions were undoubtedly victories for pro-AMMA groups, and they paved the way for the dispensary application process to begin. Unfortunately, it quickly became “two steps forward, one step back.” As mentioned earlier, the Court’s ruling in Compassion First required DHS to promulgate new rules implementing the AMMA. Without going into great detail, suffice it to say that the State’s rule-making process requires much more than simply putting pen to paper: initial drafts of the rules must be written and then submitted for public comment before they can be finalized. Early predictions were that the new rules would be finalized by the end of the summer or early fall and that the first dispensary applications would be awarded in November.

However, DHS recently posted to its website a note that it is developing an “express” set of rules that would remove the regulations that were invalidated in Compassion First, with the goal to begin accepting applications “as soon as April” and awarding registration certificates in early June. We would, however, caution everyone to temper their enthusiasm (if, indeed, you are enthusiastic about these developments), as the State has shown that it is not excited about the prospect of approving the operation of non-profit dispensaries. Moreover, the position of the U.S. Justice Department (on the subject of enforcing federal law on the subject) remains uncertain.

The take-away from the court decisions is that the dispensary application process will move forward, whether on the timeframe posted on the DHS website or later on this year. Competition to obtain one of the approximately 125 dispensary registration certificates is still expected to be very intense. While the state court invalidated some restrictions, the application process will still have numerous hoops through which applicants must jump, including start-up capital requirements and compliance with local zoning ordinances. We therefore recommend that anyone interested in opening a dispensary do their legwork now in order to be ready when DHS finally green-lights the dispensary application process.

On the real estate side, we anticipate that parties interested in obtaining a dispensary license will try to firm up their locations (since the projected location is part of the application process) and that the various city planning departments and councils will begin to re-focus on these issues in terms of zoning, variances, special use permits, and the like.