High Anxiety: ADHS moves forward with social equity program after court win

The Arizona Department of Health Services will continue taking applications for 26 social equity licenses through Dec. 14, after a Maricopa County Superior Court judge declined to issue an injunction to stop the process.

Last Wednesday, Dec. 1, Maricopa County Superior Court Judge Randall Warner heard arguments from two groups attempting to force ADHS to stop accepting applications until it rewrites the rules for the program intended to distribute licenses to people and communities most affected by the decades’ long War on Drugs.

The Greater Phoenix Urban League, a nonprofit aimed at helping minority communities, particularly those adversely affected by previous marijuana laws, and Acre 41, a group of four “influential female Black, Indigenous, and people of color” who advocate for underserved communities in the growing cannabis market who hope to procure one of the licenses, filed the lawsuit last month, but will have to wait until the end of January for their case to be heard.

The lawsuit sought to delay the application process until the rules could be revisited to ensure the licenses, said to be worth $10 to $15 million, went into the hands of the people intended by Prop 207 rather than land in the hands of the big, established players. 

While the group did not receive its requested injunction, the court scheduled a hearing for Jan. 28, 2022. ADHS will likely not have the lottery until after that date, as it has to review all of the applications that are submitted and allow applicants to fix any problems.

ADHS Communications Director Steve Elliott said that as of Friday, Dec. 3, there were 22 applications received, but more are expected as the final deadline is next Tuesday. 

At issue for Acre 41 is what appears to be loopholes in the rules that were finalized on Oct. 13 that would allow a transfer of majority ownership to large multi-state operators (or MSOs), which would mean the program would, in the long run, just enrich the biggest cannabis companies.

“Our number one objective is to get rid of the non-transferability of licenses so that 51% ownership cannot be transferred,” said Acre 41 spokeswoman Celeste Rodriguez. “That’s what has taken place in Los Angeles. The MSOs didn’t get into their social equity program because there’s no transferability of the license. They didn’t have any interest because [the license] can’t be transferred.”

The group believes the biggest operators have been on the hunt for “straw men” who qualify but have no interest in owning or running a cannabis business and who would sign over majority ownership before the ink is even dry on the license.

“There is demonstrable evidence that in those states where there was a failure to implement a restriction on transferability to non-social equity qualifiers, it was a death knell of any meaningful social equity program,” the plaintiffs said in a prepared statement announcing the court date. “Without the provision, people from (disproportionately affected communities) would not be in a position to actually operate the license, as provided for in the initiative.”

They added that blocking the transferability provision is “absolutely necessary to ensure that the intent of the social equity initiative is realized.” 

Another group of potential applicants sued in November, also seeking to put the kibosh on the application process. That group, called Black Seed, initially wanted the judge to consolidate the cases, but decided to have its case remain separate and be heard by a different judge.

The cost of getting an operation up and running can cost upwards of $1 million, so short of a state-funded program to pay for start-up costs, it’s essentially impossible for most people to successfully open a dispensary without major backing from a player (or at least a would-be player) in the cannabis community.

“With all that money they’re collecting, they could use it to provide people with funding for their social equity licenses,” Rodriguez said. “The state basically left the social equity applicants to do this on a wing and a prayer, and it’s unfortunate.”

In order to qualify for a social equity license, individuals must meet several basic criteria. They must have been personally impacted by Arizona’s previous marijuana laws, or have a family member impacted by those laws. Those individuals must have arrest records that have been expunged and their records cleared.

Their household income must be at or less than 400% of the federal poverty level for three of the past five years, and they must have resided for three of the past five years in one of 87 zip codes released by ADHS the first week of October.

The rules went through several iterations over the course of the year and ADHS has received criticism from several groups, including Arizona NORML and a coalition of stakeholders from disproportionately impacted communities, which took ADHS to task in February for not including enough input from impacted communities.

All applicants are required to attend DHS-provided training and come up with a $4,000 fee, but the need for $500,000 in liquid assets that is a condition for licenses outside the social equity program was waived.

With the passage of Prop 207 last year, the state has paved the way for more licenses and more retail outlets for adult-use, recreational pot. There are currently 130 pot dispensaries with 127 “operating facilities,” according to the most recent medical marijuana financial report by ADHS.

In addition to the 26 social equity licenses coming next year, last April the ADHS created 13 new adult-use marijuana licenses for eight counties: Apache, Cochise, Gila, Graham, Greenlee, La Paz, Santa Cruz and Yuma. 

The licenses are intended to fill a void in rural communities, ensure legal access throughout the state, and reduce black market activity.