Licensing Fee-asco: Cannabis Advocates Question How DHS Is Handling Dispensary Licenses

The Arizona Department of Health Services is still crafting rules for a Social Equity Program intended to provide opportunities in communities adversely affected by the decades-long War on Drugs.

But many in the industry, as well as organizations devoted to social justice, are questioning the cost of licenses and the state's fledgling plan to distribute them to ensure they land in the hands of the people Prop 207 intended.

There is no deadline for those rules to be completed, but many interested parties are working to influence the outcome so the program is more accessible to those without major economic clout.

Hoping to influence the yet-to-be written rules, a coalition of potential stakeholders presented a letter to DHS laying out their vision of what the social equity program should look like once it is in place.

A Feb. 10 letter submitted by Maricopa County cannabis attorney Jerry Chesler contends that the social equity provision "was a significant reason that the law passed with overwhelming support."

"Similar to other states grappling with the lack of meaningful minority representation in the industry, the provision was included in an attempt to address some of those social inequities caused by the failed War on Drugs," Chesler wrote. "In an attempt to stave off any potential litigation and to avoid individuals/entities taking advantage of 'loopholes' in the regulations, the Coalition, as current stakeholders in the disproportionately impacted areas and as potential stakeholders in the social equity program, wishes to preemptively participate in the rulemaking for this process."

The coalition laid out three "organizing principles" it hopes DHS will follow:

1) Targeting communities that have been disproportionately impacted by the War on Drugs;

2) Lowering the barriers for entry into the legal cannabis industry for members of those impacted communities, and,

3) Focusing the benefits of Arizona's legal cannabis industry on those disproportionately impacted communities, ensuring minority participation.

The letter cites an ACLU study, "The Racial Divide in Prosecutions in the Maricopa County Attorney's Office" that details which ethnic groups have been impacted most and lists 22 ZIP codes throughout the state—mostly in rural or Native American communities—for licensing distribution.

Prop 207 specifies there will be 26 social equity licenses added to the existing number of medical/dual licenses allowable by statute. The Arizona Medical Marijuana Act limits the number of licenses to one for every 10 traditional pharmacy in the state—a number that has been shrinking in recent years—so there are currently 130 licenses in the state.

A lawsuit against DHS Saguaro Healing LLC v. State of Arizona seeks to establish licenses for four counties without legal access to weed and has the potential to add to that total. The AMMA specifies that there must be dispensaries in every county in the state and the Arizona Supreme Court confirmed that in August 2020, so there may be as many as 10 additional licenses in the near future.

Be that as it may, if DHS adopts rules reflecting the current cost of medicinal licensing, the number of individuals capable of getting into the program will be very low.

The cost of applying for a license is $25,000, which is non-refundable, and the applicant must prove they have $500,000 in liquid assets. Additionally, if someone applies for multiple licenses, they must have $500,000 stashed away for each application.

"If you submit five applications you have to have $2.5 million or somebody in your group does," said attorney Michael Crawford, a partner in the Prime Leaf dispensaries. "What that's created is a bunch of wealthy people or wealthy companies—like the Canadian companies—that are the ones that are going to go around and put in a ton of applications."

Crawford believes filing fees should be low enough not to jeopardize someone's life savings and further that the $500,000 requirement is an anachronism from the earlier days of legalized medicinal weed.

"It's not fair to a person who doesn't have access to that kind of capital," he said. "Why should those people be excluded from this process? 95% of the people [in Tucson] couldn't afford to risk or waste $25,000 with no chance to get it back."

Crawford posits the state is bringing in enough revenues from taxes to run the program, so fees should be refundable and much lower, maybe $1,000, and the financial requirements done away with because investors are easier to find in 2021.

"Are you telling me if I win this license with $1,000 that I'm not going to have 500 people at my door ready to invest?" he asked rhetorically.

Another fiscal barrier to license acquisition is property ownership. Currently, regulations require an applicant to have a site ready to open up for business. This can cause additional hardships for renters, as there are still stigmas attached to the cannabis business that can make landlords wary.

"When we came into the business, we bought all our real estate because we didn't want to have a landlord come to us and say, 'Get the hell out,'" Crawford said.

But Crawford has not given up hope that DHS will figure a way to make the program work with input from all stakeholders.

"I won't criticize them too much, because they really haven't had a chance to [create rules for the program]," he said. "My problem is the way that they're starting off with these [additional] licenses is not a good sign of things to come."

MORE ON THE SOCIAL EQUITY FRONT: A "striker bill" added to SB 1121, introduced by Sen. David Gowan (R-LD12), sought to direct AZDHS in its quest to create the social equity program, is floating around the Legislature.

The bill would require DHS to have rules in place by Dec. 31, 2021, and laid out residency, fee structure and economic requirements, among other details.

It would cap application fees at $2,500, but would maintain the capital liquidity requirements set at $500,000. Seven licenses would go to "companies that are at least 40% owned by a nonprofit corporation that has been incorporated for at least five years that provides at least four out of eight specified programs to communities disproportionately impacted by previous drug laws," and 19 licenses to either "individuals from a community disproportionately impacted by the enforcement of previous marijuana laws or companies that are at least 25% owned by an individual from a community disproportionally impacted by enforcement of previous marijuana laws."

It would also require DHS to provide training to the licensee and a "city, town or county" to allow at least one marijuana establishment from the program to operate within its jurisdiction.

SEEING GREEN: Leafly, an online cannabis resource that acts as an information clearinghouse for the marijuana industry, recently released its annual jobs report that found legal cannabis in the U.S. supports 321,000 "full-time American jobs."

The report found that in 2020—the year of COVID—the industry added 77,000 new jobs, but that "diversity issues remain."

According to the report, there are more legal cannabis workers than electrical engineers, EMTs and paramedics, and more than twice as many as there are dentists.

The report can be found at leafly.com.

According to the report, Arizona has 20,728 individuals employed in the sector, adding 5,648 in 2020. Consumers purchased $1,031,000,000 in products in 2020 as well.

DO YOUR CIVIC DUTY: Voting continues online in the Tucson Weekly Cannabis Bowl. Cast your ballot for your favorite strains, edibles and more at TucsonWeekly.com.

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