Arizona issues cannabis social equity licenses

Arizona state regulators last week issued social justice cannabis business licenses, selecting 26 lucky winners from a lottery pool of nearly 1,200 applicants. The Arizona Department of Health Services Offices selected the winners in its office Friday after a judge ended a challenge to the state’s program for granting recreational dispensary licenses to applicants adversely affected by the War on Drugs.

State officials and applicants crowded the Phoenix Department of Health office on Friday as the winning applicants were randomly selected using state lottery software Smartplay International. The process was conducted and audited by Henry & Horne LLP to ensure the security of the selection lottery. The selected applicants will now begin the process of opening licensed adult cannabis dispensaries.

Legalization with equity

Proposition 207, the historic voter initiative to legalize recreational cannabis, passed by Arizona voters in 2020, included provisions to “encourage the ownership and operation of marijuana facilities and marijuana testing facilities by individuals from communities disproportionately affected by the… enforcement of previous marijuana laws.” Applicant Arianna Munoz told reporters before the lottery that the social justice program had the potential to transform her life.

“It would create generational wealth for me and my family. It would give me more opportunities to start other business ventures,” said Munoz, who was not selected in Friday’s lottery. “I’ve always wanted to be a brand owner and pharmacy owner and it was the perfect time.”

Arizona’s legalization initiative included provisions to grant recreational cannabis business licenses to the state’s existing medical dispensaries, which began selling cannabis products to adults in January 2021. However, social justice retailers will not be able to sell medicinal cannabis.

“Prop. 207 didn’t change the Arizona Medical Marijuana Act at all, so the reason the currently established medical licenses can somehow be merged is because they already existed,” explained Sam Richard, executive director of the Arizona Dispensary Association the only new licenses Prop. 207 created were adult recreational licenses.”

Jon Udell, the policy director for the Arizona branch of the National Organization for Marijuana Law Reform, said a bill to solve the problem was dead in the state legislature.

“Right now, there just isn’t a really realistic way forward” for a legislative solution,” Udell said.

Arizona Judge denies legal challenge

On Wednesday, Maricopa County Superior Court Judge James Smith ruled against three social applicants who filed a lawsuit to postpone Friday’s lottery. Paul Conant, the plaintiffs’ lead counsel, said the Social Justice licenses should not be issued before the Department of Health has completed the applicants’ background checks. He argued that the process could lead to the selection of unqualified applicants.

“This is a one-time deal in Arizona,” Conant argued at a hearing Wednesday. Granting licenses to unqualified applicants only to later revoke them “would be unfair to everyone else who submitted applications, paid their $4,000 application fee, and otherwise attempted to qualify.”

But the judge dismissed the argument and declined to issue an injunction to block Friday’s lottery.

“The Court finds that the Department properly exercised the authority expressly granted to it by Proposition 207, followed due process, and exercised its discretion in deciding whether to conduct the drawing before or after the reviews were completed,” Smith wrote in a judgment cited by Phoenix New Times.

Other challenges facing Arizona’s cannabis social equity program centered on the details of business ownership. The rules require qualifying individuals to own 51% of a social participation business, giving large corporations and multi-state operators the opportunity to work with applicants to operate under the program. Business owners are also permitted to sell their licenses to businesses not owned by social justice applicants. Critics accuse the rules that the program does not live up to its goals of social justice.

Because Arizona’s recreational cannabis regulations place a cap on the number of adult-use dispensaries that can be licensed by the state, the Social Justice licenses granted last week will be the last to be awarded for the foreseeable future. The selected applicants have 18 months to open their pharmacies. A list of lottery winners is available online.