Plan to Restrict Arizona Marijuana Stores Demonstrates Drastic Need for New Rules

An Arizona lawmaker's proposal to stop dispensaries from moving out of their state-designated areas highlights the need for updated medical-marijuana program rules.

"We're in limbo — and we've spent a lot money." — Lori Nicks, would-be dispensary operator.

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The Arizona Medical Marijuana Act that voters approved in 2010 requires the state to adopt rules that govern what was then a fledgling program.

Besides a few court-ordered changes, the final rules adopted after public comment by the state Department of Health Services in March 2011 still are in place — and the long delay is causing problems on several fronts.

One of the many effects of the lack of rules could be a significant expansion of the places that qualified patients could grow marijuana in Arizona. 

The rules haven't been revised because of a moratorium on rule-making in state agencies that Governor Doug Ducey ordered in February 2015 and renewed last week. Yet the moratorium isn't stopping new medical-marijuana rules altogether — it's just encouraging lawmakers to create new rules on their own.

Arizona Representative Vince Leach (R-Saddlebrooke) is sponsoring three new laws aimed at issues addressed by the 2011 rules — with the goal of putting more limits on the program. One new bill he dropped this week, House Bill 2618, restricts where in the state dispensaries can move.

Currently, most dispensaries are within the geographic spaces the DHS calls CHAAs, for Community Health Analysis Areas. The idea was to spread out the dispensaries — which by law can number no more than 10 percent of the state's pharmacies — to exploit the 2010 law's prohibition on patients' growing marijuana within 25 miles of an operating dispensary. But the 2011 rules allow a dispensary to move to another CHAA after three years.

The first Arizona dispensaries started opening in late 2012, meaning many of the state's 87 retail-medical-marijuana stores will be eligible to move this year. This is creating concern in cities like Scottsdale, which now has three dispensaries and may see more. The city has a special meeting planned for March 22 to discuss zoning changes that may limit the number of dispensaries.

Leach's bill would put a stop to the likely migration of dispensaries from rural, sparsely populated CHAAs to locations with many more likely customers. However, the bill seems to run afoul of the 1998 Voter Protection Act, which not only requires a super-majority of three-fourths of the state's 90 lawmakers to change a voter-enacted law but also requires the change to further the purpose of the law. Leach didn't return a message on Thursday.

The proposal drew criticism from dispensary advocates like Scottsdale lawyer Ryan Hurley.

"Decisions on how to regulate dispensaries and where to locate them around the state should be left to the [DHS], and not in the Legislature," he says.

Leach's other cannabis-related bills this session include one that would prevent the state from giving a discount on pot cards to people on food stamps while another would require "hardened" roofs on cultivation facilities. The bill banning discounts directly targets a proposal in February 2014 draft rules created by the DHS under former Director Will Humble.

These draft rules remain generally stalled, with only some active rule-making taking place. Some minor changes will occur, because the moratorium provides for exceptions to comply with court-ordered rule changes.

The DHS has issued renewed licenses to existing dispensaries, but no new dispensary licenses are getting issued. The 2011 rules provided for a lottery system to pare down the 200 or so applicants for the limited number of dispensary licenses. But they didn't provide for a second lottery or a way to follow up the initial distribution of licenses. That was all supposed to be figured out in the revised rule package, but the 2014 draft rules didn't make it to a final review process.

It's frustrating for would-be cannabis entrepreneurs like Lori Nicks and her partners, who can't take the final steps to obtain a license and open a dispensary. Nicks has spent the past 16 months going after one of the four CHAAs in the state that remain open to new dispensaries, all in southern Arizona. She found a location for the planned dispensary and obtained the necessary zoning permits from the county.

"We have everything in line," she says. "We're essentially waiting for the next CHAA license drawing. We're in limbo — and we've spent a lot money."

Nicks says the group of would-be dispensary operators has spent "six figures" on legal fees, negotiations with property owners, permits, and other things.

Besides the four CHAAs that have never had dispensaries, the expected migration of dispensaries to heavier populated areas will leave some CHAAs vacant. Under the 2010 law, qualified patients can grow up to 12 plants each in areas that are more that 25 miles from an operating dispensary. Caregivers can grow up to 60 plants for five patients.

The current distribution of dispensaries means more than 90 percent of the state is considered no-grow. But much of the state could be open to home cultivation if and when some dispensaries move out of their CHAAs. One solution to the home-grow-expansion problem, if it could even be considered a problem, would be to open up the vacated CHAAs to new entrepreneurs like Nicks who aspire to get into the business.

Governor Ducey renewed the rules moratorium last week because it's been beneficial overall, says his spokesman, Daniel Scarpinato.

"Taking a very cautious approach to these issues of regulation and rules has been a boon to small businesses and to our economy," he says. "It has not been detrimental."

On the cannabis-industry side, the rules moratorium already is causing problems for business-people like Nicks. Rules issues that affect patients include a possible discount for food stamp recipients and senior citizens on the steep, $150-a-year fee to renew their cards, and a clarification on whether the 25-mile rule means "as the crow flies" or 25 miles of roadway.

It's unclear whether Leach's bills will get very far. But on Thursday, the bill requiring hardened roofs on cultivation facilities passed the House Committee on Agriculture, Water and Lands in a 10-0 vote that included the committee's three Democrats.

Voters could make the question of new rules moot, if they vote "yes" on the planned legalization initiative expected to be on the Arizona ballot in November. The initiative would set up a Department of Marijuana Licenses and Control that would oversee both the proposed adult-use legalization measure and the current medical-marijuana program. 
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Ray Stern has worked as a newspaper reporter in Arizona for more than two decades. He's won numerous awards for his reporting, including the Arizona Press Club's Don Bolles Award for Investigative Journalism.