Arizona Awards 31 New Medical-Marijuana Licenses, and You Can Probably Guess Where

The Arizona Department of Health Services awarded preliminary licenses for 31 new medical-marijuana dispensaries last week, creating a lucrative opportunity for entrepreneurs and (soon) more shopping choices for patients.

Most of the 747 applicants lost out on their hoped-for pot of green gold — not to mention the nonrefundable $4,000 of their $5,000 application fee. But the lucky few whose applications were accepted could make a fortune in the industry.

"It's fantastic," said a woman who is part of a group that won a license. "We did an enormous amount of work to get to this point."

Each of the new dispensaries must be located within one of the state's predetermined geographic areas for marijuana businesses, called Community Health Analysis Areas, or CHAAs. Nearly all the new dispensaries will be in metro Phoenix or Tucson, which will make them some of the busiest retail stores in town if voters say "yes" to Prop 205 next month. (A full list of locations for the winning dispensaries is available at the bottom of this story.)

Under the proposed law, medical-cannabis retail outlets would be allowed to sell their products to all adults 21 and older. Existing stores would have first dibs on the 150 or so adult-use licenses the state would initially issue, which means only about 20 nonmedical-marijuana businesses would be able to obtain licenses at first. The system would allow for expansion after September 2021, conditional on approval from the public and individual municipalities.

The DHS picked the winners based on rules it created five years ago, selecting most of the winning applicants outright in a winnowing process designed to place new dispensaries within range of the greatest number of medical-marijuana patients.

But nine of the state's CHAAs drew applicants that were so evenly matched, they were considered ties.

Criteria for new licenses are based on "the number of registry identification cards issued to qualifying patients who reside within 10 miles of the applicant’s proposed dispensary location, and ... [t]he number of dispensaries operating within 10 miles of the applicant’s proposed dispensary location." A tie occurs when the scores assigned by DHS are within 0.1 percent of each other, in which case the DHS must select the winning applicant at random. Lottery balls take care of that random process.

This past Thursday, October 6, the agency held lottery-style drawings for the nine tied applications. The DHS allowed New Times to observe the event, provided the paper agreed not to photograph the handful of people who attended the drawing. (The Arizona Medical Marijuana Act contains strict privacy provisions: The state can't publicly release the locations of existing dispensaries, for example.) A similar lottery occurred in 2012, after 484 applications were submitted for the 99 initial licenses.

About 20 people showed up for the proceedings, held in a small auditorium at the DHS headquarters just south of Van Buren Street on 18th Avenue in Phoenix. Most were young white men dressed casually in polo shirts and blue jeans; a few sported baseball caps. 

The nine tied CHAAs contained anywhere from two to five applicants, each represented by a numbered lottery ball inside a separate plastic bag for each CHAA. 

Working one CHAA at a time, a pair of accountants hired by DHS from Henry and Horne solemnly transferred the batches of lottery balls from the plastic bags into the machine and then drew out the winners one by one. The observers remained silent for much of the process.

The winning applicant New Times interviewed declined to reveal the name of her company, explaining that it is embroiled in a dispute with an ex-partner — a situation that has become common in the intensely competitive industry. The woman's "little group" already owns one dispensary, she said. The members submitted 10 applications for 31 potential licenses. One was selected, but it was tied with several others in one of the CHAAs. Fate intervened, and the group's lottery ball won the day.

Afterward, as the woman spoke enthusiastically about her win, a 20-something man yelled out to her, "Do you want to sell?"

The man was Steve Wijatyk, an engineer by profession, former Intel worker and president of Alpha Green LLC. He told New Times he was serious about the offer (which the woman declined). Wijatyk's company is made up of doctors and experts in finance and cannabis cultivation. They applied for the Apache Junction CHAA, which had no ties. Witjatyk didn't yet know whether his group's application had been selected; the DHS announced all 31 winning applicants a couple of hours after the lottery. He didn't return a call later from New Times.

As the woman spoke enthusiastically about her win, a twentysomething man yelled out to her, "Do you want to sell?" (She declined.)

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Now that they've been selected, the winners don't have to stick to the location they proposed on their application, but they must locate their dispensary within the boundaries of their assigned CHAA.

Some of the newly licensed businesses could have their stores open in a few months, says Ryan Hurley, a lawyer who represents dispensaries. If a business has a planned site for a new dispensary totally under control with municipal zoning approval, in theory it could have its retail site remodeled and ready for state inspection in two or three months. Most won't be that fast, though, and will likely take six months to a year to open, Hurley says.

Ninety-nine dispensaries are already open throughout the state, selling a smorgasbord of cannabis products legally to 100,000 patients under the medical-marijuana law that voters approved in 2010. The dispensaries used to be restricted to their own CHAAs, but those that have been open for more than three years have been allowed to migrate, resulting in more dispensaries in urban areas and fewer in rural areas. Officials in Phoenix, Scottsdale, and other cities have taken steps to limit the total numbers of dispensaries in their jurisdictions, fearful of an explosion of cannabis shops if voters approve Prop 205.

If the legalization measure does pass, current patients may encounter long lines at converted medical-marijuana stores, judging by the fact that Colorado has about 900 cannabis stores and a smaller state population to serve its own cannabis customer base. Yet no complaints will be heard from the dispensary companies, including the newest licensees, who will have a temporary monopoly on a high-demand product. Even if Prop 205 doesn't pass, owners of the new dispensaries should do well, depending on their business acumen.

The state, meanwhile, took in $3 million from the new round of license awards. The money goes into the state's medical-marijuana fund, a bank account that has so far been used mostly to thwart efforts to add more qualifying ailments to the medical-marijuana law.

See the list of 31 winning locations: