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Arizona Hashish: Proposed Rules are Right here!

On December 11, 2020, the Arizona Department of Health (the “Department”) published proposed regulations governing the use of marijuana by adults. Click HERE to review the proposed regulations. This post discusses some of the licensing and operational issues for adult marijuana facilities. Overall, we like what we’ve seen so far.

Before diving in, it should be noted that for a very short period of time – until December 17, 2020 – the department accepts comments on the proposed regulations HERE. The department has set up an online portal to submit comments and questions. The department will also hold a public meeting on December 17, 2020 at 10 a.m. (MST) to discuss the proposed regulations. You can find the convocation and related information HERE.

Without further ado, here is a breakdown of the proposed regulation by subject.

Fees and proof of funds

Before discussing some of the licensing requirements, the new regulations put various financial requirements in order to obtain a license for adult use. The initial license fee for an adult facility is $ 25,000 with a license renewal fee of $ 5,000. AAC §§ R9-18-102 (4) (a) & (b). In addition, a proposed licensee must also demonstrate that they have $ 500,000 in funding. AAC § R9-18-303 (A) (6).

Individual registration requirements

As explained in our previous post (click HERE), certain individuals who are either “Chief Officers” or “Board Members” must be registered with the department. The approval process is part of the registration process for marijuana facility agents. The facility’s agents include officers, board members, and staff and volunteers at a marijuana facility. With regard to “executives,” the department defines who they are by entity type. AAC § R9-18-301. For example, if a company is the licensee, then two individuals who are officers of the company are considered “officers”.

The proposed regulations also contain information on who are members of the Management Board by type of company. In addition to the persons listed as members of the company’s management board in the articles of association, the company’s executives are also members of the management board. AAC § R9-18-301 (B) (1). To qualify as a “facility agent,” such individuals must have an Arizona driver’s license, Arizona ID, or some form of approved identification, most of which must be issued on or after October 1, 1996. AAC § R9-18-201 (2). So it appears that only Arizona residents can be a facility agent.

License assignment process and settings

The department has also proposed a licensing process if it receives more applications than allotted under Proposition 207 (now the Arizona Act) for “early applicants.” The early application period runs from January 19, 2020 to March 9, 2021. During this time, only certain companies can apply for a license. For example, a company that already has a medical marijuana license can apply for a license for adult use. For any company that does not apply properly during the early application period, the department will return the application and application fee. AAC § R9-18-302 (C).

License application process

The first step in the application process is to apply for an initial license to establish marijuana. AAC § R9-18-303. The proposed regulations contain a fairly detailed list of what a company must submit under this application process. For example, the department needs a statement signed by a representative of the local jurisdiction in which the company will operate. The representative must certify that the proposed marijuana facility complies with local zoning restrictions. AAC § R9-18-303 (A) (4). If the proposed licensee is a publicly traded company, the proposed licensee must disclose the name, residence, address, and date of birth of any such principal or director for any officer or director who is entitled to more than 10% of profits. AAC § R9-18-303 (A) (1) (f). To someone who is only an owner and has no other role or position with a licensee, it would appear that there are no licensing or disclosure requirements for those owners other than the above.

Operating permit

Once a company has been granted an initial license to operate a marijuana facility, it can apply to operate a marijuana facility. AAC § R9-18-304. For this purpose, the institution must provide the department with certain information. Among other things, if the pharmacy wants to sell edible products, they must submit a copy of their food permit or permit. AAC § R9-18-304 (4). In addition, a full-scale floor plan must be submitted that includes: (a) the layout and dimensions of each room, (b) the name and function of each room, (c) the location of each hand wash basin, (d) the location of each toilet room (e) exit means, (f) position of each video camera, (g) position of each panic button and (h) position of natural and artificial light sources. AAC § R9-18-304 (6).

Operating rules

The department also put forward proposed rules for the management and operation of a marijuana facility. AAC § R9-18-308. A facility must be open for at least 30 hours per week between 7:00 a.m. and 10:00 p.m. AAC § R9-18-308 (A) (1) (a). The department also requires that certain policies and procedures are in place, including guidelines on job descriptions and inventory control. AAC § R9-18-308 (A) (2). These guidelines must also be available from the company’s retail store and must be reviewed and updated (if necessary) every 12 months. AAC §§ R9-18-308 (A) (3) & (4). The department also requires assurances that certain regulations will be enforced. For example, the facility must ensure that officers, board members, staff, and volunteers have valid marijuana agent registration with the department. AAC § R9-18-308 (A) (5).

Security requirements

The proposed regulations also contain very detailed safety requirements. AAC § R9-18-312. One of the many safety requirements includes certain policies and procedures (a) that restrict access to areas of the marijuana operation that contain marijuana or marijuana products and, where applicable, the cultivation or production location of the marijuana operation only to authorized persons; (b) which provide for the identification of authorized persons; (c) that prevent loitering; (d) to carry out electronic surveillance; and (e) to use a panic button. AAC § R9-18-312 (H) (2). Electronic monitoring will also be required and the department has very specific requirements. For example, a pharmacy must have at least a 19-inch or larger on-demand monitor, and there must be a video camera at the eastern point of sale. AAC §§ R9-18-312 (H) (1) (c) (i) & (iv).

Topics not yet covered

What is not yet regulated in the rules? Well, the proposed rules do not apply to test facilities – apparently the division will publish these proposed rules at some point in the future. Likewise, the new Social Equity Opportunity Program (“SEOP”), in which the department issues an additional license for use by 26 adults, is not discussed in the proposed regulations. We expect the regulations for test facilities and SEOP to be published in the coming months.

Conclusion

In conclusion, anyone interested in the Arizona cannabis industry would want to carefully review the proposed regulations. While definitive rules will be made, we doubt whether they will see any significant changes. The cannabis industry is highly regulated, so understanding cannabis laws and regulations is of the utmost importance to anyone interested in starting and operating a marijuana facility. For questions, please contact us.

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