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Arizona Points Interim Closing Rules AND New Leisure Licenses

An exciting time has come in Arizona’s cannabis industry! The Arizona Department of Health (the “Department”) (1) published definitive interim rules for recreational licensees and (2) issued new recreational licenses. As Kyle Jaeger of Marijuana Moment noted, this is the quickest transition from voter approval to sales enforcement by a state that has legalized marijuana to date.

In particular, on January 22, 2021, the department issued 86 new licenses for adult or recreational marijuana (CLICK HERE for the list). I happened to be driving past Harvest Pharmacy in North Scottsdale on Friday (January 22nd) and the lines were literally around the building! So it seems that recreational sales in Arizona have started strong.

The department also published final provisional rules for facilities for adult use in January 2021, which were in effect as of January 15, 2021 (CLICK HERE to view the rules). Unfortunately, it does not appear that the department has published a redline of regulations showing the changes from the draft rules to the tentative final rules. However, I’ll discuss some of the more important changes below.

It’s also worth noting that the department didn’t make any changes to certain rules despite public requests. For example, certain commentators called for the license fee for first-time licensees to be lowered. The department has decided to stick with its original proposal, so the initial license fee remains a fairly high $ 25,000.

A change in the rules affects the financial conditions that a licensee must meet. Under the draft regulation, the applicant had to demonstrate that they had “at least $ 500,000 in funds available” and a financial institution had to demonstrate this within 60 days of filing the application. While the tentative final ruling still requires a minimum of $ 500,000 in available funds, there are now some other requirements. AAC R9-18-303 (A) (6).

  1. A financial institution must provide proof of money within 30 days of submitting the application.
  2. The department has expanded who can have the funds. Before, it was just the applicant. Now it can be the “applicant or officer or director of the applicant” who has the funds.
  3. The filing provided to the department must now provide evidence that the $ 500,000 was under the control of the applicant or the applicant’s officer or officer for at least 30 days prior to the application date.
  4. According to the draft regulation, an applicant had to demonstrate “USD 500,000 in funds available”. Now an applicant or other suitable person must provide evidence of “USD 500,000 liquid capital under ARS § 6-851”. (CLICK HERE for the definition of liquid capital).

Another new requirement is that an applicant must ensure that an individual is not an applicant, officer, or board member for more than five (5) applications for a marijuana settlement license. R9-18-303 (C). This new rule only applies to recreational licensees (medical marijuana licensees are discussed in separate regulations).

Security is another area that poses new challenges. For example, while certain safety requirements related to cultivation existed, the tentative final regulations set stricter standards. R9-18-312 (A) (1) & (2).

  1. For indoor growing areas, the marijuana must be grown in a closed, locked room.
  2. For outdoor growing areas, the site must (a) be surrounded by solid 10-foot walls made of metal, concrete, or stone that block the view of the marijuana plant, and (b) have a 1-inch thick metal gate.

These new requirements, especially for outdoor growing, will certainly add to the cost of developing a growing area. However, it appears that these regulations will also help protect licensees from theft and other nefarious activities.

In the coming months, we expect draft regulations for both Arizona test facilities and the new Social Equity Opportunity program. When they are published, we will also report on these requirements.

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