When Arizona issued 26 new licenses for marijuana stores last month in a high-stakes lottery to fulfill a “social equity” component of marijuana legalization, the winners assumed their opportunity could be worth millions.
But zoning issues in Phoenix and Tucson could make those licenses far less important, and could even result in some winners losing their licenses because they can’t use them within a state-imposed time limit.
While Phoenix officials have never explicitly blocked new stores like Gilbert and several other Valley towns like Scottsdale and Surprise have done, zoning rules will have that effect, at least for now.
The problem in Phoenix is that social equity licenses only allow recreational sales to people 21 and older, not medical sales, which are taxed and licensed differently. In Phoenix, existing zoning rules only accommodate dispensaries that sell medical marijuana.
“The City of Phoenix does not permit a free-standing recreational marijuana dispensary,” Phoenix Zoning Administrator Tricia Gomes said in an interview with The Arizona Republic on Tuesday. “It must be an accessory from a medical marijuana dispensary.”
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The wording of Proposition 207, the 2020 marijuana legalization vote measure, called for issuing the new licenses to people “in communities disproportionately impacted by the enforcement of previous marijuana laws.”
Criteria for applying for social equity licenses included having a minor marijuana conviction or a family member with a marijuana conviction, as well as income guidelines and having lived in one of the ZIP codes that the state has identified as being disproportionately affected by marijuana law enforcement.
Phoenix officials said they are reviewing the rules and plan to discuss the issue with the city council.
Tucson officials are reviewing zoning rules for new social equity licenses, delaying their launch in that city.
Winners of social equity licenses might look to rural communities, but many of those areas will already see new marijuana stores thanks to additional rural licenses the state issued last year. And most licensees would probably prefer to open in major cities.
Zoning issues create additional problems for would-be marijuana store operators, as state rules require last month’s lottery winners to open their outlets within 18 months of getting their licenses. dispensary license, on pain of losing it.
Changes in city rules will take time
Gomes said it could take Phoenix leaders several months to pass a code change to the zoning ordinance, and given the number of stakeholders involved in a change for marijuana stores, eight to 12 months is likely. .
The state’s second-largest city, Tucson, in March began what could be a six-month rewrite of its zoning rules for marijuana stores. The delay has encouraged social equity licensees to look elsewhere for store locations so they can get to work and meet the 18-month opening deadline.
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The countdown started on April 8, the day of the lottery. Those who do not open before the deadline could lose their license.
“ADHS cannot waive the rules or grant extensions beyond the timelines set out in the rule,” department spokesman Steve Elliott said. “If a licensee does not open a facility within 18 months of the issuance of a license, the department may issue a notice of intent to revoke the license.”
Elliott said if a licensee receives such notice, they will have the option of a hearing and a settlement conference to see if they can reach an agreement with the department. But if they lose the license, it’s gone for good.
“There is no mechanism in the rule to assign a revoked license to another applicant,” Elliott said.
Zoning makes selling a license difficult
The City of Phoenix’s zoning issue is confusing for people who have won social equity licenses and for the many who hope to associate or buy the licenses outright, attorney Tim LaSota said. .
“These social equity licenses were a big selling point for the electorate,” LaSota said. “It’s disappointing that there is this problem with them. I think it’s politically untenable not to fix it.”
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Proposition 207 allowed all existing medical marijuana dispensaries in the state to apply for recreational licenses, which they did, turning medical dispensaries into “dual-use” stores that sell to both medical customers and recreational.
There is no real difference between marijuana sold to recreational and medical customers. But medical customers can buy 2.5 ounces every two weeks, while recreational customers can only buy 1 ounce at a time. And medical customers can purchase more potent edibles; nor do they pay the 16% excise tax applied to recreational sales.
Gilbert, the first municipality to move to block recreational marijuana stores, has allowed its only medical dispensary to also offer recreational sales, but new social equity licenses must find an accommodating municipality elsewhere.
“It almost looks like it’s been pre-incorporated into the law like they’ve done in the existing (dispensaries),” LaSota said. “They all get dual licenses. None of them have that problem.”
John Labate runs a business that connects people who want to buy and sell dispensaries. He said the Phoenix snafu is destroying the value of social equity licensing right now.
“One way to look at it is that this is a second-class license with half the earning potential,” he said, referring to the inability of social equity stores to sell medical marijuana.
“Tucson is implementing a special exemption process. But it’s an extra step. Why does this license have an extra step?”
He said potential buyers of these licenses have no idea what they are worth, which means lottery winners will not only have trouble finding a municipality where they can open if they choose, but they will also struggle to sell.
“If you can’t settle in Phoenix or Tucson, what’s your assessment today?” Labat said. “You have to take what’s out there (from buyers). And what’s out there raises a lot of questions.”
Contact Reporter Ryan Randazzo at Ryan’s.Randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.
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