Arizona Department of Health Services Released Draft of Social Equity Rules

By Jonathan Udell, Rose Law Group cannabis attorney | Rose Law Group Reporter

Yesterday at approximately 4:30pm, the Arizona Department of Health Services (“ADHS”) released its first draft of rules that would govern the social equity program established by Proposition 207, the Smart and Safe Arizona Act. See Ariz. Dep’t of Health Svcs., May 2021 Draft of Social Equity Rules (May 6, 2021), available at https://www.azdhs.gov/documents/director/administrative-counsel-rules/rules/rulemaking/adult-use-marijuana/2021-05/draft-rules-2021-05-06.pdf.

The social equity rules have been eagerly anticipated due to the limited licensing opportunities provided under Prop. 207 and the initiative’s vagueness about the social equity program. With respect to the social equity program, Prop. 207 only stated (1) that twenty-six licenses would be allocated pursuant to the program, unless the legislature allocates more licenses, and (2) that the program needed to “promote the ownership and operation of marijuana establishments and marijuana testing facilities by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws.” See A.R.S. § 36-2854.

The draft rules released yesterday provide that 51% of entities applying for a license under the social equity program must be owned by individuals who (1) have petitioned Arizona courts for expungement, a process that will start on July 12, 2021, (2) complete a training course provided by ADHS, and (3) had a 2019 family income that was less than 200% of the federal poverty guidelines. The 2019 federal poverty guidelines for a one-person household were $12,490, with an extra $4,420 for each other person in the household. See 2019 Poverty Guidelines, U.S. Dep’t of Health & Human Svcs., https://aspe.hhs.gov/2019-poverty-guidelines (last accessed May 7, 2021).

These requirements differ from the approaches adopted in other states and cities around the country. Although no two social equity programs are the same, individuals often qualify elsewhere if either they have been arrested for a marijuana offense or they reside in a geographic community—such as a zip code, police beat, or census tract—where a disproportionate number of marijuana arrests occurred. The draft released yesterday would make Arizona’s social equity program one of the more stringent in the country by, e.g., excluding minorities from low-income communities who have been arrested but currently have an average income. 

Regarding the application process, the draft social equity provisions mostly reflect the rural county backfill licensing round that recently concluded. Yet they depart from past licensing rounds in certain key respects.

First, applicants would not need to identify a location for their dispensary prior to submitting an application. That change would eliminate the weighty burden of finding a properly-zoned property whose owner consents to the property being used as a marijuana establishment. Applicants would only need to take this costly step after they receive a license and before they apply for approval to operate.

The rules would also decrease financial burdens on applicants in a more direct fashion. While the application fee for rural county backfill licenses was $25,000, the application fee for the social equity program is $5,000, though it remains nonrefundable. Additionally, the rules would not require applicants to show they possess any level of funding. This differs significantly from the last licensing round, where applicants needed to show they had $500,000 in liquid capital.

Similarly to the last licensing round, there are limits on how many applications one can submit. The principal officers and board members who qualify under the rules’ social equity criteria may only be listed on one application. Other principal officers and board members may be listed on up to five applications.

ADHS will accept comments on the draft rules until May 16, 2021. The attorneys in Rose Law Group’s Cannabis Department look forward to submitting comments in efforts to improve the draft rules and to assisting eligible applicants throughout the social equity application process.

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