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Arizona Cannabis Social Equity Program Faces Legal Challenge

An Arizona nonprofit and a group of potential investors filed suit against the state’s cannabis social equity program last week, claiming its rules will lead to lucrative marijuana dispensary licenses intended for communities harmed by the War on Drugs being taken over by existing corporations.

Acre 41 and the Greater Phoenix Urban League filed a lawsuit claiming that rules created by the Arizona Department of Health Services to regulate the program do not meet the requirements of Proposition 207 (the cannabis legalization ballot measure) last year.

“The final rules promulgated by ADHS create what are functionally 26 ‘lottery tickets’ for qualifying individuals,” the complaint argues, “rather than a regime of continuing social equity ownership and operation.”

Plaintiffs include the Governor of Arizona and State of Arizona. Doug Ducey, the Department of Health Services, and the agency’s director, Don Herrington, as defendants in the legal action. On Thursday, the lawsuit was filed in Maricopa County Superior Court. The case is being brought by the plaintiffs who want to have the ruling declared invalid and for the ADHS instructed to create new regulations in accordance with Proposition.207.

Proposition 207 requires regulators to encourage “ownership and operation” in the state’s new adult-use cannabis industry by members of communities disproportionately harmed by cannabis prohibition policies. The rules were published by the ADHS in October. They allow 26 dispensary licenses to be granted for those who meet at least three criteria. While the department will accept applications by late this year, and issue licenses in a lottery beginning next year (although the suit seeks delays until the case has been decided by the Court), the licensing process will be open to all applicants.

Arizona Plaintiffs Fear ‘Straw Man’ Applicants

Celestia Rodriguez of Acre 41, one of the plaintiffs in the suit, says that the rules could lead to big, existing cannabis companies using “straw men” applicants to apply for the licenses.

“My true intention is to make sure these 26 licenses stay with true social-equity licensees, as well as reinvest in and revitalize these neighborhoods that have been disproportionately affected,” Rodriguez explained to the Arizona RepublicOn Thursday.

Elle said that cannabis businesses have begun to recruit people for co-applications under the social equity program. They will form partnerships with existing companies in order to obtain licenses.

“The (multi-state operators) have already been scouting the streets with flyers, mailers, and sending people door to door,” Rodriguez said. “They most definitely have been putting money into a hands-on approach to recruiting social-equity applicants.”

Rodriquez states that once the social equity licenses have been issued, the corporate partners will attempt to take control.

“These [investors] are coming in, selling them the dream,” Rodriguez told the Phoenix New Times. “They want to buy them out for pennies, and add it to the portfolios that they are building right now.”

“The final rules promulgated by the ADHS permit owners who qualify under the Social Equity Program to enter an agreement to sell or transfer their ownership interest in the licensed entity at any point after the license is allocated, which defeats the purpose of the Social Equity Program,” the complaint filed in the lawsuit maintains.

Julie Gunnigle (an attorney and political director of the National Organization for the Reform of Marijuana Laws of Arizona) says activists expected large marijuana operators to fight for the social equality licenses, in spite of the intended purpose of the program.

“It’s just this giant industry grift that we all saw coming,” Gunnigle said.

“But what I didn’t anticipate,” Gunnigle continued, “was just how brazen these folks were going to be.”

In the lawsuit, the plaintiffs also raise concerns about the rules of the social equity program. They claim that the only requirement for ownership is to have the applicant operate the company. They also claim that the social equity program should require that businesses locate in zones impacted by prohibition of cannabis and that those applicants who reside in these areas, including children, should still be eligible for participation.

Jimmy Cool was the principal attorney for the case. He stated that the social equality rules don’t fulfill Proposition 207’s intent.

“What the voters were trying to do was enrich communities that were impacted by the drug war.” Cool said. “From our clients’ perspective, all [the program] does is enrich 26 people.”