The current 2020 initiative ONLY adds 26 licenses for social equity and back fills empty counties to two licenses. This creates a monopoly of the recreational market and four large corporations would own adult recreational use. For this reason we wrote this referendum for recreational adult use. The Small Business Liberty Act’s referendum adds a total of 125 licenses to the market with 100 licenses allocated to retail and 25 to craft production. These licenses would be auctioned or put into a lottery based on their class type. The auction of 25 licenses will be used to cover startup costs and funding this program.
- Class 1 – Converting a MMJ License to an Adult Use License (link to the next section)
- Class 2 – (25 available) super retail with size restrictions of 10,000 sf, auction
- Class 3 – (25 available) rural retail, has to be more than 25 miles from another grow or retail, auction
- Class 4 – (50 available) small retail with size restrictions of 2,500 sf, lottery
- Class 5 – (25 available) craft grow, lottery
Converting an MMJ License to an Adult Use License
- Both the Initiative and the Small Business Liberty Act allow for current medical marijuana license holders to convert their licenses from the medical marijuana program to the new adult use program. These adult use licenses are very valuable to the license holder and the State of Arizona should charge fees that are reasonable, but commensurate with the value. These fees can be used to fund the program. Arizona Class 6 liquor licenses can go for as high a price as $300,000.
- Smart and Safe Act allows for the cost to convert the license to be “up to five times” the current application fee. The current application fee is $5,000, so the maximum cost to convert would be $25,000 under the Initiative.
- The Small Business Liberty Act has a flat conversion cost of $100,000 per license.
Funding Program Startup Cost
An auction of 25 licenses could completely pay for the startup cost of this program. If this auction does not pay for the startup costs, the Board of Liquor Control will borrow the difference from the Medical Marijuana Fund and repay it within five years.
The Small Business Liberty Act believes the money in the Medical Marijuana Fund was built for the medical consumption of marijuana and should be allocated to research for the medical community. The Smart and Safe Arizona initiative (the other guys) proposes to drain the Medical Marijuana Fund without a plan for repayment.
It is important that the rural areas of Arizona have access to product as well as the metropolitan areas. Under the Arizona Medical Marijuana Act, dispensaries have the right to relocate after 3 years of operations. After three years of the program had passed there become a mass exodus from the rural areas, with dispensaries moving to the more populated areas of the state.
The referendum addresses the void in the rural areas of Arizona by allowing 25 licenses to be distributed to applicants that are applying for a location at least 25 miles away from another dispensary. This back fills at least 25 locations that are underserved under the current Arizona Medical Marijuana Act, and would continue to be underserved under the Smart and Safe Initiative.
Retail Store Size
Under the Arizona Medical Marijuana Act the retail square footage of a dispensary is limited to 2500 square feet. While the retail is limited to 2500 square feet, there can be ancillary services such as a cultivation, kitchen or production facility attached to the retail dispensary that is not limited to the 2500 square feet. Currently there are several dispensaries that are in buildings much bigger than 2500 square feet. In fact dispensaries with cultivation range from the smallest of 2500 square feet to over 100,000 square feet. Under the Smart and Safe Initiative there is no limitation on square footage of a retail dispensary. Any medical marijuana license that converts could ultimately result in a vast amount of significantly large marijuana dispensaries throughout the metropolitan areas of the state.
The Small Business Liberty Act limits all retail licenses to 2500 square feet with the exception of 25 licenses that will be auctioned off. The 25 licenses that will be auctioned off will be limited to 10,000 square feet. Unlike the medical marijuana licenses that will convert, these licenses are limited to retail only. The primary reason to create this class of license is to create an influx of money into the program to fund operations.
As the state of Arizona moves from medical marijuana use to adult use marijuana, the program will need more enforcement. For this reason the Small Business Liberty Act is advocating that the Arizona Board of Liquor Control (ABLC) be the oversight department for the marijuana adult use program. The ABLC already has a well established Prevention Unit to combat underage consumption and is prepared with enforcement to discipline dispensaries that are bad actors. The ABLC has procedures in place regarding the issuance and transfers of licenses. And lastly the ABLC already has an Investigations Division to ensure license holders adhere to Arizona law.
The Smart and Safe Act keeps the oversight of the marijuana adult use program with the Arizona Department of Health and Safety (AZDHS). AZDHS would have to create the enforcement and investigations departments that already exist within ABLC.
In regards to product testing and quality requirements, the requirements would still be monitored by AZDHS.
The Arizona State Legislature passed a bill in 2019 that enacted laws around testing requirement as it relates to products. The bill created a Testing Advisory Board that will aid in helping the legislature determine the thresholds of tolerance for heavy metals, pesticides, insecticides and molds. The law will be in full force and effect in November of 2020. Included in that law were standards that the testing labs need to adhere to that also controlled ownership of the testing labs. The law does not allow dispensary owners to own an interest in any testing lab.
The Small Business Liberty Act keeps the integrity of the law passed in 2019 in tact and refers back to this law to monitor the testing requirements for products as well as the rules for testing labs. Smart and Safe removes the requirement that the dispensaries cannot own the testing labs, opening the door for dispensaries to test their own products.
The Smart and Safe Act promotes an excise tax of 16% on all marijuana products. This is concerning because California is experiencing a black market effect due mainly to the fact that taxes are too high on the product. California’s excise tax is 15%. The Smart and Safe Act is actually suggesting a higher rate than that of California.
The Small Business Liberty Act wants this to be lowered but will work with the Arizona State Legislature to be sure that the costs of the program are covered by the tax rate. The Governor’s Planning and Budget Office needs to review the program and determine the costs annually so that a reasonable tax rate can be set that does not drive consumers to a vastly cheaper “Black Market”.
Medical Marijuana Fund
The Medical Marijuana Fund was established to further the efforts of the Arizona Medical Marijuana Act and specifically was to be used for educational efforts amongst others program costs. The medical marijuana patients, dispensary agents, and license holders have paid into this fund over the life of the medical marijuana program. These funds should remain with the Arizona Department of Health Services and used as the voters intended when they passed the Arizona Medical Marijuana Act.
The Smart and Safe Act raids the medical marijuana fund and directs the funds to recipients such as Arizona Teachers Academy and the Governor’s Office of Highway Safety. $1 million of the fund goes straight to the Smart and Safe Fund.
The Small Business Liberty Act allows for a one time loan from the Medical Marijuana fund that must be paid back within 5 years. These funds are to be used to fund the start up costs of the program.
There is an exemption from state and federal work place safety laws for companies that have less than 10 employees. The Small Business Liberty Act removes that exemption and requires all companies to adhere to workplace safety laws regardless of the number of employees. It is important that workers in the marijuana industry are working in a safe environment.
The Smart and Safe Initiative does not address this issue.
The banking system federally is not banking the marijuana industry. The lack of banking has forced the industry to resort to a cash based business model. The cash transactions utilized by the industry causes both safety and reporting issues.
Paying employees in cash is risky for the employee on pay day. Large amounts of cash being transported between business or vendors is a prime target for criminal behaviour. Additionally, there is an opportunity for dispensaries or other industry vendors to under report sales, which drives down sales tax revenue. It is important to create an environment where marijuana transactions can enter into the banking system.
The Small Business Liberty Act requires that there be regulations adopted that promote electronic payment options for marijuana license holders. This is an attempt to directly reduce the cash transactions in the industry and increase reporting transparency to government agencies.
The initiative does not address this issue.