Court Ruling Gives Some AZ Dispensaries Reprieve, But More Uncertainty & Delays Ahead

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The medical marijuana industry in Arizona has scored another victory in the courtroom that will have positive repercussions for some cannabis entrepreneurs, at least in the near term.

A county superior court judge ruled that the state cannot deny certificate renewals for dispensary owners who are not yet selling cannabis to patients. Translation: Dispensary hopefuls who received initial approval from the state to move forward but won’t meet an August deadline to launch will get a temporary reprieve, giving them the opportunity to apply for an extension, secure final state authorization and open their doors.

The decision represents yet another loss for local officials who are seemingly bent on making life as difficult as possible for MMJ businesses.

Roughly 70 of the 98 groups that won the right to open a dispensary in a lottery last year have received final state approval to operate, according to the Arizona Department of Health Services, and most of those have opened or will soon. The other two dozen have not received their registration certificates.

All of these dispensaries have until Aug. 7 to begin selling cannabis, with the state threatening to rescind the initial approval – and bar the applicants from ever running a dispensary in Arizona again – if they do not launch by the deadline. However, numerous legal challenges over the past year threatened to sink the entire program or completely change the playing field, and some dispensary hopefuls waited on the sidelines to see how it would all play out before investing money and time into the process of opening an MMJ center.

The judge expressed sympathy for those owners, saying they should be given more time – or at least a process to go through to get an extension – given all the uncertainties and challenges they have faced. That doesn’t mean every dispensary will get a pass going forward. Rather, the judge said the health department must now rewrite its rules to give delinquent dispensaries an appeals process to lobby for more time. The idea is that entrepreneurs who face delays because of outside circumstances would have an opportunity for an extension, rather than those who miss the deadline because of their own operational setbacks or blunders.

Until those rules are finalized, though, all dispensaries that missed the initial deadline will have more time to get up and running. A spokesman for the health department said it will take at least several months to rewrite the rules.

Despite the positives tied to the judge’s decision, there are some negative repercussions as well.

“The overall effect of the ruling is delay,” said local MMJ attorney Jeffery Kaufman. The health department “must adopt new rules and criteria for judging the merits of each claim of unreasonable local government interference or unreasonable zoning. It will take time to draft new rules. After being drafted, each aggrieved applicant will have a hearing. It is likely that some applicants will be found to have failed to act diligently to find a suitable location and build it out, rather than immediately challenging the local zoning restrictions.  They will lose their dispensary registration certificates, pending an appeal.”

Kaufman said the appeals process will take months to resolve.

“The bottom line is that fewer than the 126 dispensaries will open by Aug. 7, 2013, if not by Aug. 7, 2014,” he said, adding that this will also likely delay a second round of applications for dispensary certifications.

The first dispensary in Arizona opened back in December, and since then dozens more have launched. Roughly 40,000 patients have signed up for the state’s medical marijuana program, representing about .06% of the population.