Arizona state regulators awarded cannabis social equity business licenses last week, selecting 26 lucky winners out of a lottery pool of nearly 1,200 applicants. The Arizona Department of Health Services Offices selected the winners at its office on Friday after a judge ended a challenge to the state’s program to award licenses for recreational cannabis dispensaries to applicants negatively impacted by the War on Drugs.

State officials and applicants crowded the health department’s Phoenix office on Friday as the winning applicants were randomly selected using Smartplay International state lottery software. The process was operated and audited by Henry & Horne LLP to ensure the security of the selection lottery. The selected applicants will now begin the process to open licensed adult-use cannabis dispensaries.

Legalization with Equity

Proposition 207, the historic voter initiative to legalize recreational cannabis passed by Arizona voters in 2020, included provisions 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.” Applicant Arianna Munoz told reporters before the lottery that the social equity program has the potential to change her life.

“It would create generational wealth for me and my family. It would give me more opportunities to create other business ventures,” said Munoz, who was not selected in Friday’s lottery. “I’ve always wanted to be a brand owner and dispensary owner and it was the perfect time.”

Arizona’s legalization initiative included provisions to grant recreational cannabis business licenses to the state’s existing medical dispensaries, which began selling cannabis products to adults in January 2021. But social equity retailers will not be able to sell cannabis for medicinal purposes.

“Prop. 207 didn’t amend the Arizona Medical Marijuana act at all, so the reason why the currently established medical licenses can be kind of co-located is because they already existed,” explained Sam Richard, executive director of the Arizona Dispensary Association. “The only new licenses Prop. 207 created were adult-use, recreational licenses.”

Jon Udell, the director of politics for the Arizona branch of the National Organisation for the Reform of Marijuana Laws, said that a bill to fix the issue has died in the state legislature.

“Right now there just isn’t really a realistic path forward” for a legislative solution,” Udell said.

Arizona Judge Denies Legal Challenge

On Wednesday, Maricopa County Superior Court Judge James Smith ruled against three social applicants who filed a legal action to delay Friday’s lottery. Paul Conant, the lead attorney for the plaintiffs, said that the social equity licenses should not be awarded before the health department conducted background checks on the applicants. He argued that the process could lead to the selection of unqualified applicants.

“This is a one-time deal in Arizona,” Conant argued at a hearing on Wednesday. Awarding licenses to unqualified applicants only to revoke them later “would be unfair to all the other people who have submitted applications, paid their $4,000 application fee, and otherwise have gone through the process of trying to qualify.”

But the judge rejected the argument and declined to issue an injunction to block Friday’s lottery.

“The Court finds that the Department properly exercised power that Proposition 207 expressly gave it, used proper procedures, and used its discretion when deciding whether to hold the drawing before or after completing the checks,” Smith wrote in a ruling quoted by the Phoenix New Times.

Other challenges to Arizona’s cannabis social equity program focused on the details of business ownership. Under the regulations, qualified individuals must own 51% of a social equity business, allowing large corporations and multi-state operators an avenue to partner with applicants to operate under the program. Business owners are also permitted to sell their licenses to companies that are not owned by social equity applicants. Critics charge the rules for the program fail to live up to its social equity objectives.

Because Arizona’s recreational cannabis regulations include a cap on the number of adult-use dispensaries that can be licensed by the state, the social equity licenses awarded last week will be the last to be awarded for the foreseeable future. The selected applicants have 18 months to open their dispensaries. A list of the lottery winners is available online.