'Microlicenses' could allow you to sell pot gummies to your friends. What that means for AZ
The Arizona dispensary industry faces more pushback in the Legislature this year by a group of Republicans offering bills to legalize hemp products, allow unlimited marijuana "microlicenses" and help social equity applicants.
They're being challenged not only by the state's billion-dollar legal pot industry but by other Republicans. The way Democrats respond to the bills will be crucial for critics of corporate dispensaries.
"They're out of control," said state Rep. Kevin Payne of Peoria of marijuana dispensaries, noting that many have out-of-state owners. "They turn it into a monopoly, for sure."
Revamping or tweaking Arizona's two marijuana legalization laws has been a priority for lawmakers like Payne, who view the industry as too powerful and with too few competitors, leaving consumers with fewer options and higher prices for similar products in other states.
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Arizona voters legalized medical marijuana in 2010 and recreational marijuana 10 years later. But voters made those and other voter-approved laws difficult to change in 1998 after lawmakers tried to kill a drug-reform initiative. Changes to voter-backed laws can only pass with support from at least 75% of the Legislature, which will require both Democrats and Republicans. The state now has 168 operating dispensaries that sold about $1.1 billion in products last year, generating more than $267 million in state and local taxes.
Rep. Marcelino Qui?onez, D-Phoenix, said he's already seeing positive signs of bipartisanship in talks with fellow lawmakers on both sides of the aisle on some measures. But Democrats have their own ideas about what's needed. They want to protect the social equity applicants who fell victim to predatory schemes but are also "making sure that labor is at the table."
If reform bills advance, he's hoping to see changes that add more security requirements in both the hemp and cannabis industries and ensure concerns by the United Food & Commercial Workers Local 99 are addressed. Last week, UFCW celebrated the success of cannabis workers at a Phoenix Trulieve production facility in voting to join the labor union.
"I can't speak for the entire caucus, but I can speak for a number of Democrats who would be able to support these measures with these additions," Qui?onez said.
More: Arizona tried adding equity into marijuana licensing. Wealthy coporations still took over
Lawmakers eye social equity reform
Qui?onez praised a Republican bill submitted this year that tries to correct alleged injustices in the state's social equity license program, which was supposed to help people and communities where Arizona's felony marijuana law was enforced disproportionately. As The Arizona Republic recently reported, 25 of the 26 social equity licenses granted as part of the 2020 recreational marijuana law are now controlled by corporate dispensary companies.
Senate Bill 1262, sponsored by state Sen. Sonny Borrelli, R-Lake Havasu City, is being co-sponsored by three House members. It would strip control of social equity licenses away from dispensary companies and return it to applicants who could prove they were victims of a "predatory agreement." The state attorney general would have to investigate the situation and approve any transfer of licenses.
The bill seems suited to address cases like that of Rene Mendoza and Anavel Vasquez, social equity license winners featured in The Republic's Jan. 22 article. They accuse their wealthy business partners of taking advantage of them and being ineligible for the program, leading them to seek different partners. The fight led to an unexpected arbitrator's ruling against them, leading to a debt of $638,000 or possibly more if they lose a looming lawsuit.
Celeste Rodriguez, a cannabis activist who's been helping the couple, has been meeting with lawmakers for months with the help of a local lobbyist. She helped author the bill but "can't say that we're there yet." She said she's wary of the dispensary industry response she knows is coming.
"They're going to strike back like they normally do," she said.
Payne, who supports the bill, acknowledged the private contracts signed by the social equity applicants and their partners will be "hard to correct." He hopes to see the state attorney general investigate some of the cases.
'Turf war' between hemp, marijuana industries spills into Legislature
Ann Torrez, executive director of the Arizona Dispensary Association, said the group is still reviewing the 11 marijuana and hemp bills submitted by lawmakers so far this year.
"We look forward to working with lawmakers as the legislative session progresses," she said in a written response. "Because it is still early in the legislative season, we don’t have consensus on many of these bills from the ADA board or the Association as a whole at this time."
The group has a consensus on one issue, however. It's come out solidly opposed to Senate Bill 1186 and its mirror, House Bill 2679, which would create new, hemp-based competition for dispensaries.
The bill, which has a Feb. 1 hearing scheduled in the Senate's Committee on Natural Resources, Energy and Water, would officially legalize and regulate the manufacturing and sale of products like edibles containing delta-8 and other cannabinoids.
Torrez hopes to repeat last year's success when the dispensary group beat back a similar bill that passed the Senate unanimously but died in the House. She likened delta-8 to synthetic drugs known as "bath salts" that have killed hundreds of people. While that's an exaggeration, some experts believe the chemical is responsible for sickening children and may have caused the 2022 death of a Virginia child.
The bill "could lead to a lot of harm in the community," she said.
Sponsored by state Republicans Borrelli and Payne, the bills center on legal alternatives to standard marijuana powered mainly by the psychoactive delta-9 THC molecule. Using a feature ? some call it a loophole ? under the U.S. Farm Bill, hemp growers and processors make legally nebulous products like gummies containing delta-8 THC.
The mildly intoxicating products are virtually unregulated and sold in smoke shops and other retail outlets around the state. They're bigger sellers in states where marijuana isn't legal. Hemp's biggest product has been cannabidiol, or CBD, which isn't intoxicating but has alleged health benefits.
Concerns over the legality of hemp-derived products could be addressed in the regular five-year update of the U.S. Farm Bill, but Congress is late on the update and might not complete the work for months. The status quo is good for Arizona hemp farmers and makers of hemp-derived products, said Sully Sullivan, executive director of the Hemp Industry Trade Association of Arizona.
The pro-hemp bills would add a prohibition on products that might appeal to children. It states the products must be "securely stored and not accessible" to anyone under 21. The state Department of Agriculture would oversee the market.
Sullivan expected lobbying help from the alcohol industry, which has been exploring cannabinoid-infused drinks.
"This year, we have some firepower behind us," he said. "I think we have a chance of passing."
The dispensaries have some lawmaker support on the hemp bills, however. State Sen. T.J. Shope, R-Coolidge, and Rep. Steve Montenegro, R-Goodyear, offered Senate Bill 1076 and House Bill 2452. They would direct money from the state's marijuana fund to poison control centers, local law enforcement and the state Attorney General's Office for enforcement against the "illicit sale of marijuana and intoxicating cannabinoids." Sen. Janae Shamp, R-Surprise, also submitted Senate Bill 1401, which would classify hemp-derived cannabinoids as illegal, "dangerous drugs."
Shope acknowledged the dispensaries and hemp farmers are engaged in a "turf war." But he insisted the hemp products had a sketchy safety record.
"We're seeing a lot of things that are frankly derived from chemical sources that are not what we think of as the marijuana items that were approved by the state," Shope said. "And it's getting kids sick."
Republican takes on dispensaries with 'microlicenses'
Critics complain the dispensary industry gave itself too much power and exclusivity in the 2020 recreational law, limiting competition that would be good for Arizona consumers and entrepreneurs who want to break into the business. Only licensed dispensaries can legally grow, process, transport and sell marijuana under state law, and no more licenses are being issued.
That would change under Payne's House Bill 2247, which would take the "authority, powers, duties and responsibilities" for regulation of the marijuana industry from the state Department of Health Services by 2026, giving it to a newly created state department. Besides changing the rules and policies created by the health agency, the new department would be able to issue "microlicenses" to state residents 21 years and older.
The license holders could grow up to 150 marijuana plants, process the plants to make edibles or other products using concentrated cannabis and sell the products directly to customers 21 and older. Selling to a "marijuana establishment," however, would not be allowed.
Currently, some dispensaries partner with "subcontractors" under their licenses, charging them up to $30,000 a month to make or sell manufactured marijuana products like hash oil, edibles and shatter to the dispensaries. The subcontractors get a cut of the sales when dispensaries sell them.
"We’re trying to give them microlicenses so they can do that and they don't have to work under dispensaries," Payne said.
Jonathan Udell, a spokesperson for Arizona NORML, said it's a "big deal" for lawmakers to talk about microlicenses and that it would "solve a lot of frustration with the industry." But the organization is neutral on the bill for now because it has "weird strings that don't seem to make sense."
He criticized the provision that prevents sales to other marijuana businesses, which he said would force the microlicense holders to sell retail.
"It seems like a huge missed opportunity," he said.
Other anti-industry bills
Two other bills face likely opposition from dispensaries. Although the dispensary industry may appreciate Montenegro's anti-hemp bill, his House Bill 2451 would ban advertising by marijuana establishments on billboards and other places. It also restricts smokeshops from advertising marijuana-related paraphernalia like bongs.
Another comes from a Democrat: House Concurrent Resolution 2035, sponsored by Mae Peshlakai, would ask voters to ban dispensaries and marijuana-testing labs from unincorporated areas that are surrounded by tribal lands on all sides. Peshlakai told The Arizona Republic that the Navajo Nation, where she's from, has many such private "islands" within the reservation, some only a mile or two long. Fifteen other House Democrats and state Sen. Theresa Hatathlie, who's also Navajo, are co-sponsoring the bill.
If the Navajo government ever decides to legalize marijuana, her proposal wouldn't be needed. As of now, marijuana remains illegal on tribal lands, and she said, "We still don't want it."
The bill wouldn't need the governor's signature; it would go straight to the 2024 ballot if lawmakers approve it. But it would still need votes by at least two Republicans to reach a majority, even if all Democratic lawmakers vote for it.
None of the marijuana or hemp bills are expected to be easy to pass. Most are subject to the 1998 Voter Protection Act, which requires a three-quarters majority vote by lawmakers to make changes. Peshlakai's bill is not because it needs voter approval to be enacted, and the pro-hemp bills don't attempt to change the marijuana laws.
The divided government in play since the election of Democratic Gov. Katie Hobbs also means Republican bills with no Democratic support, like Montenegro's advertising bill, are unlikely to get signed.
Reach the reporter at [email protected] or 480-276-3237. Follow him on X @raystern.
This article originally appeared on Arizona Republic: Arizona 'microlicenses' could allow you to sell pot gummies to friends
