Posted by: Patricia Salkin | January 22, 2018

AZ Appeals Court Holds that Applicants for Medical Marijuana Dispensaries Don’t Need Prior Conditional Use Approval Before Seeking a State Dispensary Certificate

This post was authored by Amy Lavine, Esq.

The Arizona Court of Appeals held in January that applicants competing for a medical marijuana registration certificate were not required to have prior conditional use approval for their proposed dispensary sites. The application for a dispensary certificate was only the first stage of the permitting process under the Arizona Medical Marijuana Act, the court explained, and applicants at this stage only needed to show that their proposed dispensary sites had generally suitable zoning regulations.

The case involved two applicants competing for approval to open dispensaries in the City of Winslow. Because only one medical marijuana registration certificate had been authorized for the city, the Department of Health Services scheduled a lottery to determine which application would be granted.

One of the requirements under the Arizona Medical Marijuana Act was that applicants had to submit documentation that their proposed facilities would comply with local zoning restrictions. The plaintiff, Compassionate Care Dispensary, included as its documentation a conditional use permit that had been approved for its proposed dispensary site, while the other applicant, The Medicine Room, merely included a statement that its proposed site was properly zoned for a dispensary. The Department eventually accepted both applications as complete and randomly awarded the dispensary registration certificate to The Medicine Room.

Compassionate Care appealed, claiming that the Department had acted arbitrarily and capriciously in allowing The Medicine Room to enter the lottery without first obtaining a conditional use permit. In its defense, the Department explained that it followed “a two-step process for applicants and does permit them a period of time from when they are awarded a dispensary registration certificate to receive actual documentation (such as certificates of occupancy or conditional use permits) authorizing their occupancy as a dispensary.”

The court agreed with the Department and found that it was reasonable to allow applicants to seek dispensary registration certificates before they had obtained zoning approvals. The regulations themselves outlined the Department’s two-step approval process, the court noted, consisting of the application for a dispensary registration certificate and then a subsequent application for approval to operate. And while the application for a registration certificate was required to include documentation that the “dispensary’s location is in compliance with any local zoning restrictions,” the application for approval to operate required “documentation issued by the local jurisdiction… authorizing occupancy of the building as a dispensary… such as a certificate of occupancy, a special use permit, or a conditional use permit.” As the court explained:
According to their plain language, the two regulations refer to two different types of documents. A document authorizing occupancy, such as a CUP, is not required until the dispensary seeks operational approval following its selection. The statutes and regulations do not require the Department to reject the initial application for a dispensary registration certificate because it lacks a CUP.

Additionally, the court pointed out that it would be inefficient to require multiple applicants to complete the “arduous” process of obtaining conditional use approval when only one applicant would ultimately be granted a dispensary registration certificate, and to hold otherwise “would result in a waste of both the unsuccessful applicants’ and the municipalities’ resources.”

Although the Medical Marijuana Act and state regulations accordingly did not require dispensary applicants to have conditional use approval prior to applying for a certificate, the court acknowledged that municipalities were free to impose “something more.” The City of Winslow, however, had not enacted restrictions to augment the Department’s regulations, and thus the two-step approval process was consistent with the municipal code as well as state law in this case.

Compassionate Care also argued that the Department acted in an arbitrary and capricious manner because its website contained information contradicting its two-step approval process and because the City Attorney had disagreed with its interpretation of the application requirements. Regarding the first of these allegations, the court found that nothing on the Department’s website suggested that a conditional use permit was necessary to apply for a dispensary certificate, and in fact, the website clearly stated that an “applicant does not need to submit a special or conditional use permit… with an application for a dispensary registration certificate.” As to the second argument, the court emphasized that the City Attorney’s opinion was merely advisory and in no way superseded the Department’s authority to adopt its own reasonable interpretation of the regulations.

Compassionate Care also argued that The Medicine Room’s application was incomplete because it contained an “Attestation in Lieu of a Sworn Statement” of zoning compliance. The court agreed with Compassionate Care that the sworn statement required by the Medical Marijuana Law had to be made under oath, but disagreed that the statement had to be worded in any particular way. Accordingly, The Medicine Room’s application was sufficient because its “Attestation in Lieu of a Sworn Statement” indicated that the dispensary’s principal officers “attested” that it was “true and correct,” and a false attestation would incur the same criminal penalties as a false statement made under oath.

Finally, the court declined to impose sanctions, explaining that while ultimately unsuccessful, it could not say that Compassionate Care’s claim was entirely frivolous. This was particularly true given that the case involved a matter of first impression and because Compassionate Care’s claim was based primarily on an opinion from the City Attorney.

Compassionate Care Dispensary, Inc. v Arizona Department of Health Services, 2018 WL 414940 (Ariz. App. 1/16/2018)

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