Arizona’s supporters emphasized that they wanted to ensure the program was fair and to give priority to those most affected by the criminalization of cannabis. A new lawsuit raises questions about the state’s ability to meet its equity goals.
Local news reports indicate that of the 26 business licenses awarded by the Arizona Department of Health Services to social equity applicants last year, almost all are now controlled or owned by larger corporate ownership groups. According to a lawsuit filed in Maricopa County Superior Court by a social equity license recipient, she claims that she was forced to sign an agreement which would have taken away her control and sucked up profits.
In order to apply for a cannabis license under Arizona law as a social ownership owner, one must meet certain requirements relating to income, geographical location, and personal experience with marijuana enforcement. A majority stake in a business of at least 51% is required.
In a lottery last year, 1,301 equity applications were submitted for 26 licenses. According to the Arizona Center for Investigative Reporting, (AZCIR), 11 of the winning companies were owned by Arizona cannabis corporations that had been established previously. Multi-state operators also paid to get into this lucrative market. However, regulators don’t appear to be particularly alarmed at the increasing number of outside interests gaming the system.
Critics claim that the problem is a two-fold one. One hand, critics accuse big business and multi-state cannabis operators of manipulating system by striking deals with residents from low-income areas. They also say that regulators should do more to make sure established companies don’t undermine the equity-focused license program.
State regulations prevent equity applicants from agreeing to sell their licenses before applying. However, they are not prevented from selling licenses after the licenses have been awarded. Some non-equity companies have also pressed licensees to accept a price that is a fraction of their estimated value.
Anavel Vasquez’s problem, who is the plaintiff in this new lawsuit, came to light during the summer. She was among the few lucky ones to receive a social equity licence for her cannabis company Juicy Joint. According to the complaint she filed in Maricopa County last week, her partnership, with a major player on Arizona’s marijuana scene, quickly soured when she refused to sign an “coercive agreement” that would have stripped of her “managerial and profit control.”
According to the lawsuit, Vasquez terminated her partnership with Michael Halow because she was concerned that he violated state regulatory requirements. Halow, according to the lawsuit, has a felony conviction that disqualifies him from participating in the lottery. He allegedly recruited over a hundred candidates for social equity to submit applications. According to the lawsuit, his aim was to have winning businesses enter into agreements with Helping Handz LLC, a limited-liability company he had founded.
Arizona’s cannabis regulations forbid people with felony convictions to serve as a POBM (principal officer or board member). Rules also specify that POBMs cannot submit more than 2 license applications.
Vasquez formed Menvas22 about four months after she received the license from Juicy Joint. She then applied to transfer the license to her new cannabis business. Last November, the health services department approved this transfer. The lawsuit claims that in July this year, regulators reversed their decision and gave the license to Juicy Joint. Halow was the only POBM for the company.
The documents obtained by Vasquez’s lawyer through Freedom of Information Act requests suggest that this may have occurred. The complaint states that, on July 10, an lawyer representing Halow’s company sent an arbitration award unconfirmed between Juicy Joint & Velasquez to an outside attorney of AZDHS. The lawsuit claims that the department reverted Juicy Joint’s license within 24 hours.
According to the lawsuit, “At any point in time, AZDHS did not contact or even try to contact Menvas22 before voiding its licence.” Menvas22 was not given the opportunity to voice its objections to AZDHS. AZDHS unilaterally revoked or transferred Menvas22’s license, without any notice, an opportunity to be heard or the due process of law.
In an email sent at the time by an AZDHS compliance official to an attorney representing Halow, it was stated that “Vasquez would be shown as a ‘transferee with no rights to anything'” following the transfer.
“If anything further is needed with her, Mr. Harlow will have to take care of that.” I assume that this will be the topic of a subsequent order and we can leave it at that for the moment,” the document says. It adds that, while Vasquez and his partner Moe Asnani, who is a co-founder and partner in multiple Arizona cannabis companies, would continue to be Menvas22’s principal owners, “the Department probably does not have jurisdiction over that business” due to the loss of its license.
Halow refused to comment when Marijuana Moment called him on Tuesday. He referred all questions to his lawyers. Helping Handz’s lawyer did not respond to Marijuana Moment before publication.
A spokesperson for the AZDHS responded to Marijuana Moment’s questions by saying that they “respectfully cannot comment on any ongoing administrative or legal proceeding.”
Vasquez filed a lawsuit asking the court to declare that the transfer of license back to Juicy Joint was “without due process and illegal” and to return the license to Menvas22.
Menvas22’s lawsuit highlights issues that social equity activists have raised as Arizona implements its licensing program. They complain, for instance, that the way in which the regulatory scheme has been structured encourages social equity applicants who have the financial resources and expertise to navigate the system to partner with companies. They also claim that the system lacks safeguards designed to prevent equity applicants from being exploited once they have obtained licenses. In the end, those most affected by prohibition were essentially used as figuresheads in the application process, but then they were pressured to sell their stakes or lose crucial managerial influence, despite being required to have 51 percent ownership by law.
Regulators have done little, on their part, to alleviate critics’ concerns. A spokesperson for the AZDHS told the Arizona Center for Investigational Reporting that in response to public feedback, the department “made some important changes” to its social equity program. Critics are not satisfied.
Asnani told Marijuana Moment that, “Although I can’t go into details due to the pending litigation,” Asnani is Vasquez Menvas22 partner. The social equity license program failed to achieve its intended purpose, which was to help communities who were disproportionately affected by marijuana laws.
He said: “As reported by The Arizona Agenda and AZCIR in their reporting, people who were granted licenses under the social equity program are being forced to leave their businesses – thus nullifying the purpose of the program – all while the State is turning a blind-eye.”
For some advocates who closely followed the Arizona Social Equity Program’s implementation, it was clear from the start . They said that the high cost of obtaining the special licenses would lead to big cannabis companies taking control of the program under the pretense of amicable partnership with qualified candidates.
Arizona’s cannabis sales have recently been slipping, but it has still reached major milestones such as a record haul of over $100 million in recreational marijuana purchases and sales exceeding $1.4 billion for 2022.
Equity advocates are frustrated by the fact that profits go to wealthy investors and established companies, rather than to those who have been affected by the drug-war. State regulators are being urged to seriously consider the deficiencies of the equity program, given the growing evidence of corporate dominance.
Below, you can read the text in the Arizona social equity licensing case:
Photo by Philip Steffan.
The post Arizona Marijuana Businesses Sued Over ‘Unlawful Transfer’ As State’s Program for Social Equity is Under Scrutiny first appeared on Marijuana Moment.
