By David Abbott, Arizona Mirror
Arizona lawmakers introduced more than 12 bills aimed at amending the marijuana laws in this year. However, only five remain after they have reached the midpoint of annual session.
The remaining bills cover a wide range of issues, from advertising restrictions, to addressing failures in the social equity program, to regulating the hemp production.
Hemp battle continues
Hemp is not only used for industrial products such as rope and fabric but also contains cannabinoids like delta-8 THC, CBD, and other cannabinoids. Smoke shops and convenience store across Arizona sell products containing these compounds.
These products are not covered by the Arizona Medical Marijuana Act, which legalized medicinal cannabis in 2010, nor Smart and Safe Arizona (which legalized recreational marijuana in 2020). Therefore, they can be legally sold outside dispensaries.
Arizona Dispensary Association wants hemp-derived intoxicants either to be banned outright, or regulated by the Arizona Department of Health Services the same way it controls marijuana. This includes licensing to limit market access, rigorous testing, and strict advertising control.
Since the legalization of recreational cannabis, three years ago, the hemp war, represented by Senate Bill1186 (an identical measure, House Bill2679, was defeated in committee) has been raging.
The bill is supported by the Hemp Industrial Trade Association and would regulate hemp-derived THC in a similar manner to marijuana. It would define concentration limits, establish a licensing system under the Arizona Department of Agriculture as well as prohibit marketing or making products appealing to children.
The law also requires that distributors provide certificates of analysis and test results, and permits inspections of hemp products and production. Corrective measures are required for non-compliance.
The ADA has gathered resources to fight the measure. A website called Stop HB2679 & SB1186 Save Arizona’s future was created to increase opposition.
Hemp is currently regulated in the state by the Industrial Hemp Program. This program was established by a bill that was sponsored by Sonny Borrelli, then-Rep. (R-Lake Havasu City), who also sponsored SB1186.
He has stated that the new hemp bills are “about rope and not dope”.
The 2018 Farm Bill, or the 2018 Agriculture Improvement Act (also known as the Farm Bill), removed hemp containing less that 0.3 percent THC from the U.S. Drug Enforcement Administration’s Schedule of Controlled Substances.
In the past, the struggle between the ADA’s hemp industry and the ADA has led to economic losses. Delta-8 Oils of Camp Verde, a manufacturer of delta-8 hemp products and other hemp products moved out of the state in 2022 as a result a battle over SB1715. This bill sought to ban all hemp-derived cannabinoids.
Sully Sullivan is a former hemp grower and executive director for the Arizona chapter Hemp Industrial Trade Association. He says that the hemp industry produces $28,4 billion per year in the United States and can compete with craft beer and the marijuana industries.
Sullivan, who has been in the marijuana industry since 2010, has seen his friends prosper as a result. He believes that banning hemp will help maintain the “marijuana monopsony” and limit economic opportunities for entrepreneurs who are not in the cannabis industry.
He said that the hemp industry was being attacked by the powerful marijuana industry throughout the nation, but hemp trade organizations have been fighting against a “strong campaign of propaganda.”
“The bill is the right thing to be done,” Sullivan said. “These products have not been regulated for the past 10 years. The industry is huge, bigger than marijuana, and the government doesn’t like it.
He said that SB1186 addresses all the issues raised by the ADA in their efforts to kill this bill. This includes testing products and prohibiting marketing to minors, as well as designing products specifically targeted at minors.
The ADA counters by saying that while the bill addresses many of its concerns, the issue is defined.
Ann Torrez is the executive director of ADA. She said, “If it looks and smells like pot, if its effects on your body are similar to marijuana, if you experience it in a similar way to marijuana then it should be regulated like marijuana.” “That’s hard for us to stop.”
Torrez says that if the state wants to regulate hemp the same way it does cannabis, then it should go to the voters at a future poll.
“I am going to gamble and say that the voters will not say yes to this, because it’s not what they want.” She said that when you dig deep into this issue, the schools and child advocacy groups don’t seem to be happy. What’s happening, then, is that the prohibitionist discussion is a reaction to irresponsible sales of these drugs.
SB1186 was tentatively supported by the Senate Natural Resources, Energy and Water Committee on February 1. It passed with a vote of 5-3. Both sides had the opportunity to present their views in a public forum, and also hear what members of the committee thought about it.
Senators were skeptical about the motives of dispensary owners, representatives and others who spoke out against the bill.
Borrelli explained that the Arizona Department of Agriculture and the U.S. Department of Agriculture are working together to conform to federal guidelines. It’s very regulated. You can’t grow hemp without seeds approved by the Department of Agriculture. Since the program began, there have never been any complaints or violations.
Sara Presler expressed her concern over hemp-derived products being sold in places that are easily accessible. She is a former two-term Mayor of Flagstaff, and a legal counsel at Mohave Cannabis Co. and JARS Cannabis. These companies have locations in Arizona Colorado and Michigan.
Presler, a mother of 4, said she was concerned about the availability of “synthetic THC” in outlets not regulated under the Department of Health Services. She believes that SB1186 would make intoxicants similar to candy, soda, and energy drinks ubiquitous, and that they could fall into the wrong hands of children.
She said, “It is my professional and personally opinion that you’ll legalize the sale on every corner of Arizona.” “My concern is SB1186 legalizing products that contain high concentrations THC, which appear to be identical to legalized product but are not. They are not the exact same product, they just operate in two different areas.
She then went on to list the strict regulations that are associated with cannabis stores, including floor plans, product testing, and employee background checks. She argued that the bill doesn’t go far enough to “protect the public health and the safety of our kids.”
Sen. David Gowan, R-Sierra Vista, who described the marijuana industry in California as a “monopoly,” noted that the majority of objections raised by the dispensary owners were addressed in the bill’s language and that the bill raises the purchase and possession age from 18 to 21.
How many children visit the smoke shops?” “I hope they aren’t going in and buying, because that would make it illegal,” he added, adding that dispensaries were using rhetoric to create fear. Gowan and Copperstate Farms CEO Fife Symington IV had a heated discussion earlier in the meeting about the stranglehold that cannabis ownership has over the market.
Symington discussed the economic impact of his company on the rural Arizona towns Snowflake, Taylor and the Snowflake marijuana growing facility. The Snowflake marijuana grows are the largest in Arizona and the United States. He also described the amount of tax revenue the cannabis industry brings to the state on a yearly basis.
He said: “It is important to know that Copperstate Farms, which the voters approved as a medical marijuana and recreational cannabis business, is only one of the many companies that are regulated by DHS.” There are 20,000 Arizonans who are employed in the industry. They have all been fingerprinted, and have undergone a thorough background check by DHS.
Symington warned against “upending a regulatory structure or a law passed by voters”.
He said, “With due respect to Senator Borrelli. This bill is not about rope but dope.” If it was about rope, I would not be here. “Half of this room would not be here.”
Gowan’s opposition to cannabis industry concerns was rooted in his refusal to acknowledge the parts of the bill that addressed many of the concerns raised by opponents.
“My fear is that your industry – the marijuana side – is trying to harm the hemp side in order to get ultimate control over that process,” said he, adding that marijuana businesses wanted lawmakers to “create an entire monopoly” to their benefit.
Copperstate, which operates nine Sol Flower dispensaries in California, is one of many cannabis companies in the state. It also, together with Mohave, ended up with a majority interest in 26 of the “social equity licenses” that were a part of Prop 207.
After asking Symington for more information about his business, Sen. Juan Mendez of Tempe, a Democrat, brought this to the attention of Symington.
Symington’s father, who was Arizona governor in the 1990s described how the licensing structure worked. Mendez was told that Symington was familiar with social equity and was able to “participate with partners in this round of licenses.”
Mendez: “I guess that during the discussion at the beginning of it, I would never have imagined the social equity licenses to be connected to someone with your privilege and backgrounds.”
Bill on social equity is now before the House
The social equity licensing program is also being reformed by lawmakers.
Senate Bill No. 1262 aims to fix the problems of the social equity program, which created 26 “establishment licenses” for recreational use. These licenses were intended to help communities that had been adversely affected by previous cannabis laws and war on drugs. This bill, along with SB1186, is stalled. It will likely not move forward.
The bill aims to fix the social equity problems that resulted in only three applicants from the targeted communities being accepted into the program. One of them is an independent operator who is not affiliated with a dispensary.
The majority of licenses in Arizona ended up with large players, including Mohave Cannabis Co, Copperstate, and Mint Cannabis. According to the Arizona Center for Investigative Reporting, the rest of licenses went to investors and dispensary owners who often operated under shell LLCs to conceal true ownership.
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Copperstate launched a marketing campaign called Your Bright Horizons when the Department of Health Services opened the application period. The company promised to cover the non-refundable $4,000 application fee, assist applicants in expunging records of minor marijuana-related offenses, and “mentor and teach you Copperstate cannabis as we set up a joint dispensary.”
Many large operators have adopted similar strategies. More than 300 of the 1,500 applications were submitted by Mohave Cannabis Co., 110 by Copperstate Farms and 90 by Mint Cannabis.
The licenses at the time were valued between $10 and $15 million, and it was estimated that it would cost $1 million or more to start a business.
The rules of the program have been a source for contention from the beginning between social justice activists and the marijuana business establishment that wrote the ballot initiative approved by voters.
The case was dismissed in November 2021. A group called Acre 41, and the nonprofit Greater Phoenix Urban League, sued the state to try to ensure that the licenses were given to the intended communities. Acre 41 is a strong advocate for SB1262.
James M. Cool of Frazer Ryan Goldberg & Arnold LLP believes that tweaking existing laws won’t work. The only way to achieve social equity is by creating new licenses, and starting from scratch.
Cool, the person who filed the suit to fix the rules prior to the program’s implementation, believes the best time to fix an unworkable program is before its rollout, not after.
“It’s an admirable idea, but it’s deeply flawed,” Cool said. Cool explained that we have created a situation and are trying to solve it. As you can probably guess, it is much easier to fix a problem in the beginning than it is to try to fix it later. “Measure twice, cut one, or measure twice, cut two.”
Cool believes that if the bill passes, which is unlikely as it has not yet been considered by the full Senate Cool will be able to challenge its constitutionality, and it could violate the Commerce Clause.
He said: “What you’ve got is a bunch contracts that were perfectly lawful at the time they were signed.” They were against the spirit of law. “They were not what we intended, but they followed the regulations and the law to the letter.”
Cool says there is no way to recoup investments or compensate owners for time and money spent in launching businesses.
There is also the possibility that licenses or investors have been acquired, resulting in liability for those who weren’t involved in the original “predatory agreement.”
Cool explained, “So now, you’re a poor investor that did a deal, paid $15 million for 3 licenses, and engaged in an entirely legal transaction.” “Now we take away the three licenses, and we tell the guy who bought them that you can sue him, but he has no money so you lost $15 million.” You didn’t even do anything wrong.
Cool stated that a number of issues could have been addressed earlier if the Department of Health Services had done a better job of screening candidates. However, despite the non-refundable $4,000 fee for entering the license lottery, there was not much due diligence done.
Borrelli, at a Senate Health and Human Services Committee Hearing on February 13, called the current situation “an injustice” that needed to be corrected. He went into details about some of these flagrant abuses, such as a felon with five licenses, which he said is currently under investigation by Attorney General’s Office, and another case in which a single home address was being used for several licenses.
He said, “Clearly, a trick has been played on Arizona voters who supported this program.”
Bills stalled and regulation
Both SB1186 as well as SB1262 are in limbo. However, there are still two bills that have some life left: House Bill 245 which sets stricter guidelines on advertising cannabis products; and House Bill 2764 which increases the punishment for cannabis possession within school zones, defines terms like “cannabis”, “drug-free zone”, and mandates schools to display signs and report violations immediately.
HB2451 prohibits marijuana dispensaries or establishments from advertising on public transport, through publicly-funded organizations, or electronically to anyone under the age of 21, unless they can prove at least 71.5 per cent of their audience is older than 21.
The law also prohibits the use of cannabis by children and requires that all advertising warns users that they must not expose their children to cannabis products.
Allison Stein, Arizona NORML’s President, said that the social media restrictions are a result of federal guidelines for alcohol marketing. Social media is a big part of marketing cannabis brands, because they are banned from advertising on television. I think this is unfair to small companies and individuals.
HB2664 makes it illegal to possess, sell, or transfer certain drugs including marijuana and cannabis within “drug free” zones. The presumptive maximum and minimum sentences would be increased by an additional year.
The eligibility of those convicted for such crimes to receive a sentence suspension, probation or pardon would be limited until the court’s sentence has been served or commutated. The law would also impose a fine of $2,000, or three times the value of the drugs.
House Bill 2670 gives the governor the power to set the foundation for interstate agreements, and the delivery system that must be implemented by October 2028.
House bills have not advanced. These include bills to provide free medical cards for veterans, to warn marijuana products about mental health risks, to strengthen protections for renters who use marijuana, and to redistribute marijuana tax dollars among additional law enforcement agencies, such as the university police or Arizona Poison Control.
House bill 2247 was notable among the failed bills. It would have created a seven-member Arizona Marijuana Regulatory Board, appointed by the Governor, and required dispensary owners to reside in Arizona.
Many supporters of Arizona’s cannabis laws think that the current system would work if the government wanted to regulate.
Torrez, the ADA’s Torrez, said that the state agency had done a good work of regulating a rapidly-moving industry even if it did have some hiccups.
She said, “I do not know of any state with [a marijuana board] which is working.”
Cool said that the Department’s unwillingness – or lack of willingness – to aggressively regulate industry is the root cause of the problems.
He said: “You can create an entirely new regulatory scheme. You can create an entire new medical marijuana agency, whose sole job will be to enforce the law, but I don’t believe this agency would do its job any better, or more willingly.”
Cool continued, “The DHS is sometimes not interested in performing their duties. The problem is that they can’t.” “I don’t know if they’re being captured or something else.”
Arizona Mirror was the first to publish this story.
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