Arizona Proposition 207, also known as the Smart and Safe Arizona Act was voted into law on November 3. The Smart and Safe Arizona Act legalized the possession and use of marijuana for adults 21 years and older in the State. The initiative made the Arizona Department of Health Services (AZDHS) responsible for adopting rules to regulate marijuana, including the licensing of marijuana dispensaries, cultivation facilities and production facilities.
We caught up with Lezli Engelking, Founder of Foundation of Cannabis Unified Standards to discuss the impact of Proposition 207 on the Arizona cannabis industry. FOCUS is a 501c3, non-profit, cannabis health and safety organization that develops comprehensive cannabis standards and provides third-party certification to protect public health, consumer safety, and safeguard the environment within the cannabis industry.
What are your thoughts about the passage of Arizona’s Prop 207?
Well…Arizona residents have spoken, and much like other states and nations around the world, our state has decided that now is the time to legalize cannabis/marijuana for adult use. The 2016 Arizona legalization initiative came very close to passing, which means almost half of our voting citizens have been ready for this to happen for years. That said, I am really disappointed that the architects of Prop 207 did not add any additional – and much needed – health, safety and quality requirements. It is imperative that all cannabis/marijuana programs include sufficient requirements to assure cannabis businesses are providing a safe workplace for employees and assure that only safe, consistent, quality cannabis products are available in the marketplace.
How will this proposition affect the regulation of marijuana licenses?
It was written into the initiative that existing medical marijuana business owners will be granted the first adult use licenses. This particular aspect of Prop 207 has drawn a lot of criticism because it so favors the existing medical marijuana license holders. There are also new adult use facility licenses offered though, creating opportunities for new applicants to participate in Arizona’s marijuana market as well. The licensing process will be different for existing operators, than it will for new applicants, as AZDHS already has relationships with and access to existing operators, as well as their corporate and operational documentation.
How does Proposition 207 provide safety measures when it comes to marijuana?
Proposition 207 details the legal requirements for the adult use program but does not include specific requirements on how facilities must be operated. Instead it requires the Arizona Department of Health Services (AZDHS) to draft new regulations, after the proposition passed. The initiative did include packaging and labeling requirements. Although, they basically mirror the existing requirements in the medical marijuana regulations. What Proposition 207 failed to do, (and Arizona’s medical marijuana also proposition failed to do) is provide for enforcement of these requirements. Hemp and CBD products are a perfect example of this. Since the 2018 Farm Bill passed, legalizing hemp at the federal level, the most common regulatory infractions across the country involve illegal, inaccurate, and unfounded product packaging, labeling and marketing claims. These are not just related to cannabinoid content. Operators often are cited for illegal claims stating their product will cure a particular disease or treat specific symptoms. At the federal level, this is illegal for hemp products. However, at the state level, Prop 207 does not directly address these issues. Hopefully, the regulations AZDHS drafts will address this important issue, and many others related to health and safety that are missing. Arizona’s existing medical marijuana regulations have always been lacking from a public health standpoint, due to the lack of protections not included in the original proposition’s architecture, which means there was a ton of opportunity for improvement within Prop 207. Unfortunately, these things were not included. We will, of course, provide assistance, as well as FOCUS standards, to AZDHS as a resource, in hopes that Arizona’s Adult Use Marijuana regulations include these protections.
What is the process of licensing new marijuana facilities?
Arizona has never awarded licenses through a merit-based application system. Instead, it is handled through a lottery system – literally using the Arizona lottery balls – which has been a source of amusement in the industry for many years. However, given the ever-growing number of lawsuits contesting merit-based application systems in other states, the lottery system may well end up being the fairest method. Here are the high-level steps to the AZ licensing process:
· Submit an application that meets all state requirements
· Pay a fee to the Department to submit the application
· Department reviews application to assure it meets all requirements
· Applications that meet requirements are put into a lottery
· Winning applicants will be selected randomly through the lottery system
There is not a limit to how many applications a person can submit, only that they must pay a fee for each application. As a result, jurisdictions within the state will receive different numbers of applications. The more applications in one jurisdiction, the lesser the chance of winning. For this reason, the jurisdiction where you apply is also critically important to consider strategically.
How will Proposition 207 affect the size of the Arizona market?
The size of the medical marijuana market when AZ legalized marijuana for medical use back in 2010 was shockingly small. That changed very quickly though, and the size of the Arizona medical market has continued to grow exponentially, year over year. With marijuana now legal for adult use, the market growth will be even more dramatic, as many of the requirements involved with accessing marijuana as a patient no longer exist. For example, medical marijuana patients in Arizona have to have a doctor’s approval to receive a recommendation for a medical marijuana card. The patient then submits a patient application and fee to the state, including the doctor’s recommendation. From there, the state adds the patient to the patient registry and issues a patient ID card, which must be presented by the patient each and every time they enter or order from any dispensary. Under Adult Use, buying marijuana will be similar to stopping into a local convenience store. You’ll need to be able to present a form of acceptable government identification to prove you are old enough to legally purchase marijuana. There are purchase limits, but Arizona residents over the age of 21 can walk in a marijuana dispensary and purchase products, without any registration requirements.
How will an increase in market size impact supply and demand?
Opening up the marijuana market to the entire adult population of Arizona is obviously going to create more demand. Not to mention the addition of the 1 million plus tourists and Snowbirds that flock to Arizona for 8 months of the year. With more demand, so comes the need for increased supply. Unfortunately, the industry overall has struggled to effectively optimize the relationship between supply and demand, even in medical markets. Customers should expect to see evidence of this trial and error practice initially, while businesses work through determining the optimum amounts and timing of harvests. It will be easy to recognize supply and demand issues because of the constant ebb and flow of what is available. Expect to see the availability of products changing frequently, sometimes even multiple times per day.
Marijuana supply and demand issues create inherent safety risks for consumers, beyond just the availability of products. Oversupply leads to the sale of older flower, which reduces potency, terpenes and effect. For this reason, it is important to verify on the label when the product was packaged, as well as the harvest date. Of more importance from a safety perspective, increased demand without available supply leads operators to rush the production process. This can easily lead to unsafe products within the market. For example, if flower is not allowed to dry properly, harmful mold and bacteria will form, making it unsafe. Marijuana operators may also skip steps within their designated production process, in order to get products on the shelves sooner. This is a slippery slope that almost always leads to problems with product safety, as well as employee safety. Each step in a production process must be designed and validated to assure it provides the actual safety controls intended, the same as with any consumer product in any industry. As steps are removed to expedite products to market, the opportunity for products to become contaminated increases dramatically.
Are safety requirements for cultivators and manufacturers going to be mandated?
There will always be minimum safety requirements included. For example, Prop 207 mandates laboratory testing of marijuana and marijuana products. However, testing alone does not assure that only safe products reach the market, because they can’t test every single final product. So, the question really is whether or not there will be additional safety requirements mandated in the new regulations to account for the increased risks with a larger market. Operators are going to rapidly scale their production practices, which is not nearly as straightforward as it sounds. More often than not, an increase in production leads to additional product safety risks within the production process that are not accounted for. Occupational Health and Safety requirements are even more critical, as the number of employees working within facilities increases. Most importantly, the number of Arizona residents, seasonal residents and tourists consuming marijuana products is going to skyrocket. Arizona’s marijuana consumers should expect, and deserve, assurance that the marijuana products they are purchasing are safe, just like any other consumer good they would purchase.
How are the taxes included in Proposition 207 going to affect the market?
The taxes included will not deter most people from purchasing. People still buy cigarettes, and the tax is more than the price of the cigarettes themselves. The general population will simply consider the tax a component of buying legal, regulated cannabis, and will pay it without issue. There will always be a segment of consumers who are more comfortable utilizing the illegal market. The purchase price is cheaper – and tax free – so those individuals likely will continue to utilize the underground market. To be clear, there are zero public health and safety considerations associated with the illicit drug market. As Americans, we count on our government agencies to assure adequate consumer protections are in place for the products we purchase. That is one of the things our tax dollars go towards. This reliance on government agencies creates a corresponding consumer expectation that products being sold are safe – making it even more critical to include additional quality and safety requirements within the new regulations.
Where will marijuana tax revenues be allocated?
The Smart and Safe Arizona Act specifically identifies where tax revenues generated through this new program will go. Certain amounts will go towards the state’s Community College programs. Other amounts were assigned to law enforcement, laboratory testing, and training. Funds are also designated to cover implementation of the new program.
Interestingly, the Act also designates how existing funds from Arizona’s medical program may be spent. This is a unique, and critically important factor, as it addresses one of the many challenges that exist within Arizona’s medical program. Under the medical law, the program generated a substantial amount of revenue in the form of taxes and fees but neglected to include a reasonable pathway to utilize those funds. As such, the last decade of revenues generated by Arizona’s medical program have increased, without the ability to spend the funds. So regardless of where the money from our adult use program ultimately ends up but basically this created this new bucket for this money to go into which will be much easier to allocate and spend – which is a huge improvement for operators, patients, consumers, and the public!
What impact will Proposition 207 have on communities affected by past marijuana laws?
It is already having positive impacts. I think that is one of the great things about this initiative. Some of the existing lawsuits from cities and jurisdictions were already dropped the first week after it passed. They have already started expunging people’s records but that’s truly one of the best things about this passing. We’re not only going to have a legal cannabis/marijuana industry but we’re going to start repairing some of the harms , hardships and misfortunes that happened because of the war on drugs for Arizona residents.
How FOCUS is involved in the next steps of legalization?
We don’t have a lobbying arm, so we do not invest resources to push or advocate for cannabis legalization. Our position is that agencies overseeing cannabis programs have a responsibility to provide protections for public health and safety within the regulations. FOCUS is here to help both states and operators do that. What we normally do, once the law passes in any state, is provide our standards to the regulatory body, offer assistance in committees that are designed to develop the regulations, and then serve as a third-party consultant to the regulatory body or the third-party auditing company to help with oversight and inspection.
What would FOCUS like to see in regard to health and safety requirements within the Arizona Adult Use Regulations?
To build a truly safe, legal, and sustainable cannabis/marijuana industry, it is imperative to include requirements around operators’ internal practices, as well as regularly monitor and enforce these requirements, just like we see in the food, supplements and drugs industries. This typically happens through the adoption of standards, as they tend to come before regulations. Some specifics include:
· The mandate of preventative practices and operational controls for all marijuana operations, including cultivators, manufacturers, retails, testing laboratories, and delivery services, in the form of cannabis specific standards /good manufacturing practices (GMP).
· Enhance auditor training to increase identification of problematic practices that lead to health and safety related issues.
· Provide guidance for industry (beyond the regulations) to assure operators and employees are able to understand, identify and address safety risks within their workplace that could result in accidents, injuries, and product quality issues.
· Build an effective and meaningful enforcement plan that comprehensively corresponds to the regulations to deter bad actors who put other people at risk.
Arizona still has a lot of work to do on this new marijuana program. FOCUS looks forward to assisting by providing standards and suggested health and safety guidance to AZDHS, as well as helping operators meet the new requirements.
