Cannabis Legalization in Key States: Arizona Becomes the Thirteenth State to Light the Recreational Torch

On November 3, Arizona voters passed the Smart and Safe Arizona Act (Proposition 207) by a wide margin, becoming the 13^th state to legalize recreational marijuana for adult use. This is considered a huge victory in the nationwide legalization efforts.

The new law reduced penalties for possession, cultivation, transportation, and retail sales, and made it easier for people to expunge past convictions. It also outlined a retail tax plan, licensing guidelines for recreational establishments, and a social equity program to offer licenses to owners from communities disproportionately impacted by previous marijuana legislation. Here we take a closer look at the changes, so businesses can reexamine their hiring and firing practices and maximize their chance of securing licenses.

Permitted Possession

Before Proposition 207 went into effect on November 30, Arizona imposed some of the strictest prohibition laws for minor possession having the 18^th highest arrest rate in the country according to 2016 statistics. Now, instead of facing felony charges for possessing any testable amount of marijuana, adults ages 21 and older can legally possess up to an ounce of marijuana. Each ounce can be comprised of up to 5 grams of marijuana concentrate or hash. Furthermore, individuals are permitted to cultivate marijuana plants for personal use. Proposition 207 permits an individual to grow up to 6 marijuana plants for personal use, or 12 plants in a household with two or more adult residents. The plants must be grown in an enclosed space not visible from public view secured by a lock or other security measure. Legal possession and consumption took effect immediately when the ballots were certified on November 30.

Employment Policies

Before the new law went into effect, the Arizona Medical Marijuana Act (AMMA) governed since 2010. At that time, AMMA set forth explicit employment protections for employees and applicants holding a valid medical marijuana use card. Specifically, employers could not discriminate against an employee or applicant on the basis of their registration status as a medical marijuana user. However, AMMA does not require employers to accommodate marijuana use, possession, or impairment on their premises or during work. Employers gained additional protection when, in February 2019, the United States District Court for the District of Arizona ruled that “an employer cannot be sued for firing a registered qualifying patient based on the employer’s good-faith belief that the employee was impaired by marijuana at work ....”

Proposition 207 raises new issues that employers should consider. First, with the criminal conviction expungement provisions discussed below, employers will need to make sure their pre-employment background checks are based on a prospective employee’s most updated records. Consistent with AMMA, Proposition 207 does not (1) restrict the right of employers to maintain a drug-and-alcohol free workplace, (2) require an employer to allow the use, consumption, or possession of marijuana at work, or (3) restrict the rights of employers to regulate conduct that occurs on their properties. While drug testing related to workplace accidents will remain an essential tool for employers to ensure safety, pre-employment screenings for marijuana may become a thing of the past.

Retail Establishments and Licensing

The new law allows marijuana retail establishments to sell, cultivate, process, and manufacture marijuana and marijuana products in licensed locations. Similar to the rules governing liquor licenses, the number of marijuana establishment licenses will also be capped. In Arizona that cap will be tied to pharmacy permits. For every 10 pharmacies operating in the state, one marijuana establishment license will be issued totaling about 160 total retail licenses statewide.

Similar to the goal of New Jersey’s proposed marijuana excise tax, Proposition 207 aims to remedy harms to communities that have been historically disproportionately impacted by the enforcement of previous marijuana laws. The law establishes the Social Equity Ownership Program (SEOP) which would issue licenses to entities whose owners are from these communities. While Proposition 207 does not explicitly detail how SEOP will be administered, it charges the Arizona Department of Health Services (ADHS) with the responsibility of establishing the rules and regulations for the program. After ADHS finalizes these rules, it must issue 26 licenses to SEOP entities within 6 months. Those licenses will be issued in addition to the 160 licenses outlined above.

ADHS will begin accepting early applications for marijuana establishment licenses in January 2021 for (1) establishments currently operating as nonprofit medical marijuana dispensaries and (2) applicants seeking to operate in a county with fewer than two nonprofit medical marijuana dispensaries. After issuing the early applicant licenses, the department will continue issuing the remaining licenses. Applicants can expect licenses to be issued within 60 days of their application date.

Criminal Justice Reform

After the bill passed on November 3, many county prosecutors immediately started dismissing pending marijuana possession cases to conserve resources since individuals charged with possessing an ounce or less will be able to petition the court after July 12, 2021 to have their record cleared.

Taxation and Fiscal Impact

The new law will impose a 16 percent excise tax on the retail sale of marijuana and marijuana products. Marijuana retail establishments will also pay licensing fees in order to operate. These taxes and licensing fees are currently projected to generate $166 million in annual revenue after the program becomes fully operational over the next few years. The money will be deposited into the Smart and Safe Arizona Fund and will be distributed to various agencies and community programs as follows:

• First to pay administrative and agency costs
• 33 percent to community colleges
• 31.4 percent to local law enforcement and fire departments
• 25.4 percent to state and local transportation programs
• 10 percent to public health and criminal justice programs
• 0.2 percent to the attorney general for enforcement

On top of the excise tax, recreational marijuana purchases will also be subject to a general state sales tax that is estimated to generate an additional $88 million in annual revenue within the next few years. This revenue will be available for general use.

Penalties

While Proposition 207 legalizes adult recreational use of marijuana, that does not give adults free reign to light up wherever they please. Most notably, smoking marijuana in a public place or open space is still prohibited and punishable as a petty offense subject to a $300 fine and community restitution. A full list of penalties can be found here.

While the legalization of marijuana in Arizona and Montana may encourage neighboring states to follow suit, national legalization efforts have a long road ahead. With only 15 states (plus Washington, D.C.) permitting adult use of recreational marijuana, entry into this market is limited by the number of available recreational licenses. Entry will be even more difficult in those states where medical marijuana establishments get the first bite at the apple for those new licenses. Business people looking to enter the recreational market may consider partnering with businesses that are already established and should pay close attention to the requirements of programs like Arizona’s SEOP.