Breaking News – Lawsuit Filed to Enjoin Arizona’s Social Equity Program Regulations

On November 18, 2021, the Greater Phoenix Urban League and Acre 41 Enterprises, LLC (the “Plaintiffs”), sued the State of Arizona, the Arizona Department of Health Services (the “Department”), Governor Ducey, and the Director of the Department for their purported failure to implement the social equity provisions of Proposition 207 by issuing final regulations that undermine the will of Arizona voters. Under Proposition 207, which was passed by the voters in Arizona in November 2020, it is now legal for license holders to sell marijuana for recreational purposes.

Moreover, as part of the proposition, the following was passed which created Arizona’s SEOP – the Department will pass rules for the creation and implementation of a social equity ownership program to promote the ownership and operation of marijuana establishments and marijuana testing facilities by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws. ARS § 36-2854(A)(9). In October 2021, the Department released the final regulations for the SEOP after issuing several draft regulations. The final regulations became effective on November 17, 2021. Many individuals and companies commented on the proposed regulations.

The Department was scheduled to start receiving applications in December 2021, but now that seems to be in a state of flux due to the new lawsuit. The application period was supposed to run from December 1 to December 14, 2021. Whether the Department will accept applications during that time period is now in the hands of the court.

According to the press release issued by the Plaintiffs:

The lawsuit demands compliance with the intent of Proposition 207—the 2020 voter initiative that made recreational marijuana legal in Arizona and requires the State to issue 26 valuable marijuana dispensary licenses to individuals from “communities disproportionately impacted by the enforcement of prior marijuana laws.” The regulations proposed by the State undermine the will of Arizona’s voters by failing to ensure those 26 licenses will remain in the hands of individuals from disproportionately impacted communities after they’re issued by the Arizona Department of Health Services. As it stands now, the regulations proposed by the State do not prohibit venture capital firms and large, mostly white-owned, multi-state marijuana companies from snatching up all social equity licenses from the 26 successful applicants—effectively defeating the purpose of the voter-approved social equity program.

Moreover, the Plaintiffs also contend:

Most concerning to the Greater Phoenix Urban League, the regulations fail to ensure the 26 social equity dispensaries will be operated in a way that benefits communities most harmed by the “War on Drugs.” The lawsuit challenges the State’s failure to implement rules to establish a program for the operation and oversight of 26 social equity licenses and its failure to formulate rules that ensure the social equity dispensaries and related businesses are operated by individuals from communities the law was intended to help.

Since the lawsuit was just filed, it is premature to know whether the court will issue any kind of injunction or otherwise grant the relief requested in the complaint. The complaint goes into greater detail about the various ways the regulations purportedly violate the spirit and intent of the SEOP.

We will continue to provide updates as this litigation progresses.