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About Richard Keyt

The author of this article is Richard Keyt, an Arizona business law attorney who is the creator of this Arizona medical marijuana law website. Connect with Richard at 480-664-7478 or on Google+
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Application Period for New Arizona Medical Marijuana Dispensaries Begins July 18, 2016

The Arizona Department of Health Services announced on June 1, 2016, that it will accept applications for new Arizona medical marijuana dispensaries starting on July 18, 2016, and ending on July 29, 2016.  My contact at DHS says there will be 31 dispensary licenses available.  Here is the text of the DHS announcement:

The Department will accept dispensary registration certificate applications from July 18 – July 29, 2016. During this allocation, 31 dispensary registration certificates will be available. The “record date” for the allocation will be May 31, 2016. Because there are no available counties as of the record date, the Department will not allocate certificates under R9-17-303(B)(1). The top 31 CHAAs prioritized under R9-17-303(B)(2) will be made available by June 6. Any certificates not allocated under R9-17-303(B)(2) will be allocated under R9-17-303(B)(3).

At least 30 days before it begins accepting applications, the Department will announce (1) the dates during which applications will be accepted, (2) the number of dispensary registration certificates that will be available for the Summer 2016 allocation, and (3) the county(ies) and CHAAs in which dispensary registration certificates will be issued under the first two steps described below. The “record date” for the Summer 2016 allocation will be May 31, 2016. This means that changes in data variables affecting allocation priority which occur after the record date will not be considered for the Summer 2016 allocation.

Applications will be accepted for 10 consecutive business days. Thereafter, the Department’s review and allocation time frames will comply with R9-17-107.

The allocation process will follow these criteria:

  1. The Department will first determine whether there is a county in which a dispensary registration certificate does not exist. If so, the Department will publicly identify that county and allocate one dispensary registration certificate within each identified county according to R9-17-303(B)(1).

    [Richard Keyt’s comment: Every Arizona county has at least one medical marijuana dispensary so this criteria does not apply.]

  2. The Department will next prioritize the state’s 126 CHAAs based on the number of qualifying patients who reside within each CHAA and issue one of the available dispensary registration certificates in each of the highest ranked CHAAs. For example, if 30 dispensary registration certificates are available to be allocated during this step, the Department will publicly identify the 30 CHAAs with the highest number of qualifying patients who reside within the CHAA. The Department will then allocate one dispensary registration certificate within each identified CHAA according to R9-17-303(B)(2).

  3. If any available dispensary registration certificates are not issued in one of the publicly identified counties or CHAAs under the first two steps, the Department will prioritize and allocate the remaining available certificate(s) according to R9-17-303(B)(3). This third step should not become necessary unless no qualified application is received for a county or CHAA identified under the first two steps.

    If there is more than one applicant for an identified county or CHAA, each application that is substantively complete will be scored based on the number of qualifying patients who reside within 10 miles of the proposed dispensary location and the number of dispensaries operating within 10 miles of the proposed dispensary location. For example, if the proposed dispensary location is within 10 miles of one operating dispensary, the number of qualifying patients who reside within 10 miles of the proposed dispensary location will be divided by 2. If the proposed dispensary location is within 10 miles of two operating dispensaries, the number of qualifying patients who reside within 10 miles of the proposed dispensary location will be divided by 3.

    If there is a tie between two or more applicants or a margin of 0.1% or less in applicant scores generated by applying the criteria in R9-17-303(B), the Department may randomly select one of such applicants for allocation of the subject dispensary registration certificate.

    Per R9-17-303(C), “10 miles” includes the area contained within a circle that extends for 10 miles in all directions from a specific location.

    Per A.R.S. § 36-2810(A), qualifying patient, operating dispensary and proposed dispensary addresses will not be disclosed before or after the Summer 2016 allocation.

By |2017-02-11T17:05:20-07:00June 1st, 2016|Dept Health Services, DHS Rules|Comments Off on Application Period for New Arizona Medical Marijuana Dispensaries Begins July 18, 2016
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Tax Court Spanks Another Dispenary

The U.S. Tax Court in an October 22, 2015, memorandum decision called Canna Care, Inc., vs. Commissioner ruled that a California medical marijuana dispensary owed back federal income taxes of $229,473, $304,090, and $339,604 for 2006, 2007, and 2008, respectively.  The IRS used Internal Revenue Code Section 280E to disallow deductions that would be otherwise have been deductible if Canna Care’s businesses did not involve “trafficing” in a controlled substance.

Section 280E states:

“

[n]o deduction . . . shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

It is indisputable that marijuana is a schedule I controlled substance.

Section 280E applies to deny deductions if all of the following facts exist:  (1) there is a trade or business; (2) that involves trafficking in (3) a controlled substance.  The Tax Court found that all three elements exited with respect to Canna Care, Inc., for the years at issue and denied all deductions.

Canna Care is a California mutual benefit corporation that is prohibited by California law from distributing marijuana for profit.  Nevertheless, the non for profit medical marijuana dispensary business was very, very good to its shareholders Bryan Davies and Lanette Davies.

“Petitioner had 10 employees in 2006 and 2007 and 6 employees in 2008. Mr. Davies determined salaries. During the years at issue the shareholders’ salaries far exceeded the salaries paid to any other employees. Mr. Cowen was paid $88,700, $152,900, and $144,000 during 2006, 2007, and 2008, respectively. Mr. Davies was paid $79,200, $160,900, and $146,200 during 2006, 2007, and 2008, respectively. In addition to their salaries, petitioner made payments for its shareholders’ automobiles in the amounts of $31,459, $24,609, and $23,942 during 2006, 2007, and 2008, respectively. Petitioner’s manager, its highest paid nonshareholder employee, was paid $36,000, $55,600, and $52,000 in 2006, 2007, and 2008, respectively. Mrs. Davies was paid $27,000, $66,480, and $74,000 during 2006, 2007, and 2008, respectively. Petitioner’s other employees made an average of $24,494.17, $12,173, and $12,314.29 during 2006, 2007, and 2008, respectively.”

The Tax Court ruled that “section 280E prohibits petitioner from deducting any amounts paid or incurred during the years at issue in connection with its trade or business that respondent disallowed.”

Section 280E imposes a very heavy and some would argue an unfair price on businesses that sell marijuana in states that have legalized the drug.

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By |2017-02-04T07:38:56-07:00October 29th, 2015|AZ Marijuana Law Lawsuits, California News, Stories & Articles, Tax Issues|Comments Off on Tax Court Spanks Another Dispenary
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Zoned Properties, Inc., Sues Duke Rodriguez for Fraud

On April 10, 2015, Zoned Properties, Inc., filed a lawsuit against Duke Rodriguez, Ultra Health, LLC, and Cumbre Investment, LLC.  These parties apparently like to litigate.  Since 2011 Duke has been a litigant in seven lawsuits filed in Maricopa County Superior Court.  This is the fifth time since March 5, 2014, that Zoned Properties, Inc., has been a party to a lawsuit filed in Maricopa County Superior Court.

Cumbre Investment, LLC, owned by Duke Rodriguez, is a major stockholder (12.18%) of Zoned Properties.  The Complaint contains a fraud count and the following allegations (paragraph numbers correspond to the paragraph numbers in the Complaint):

9.  This lawsuit concerns Defendants’ collective failure to deliver to Zoned Properties a 1,536 square foot modular building (the “Building”) that was to be built and permanently installed on vacant land located at 988 S. 182nd Place, Gilbert, Arizona 85296 (the “Property”) for use as a licensed medical marijuana dispensary.

15.  In or around January 2014, Rodriguez verbally represented to Zoned Properties, individually and on behalf of Ultra Health and Cumbre, that if Zoned Properties purchased the Property, Rodriguez, individually and on behalf of Ultra Health and Cumbre, would ensure that the Building would be sold to Zoned Properties, that the Building would be built and installed on the Property, and that the requisite authorizations to operate the Building as a licensed medical marijuana dispensary had been obtained.

21. . . . Ultra Health purportedly sold the Building to Zoned Properties for $675,000 – the same Building that cost $135,566.50.

24. In exchange for the consulting fee, Ultra Health agreed to “ensure the dispensary received its authorization to operate prior to August 6, 2014 pursuant to the terms and guidelines under the Arizona Medical Marijuana Act for the Gilbert E CHAA (the ‘Project’).”

27.  From February 2014 until November 2014, Rodriguez, in his individual capacity and on behalf of Ultra Health and Cumbre, repeatedly made verbal representations to Bryan McLaren, Chief Executive Officer of Zoned Properties (“McLaren”), that the Building was being constructed, that the installation of the Building was imminent, and that Rodriguez already had obtained the requisite authorizations to operate the Building as a licensed medical marijuana dispensary.

28.  In an article published by The Arizona Republic on June 20, 2014, Rodriguez is quoted as saying that “his company” had invested more than $1 million into developing the anticipated dispensary in Gilbert, and that the Building was “nearly complete and could be opened before the end of the year.”

31. . . . Pac-Van never constructed the Building and Cumbre never took ownership of the Building.

32.  Since Cumbre never took ownership of the Building, it had no ownership rights in the Building

34. . . . Ultra Health did not own the Building, or have any ownership interest in the Building, at the time that it purportedly sold the Building to Zoned Properties

35.  The Building still has not been constructed and the Property remains vacant.

36.  In sum, Rodriguez orchestrated a series of straw transactions that culminated with the purported sale to Zoned Properties of a Building that neither Cumbre nor Ultra Health has ever owned and that has never existed, for a grossly inflated price.

Duke Rodriguez & Cumbre Investment, LLC, Ask Gilbert for Special Use Permit

Zoned Properties’ Complaint contains a fraud count against Duke Rodriguez.  The text below might help Zoned Properties prove its case.

On June 4, 2014, Duke Rodriguez and Jeffrey Kaufman, as attorney for Zoned Properties, Inc., spoke to the Gilbert, Arizona, Planning Commission in an attempt to convince the Planning Commission not to revoke a conditional use permit issued by the Planning Commission to Ultra Health, LLC, to operate a medical marijuana dispensary at the Property.  The Minutes of the Meeting contain the following statements (references are to the speaker and the page number of the Minutes where the statement is located):

the Town was concerned whether the applicant supplied a valid dispensary registration certificate as required by code and the conditions of approval of the Use Permit. . . . Ms. Lorbeer said that she had handed out a response that staff received from the state showing that the certificate supplied by the applicant, Duke Rodriguez, to town staff on April 10, 2014 is not recognized by the state as valid  Catherine Lorbeer, Town of Gilbert Zoning Administrator, Minutes page 21.

Mr. Kaufman stated that he represents Zone Properties which purchased the piece of property at issue . . . . Zone Properties entered into a partnership agreement with Ultra Health which is Duke Rodriguez’s company to participate in this venture and Mr. Rodriguez’s company has a contract with East Valley Patient Wellness Group. . . . Mr. Rodriguez’s company has a contract with East Valley Patient Wellness Group.  Jeffrey Kaufman, Minutes page 22.

he was the original applicant. . . . the facility is being built and $1 million has been invested. Duke Rodriguez, Minutes, page 23.

If you look in the original application for UP13-07, it was the applicant as being Duke Rodriguez and the company being Cumbree Investments. It also says that the applicant has the dispensary registration certificate for CHAA 77 in east Gilbert. . . . In the application, it says that Duke Rodriguez is the applicant and it also says that the applicant has the dispensary registration certificate for CHAA 77.  Dane Nielsen,  Minutes, page 23.

The town granted UP13-07 on the belief that the applicants were the holder of the registration certificate which was not true as provided by Arizona Department of Health Services. Arizona Department of Health Services also confirmed that the applicant provided a copy of a dispensary registration certificate that had a DBA that mentioned one of their entities, Ultra Health, but the Arizona Department of Health Services has returned that and marked it void.  Dane Nielsen, Minutes, page 23.

In March 2013 they met with a couple of agents with Stone Pass Realty. They referred the Sanchez’s to Duke Rodriguez to help them find a suitable location in Gilbert. When he found the location in question unbeknownst to the Sanchez’s he placed it in his own LLC. . . . Mr. Sanchez stated again that no contract was ever signed with any of them.  David Sanchez, Minutes, page 24.

Patricia Haugland, Gilbert Arizona, came forward. Ms. Haugland said that she was the owner of Stone Pass Real Estate and Dave and Kathy Sanchez did come to her office and asked if her company would be able to assist in locating a piece of property in the Town of Gilbert for the CHAA that they had the license for. At that time she and Duke Rodriguez had worked for the firm approximately 30 days and she in turn referred the Sanchez’s to Mr. Rodriguez to represent them solely as a real estate agent. What then occurred was that Mr. Rodriguez met with Dave and Kathy Sanchez, got information about their business and about the medical marijuana industry and then went and locked up the real estate that was available in the town knowing that there was no other real estate in town for the Sanchez’s to get approved by the city. After that occurred and Ms. Haugland found out all the information about what she believed to be fraudulent activity on the part of an agent that worked for her firm she immediately terminated Mr. Rodriguez’s license. Ms. Haugland said that she wanted everyone to understand what her position was in terms of how she saw it unfold as an owner and broker of the company and watching his activities as it is at a minimum unethical.  Patricia Haugland, Minutes, page 25.

Cumbree is the development company who agreed to develop the site.  Duke Rodriguez, Minutes, page 25.

Commissioner Cavenee asked Mr. Rodriguez if he had an executed contract giving him the right to use this license . . . . Commissioner Cavenee said that was not his question. His question was did he have a contract to use this license. Mr. Rodriguez said that he does have a contract.Commissioner Cavenee asked why he did not present that contract, wouldn’t that have been crucial. . . . Commissioner Cavenee said that it seems to him that the crux of the matter is who has the right to utilize this licenseand represent the Use Permit, and proof of that relationship would have been crucial. That seems obvious.  Commissioner Cavenee, Minutes, page 26.

Mr. Rodriguez said that this was not the only license that they have done like this. They have done this in other communities. This is how it works in Clifton; this is how it works in Safford.  Duke Rodriguez, Minutes, page 26.  Author’s Comment:  Neither Duke nor any of his affiliated entities got a dispensary in Clifton or Safford, but his company did enter into a lease for real property with the City of Clifton that provided that the tenant would operate a medical marijuana dispensary in the premises.

When he was then asked to supply the proof to staff because it is a condition of the approval and a requirement of the code, he provided one which is not valid.  Ms. Lorbeer, Minutes, page 28.  See Dispensary Certificate.

See the relevant documents attached to the Minutes:

  • April 25, 2014, letter from the Arizona Department of Health Services to Kathy Sanchez that states “Further, ADHS recognizes East Valley Patient Wellness Group, LLC, as the current and sole holder of the DRC for Community Health Analysis Area (CHAA) 77 ADHS can confirm that it does not recognize Cumbre Investments, LLC, Ultra Health, LLC, or any other entity as a holder of the DRC for CHAA 77.”
  • March , 2014, letter from the Arizona Department of Health Services to Kathy Sanchez that states “AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”

To learn more about the litigious Zoned Properties read:

By |2019-06-14T08:27:52-07:00April 18th, 2015|AZ Marijuana Law Lawsuits, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Zoned Properties, Inc., Sues Duke Rodriguez for Fraud
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Zoned Properties’ Major Stockholders in Court Fight over Money & Control of Two Dispensaries

Take the following ingredients, stir the pot and you have a recipe for a big-time lawsuit:

  • $12,000,000 allegedly invested in or on behalf of Ultra Health, LLC, an Arizona LLC owned by Duke Rodriguez (51% membership interest + 40% of profits) and CA2 Capital, LLC (49% membership interest + 60% of profits).  CA2 Capital, LLC, is owned by Alan Abrams and Christopher Carra.
  • A fight for control of two Arizona medical marijuana dispensaries called Broken Arrow Herbal Center, Inc. and CJK, Inc. These non-profit corporations have dispensary registration certificates for Sahuarita (Ultra Health Green Valley) and Kingman (Ultra Health Kingman), respectively.
  • Disagreements among three major shareholders of Zoned Properties, Inc., a publicly traded company.  Zoned Properties, Inc., claims in its March 31, 2015, disclosure statement that it “focuses on properties within the medical marijuana industry.”  Zoned Properties’ major shareholders as of March 31, 2015, include Duke Rodriguez’ company Cumbre Investment, LLC, (2,251,552 shares – 12.18%), Alan Abrams (3,526,669 shares – 19.08%) and Christopher Carra (2,043,335 shares – 11.06%).

The lawsuit filed in Maricopa County Superior Court on March 26, 2015, is CA2 Capital, LLC; Alan B. Abrams; Broken Arrow Herbal Center, Inc.; & CJK, Inc.;  vs. Duke Rodriguez, a/k/a Rueben Duke Montenegro Rodriguez; Stormwind Group, LLC; Cumbre Investment, LLC; CVUH, LLC; & Sold By Group, LLC.  The litigation is a fight over money and control of two Arizona medical marijuana dispensaries and Ultra Health, LLC.  Alan Abrams seeks court approval of his attempt to remove Duke Rodriguez as a manager of Ultra Health and a director and officer of Broken Arrow and CJK.

This is the sixth seventh (Duke was sued again after this case was filed) time since 2011 that Duke Rodriguez, Arizona’s would-be medical marijuana czar, has been a party in a Maricopa County Superior Court lawsuit.  The lawsuits are CV2011-095146, CV2013-055265, CV2014-003047, CV2014-005642, CV2014-007302, CV2015-003778 and CV2015-004225.  To learn about the seventh Duke Rodriguez lawsuit read “Zoned Properties, Inc., Sues Duke Rodriguez for Fraud.”

Summary of the Complaint

For those of you who don’t have the time to read the juicy allegations in the Complaint that are quoted below, here’s a short summary of the plaintiffs’ allegations:

  • CA2 Capital, LLC, invested $12 million in Ultra Health, LLC or on its behalf.
  • On information and belief, Rodriquez did not have substantial personal assets in the Summer of 2013.
  • Ultra Health, LLC, distributed a Prospectus that falsely claimed Ultra Health possessed three Arizona medical marijuana dispensary certificates.
  • Rodriguez made reassuring but false representations to Abrams at that time that Ultra Health could still obtain those three dispensary registration certificates through litigation with the non-profit companies which had actually been awarded the three certificates.
  • Abrams’ funds were indeed used to pay for litigation with the control persons of the non-profits which held the three dispensary registration certificates which Rodriguez had represented had been “awarded” to Ultra Health, funded the acquisition of control and management rights for two additional non-profit companies awarded dispensary registration certificates, and funded the acquisition of a large medical marijuana cultivation facility in Chino Valley, Arizona.  See “Ultra Health, LLC Sued Again: Now in 4 Lawsuits.”

Here are the court documents filed in the case as of April 1, 2015:

Plaintiffs’ Documents

Defendants’ Documents

Public Company Zoned Properties, Inc.

Alan Abrams, Christopher Carra and Cumbre Investments, LLC, (owned by Duke Rodriguez) are all shareholders of Zoned Properties, Inc., a publicly traded corporation (symbol ZDPYD) that claims to “focus on properties in the medical marijuana industry.”  See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement.  In 2014, Zoned Properties, Inc., was involved in three property purchase transactions with Ultra Health, LLC according to Note 3 of its 2014 annual report issued on March 31, 2015.  To learn more about Zoned Properties, Inc., read “Zoned Properties, Inc. Public Disclosures.”

Zoned Properties, Inc., had a market value of $926,315,200 on April 1, 2015, despite  a 2014, year end financial statement that disclosed:

  • $439,887         total revenue
  • ($1,483,840)   loss from operations
  • ($1,744,258)   net loss
  • $7,240,885      stockholder’s equity
  • $10,492,616    total assets

Zoned Properties, Inc.’s Total Cash Flow From Operating Activities for the years 2011 – 2014 was -$1,184,000.  Its total revenue for the same four year period was $439,887.

Adversaries Alan Abrams and Duke Rodriguez Acquire Control of Two Arizona Medical Marijuana Dispensaries

Broken Arrow Herbal Center, Inc. and CJK, Inc. are Arizona non-profit corporations that have licenses to operate Arizona medical marijuana dispensaries.  Alan Abrams and Duke Rodriguez gained control of these two corporations in 2014.  AZDHS regulation  R9-17-306.A states: “A dispensary may not transfer or assign the dispensary registration certificate.” Does change of control constitute a transfer of the dispensary license?

Duke Rodriguez claims that Alan Abrams was a founding stockholder of Zoned Properties, Inc.  See Exhibit 1 – Declaration of Duke Rodriguez.  As of March 31, 2015, Zoned Properties’ major stockholders were Alan Abrams (19.08%),  Christopher Carra (11.06%) and Cumbre Investment, LLC (12.18%), which is owned by Duke. What is the relationship, if any, between Zoned Properties, Inc., and the two dispensaries now controlled by major stockholders of Zoned Properties, Inc.?

The Players

Here’s a score card to help keep track of the players in this lawsuit:

Plaintiff Entities

  • CA2 Capital, LLC, is an Arizona limited liability company owned by Alan B. Abrams and Christopher Carra.
  • Broken Arrow Herbal Center, Inc., is an Arizona nonprofit corporation whose directors prior to March 26, 2015, were Duke Rodriguez, Alan Abrams and Bryan W. Hill.  Duke Rodriguez was the President before March 26, 2015.  This corporation owns and operates an Arizona medical marijuana dispensary in Sahuarita, Arizona, that leases its dispensary premises at 1732 W. Commerce Point Place, Sahuarita, AZ, from Green Valley Group, LLC, an LLC that is 100% owned by Zoned Properties, Inc.
  • CJK, Inc., is an Arizona nonprofit corporation whose directors prior to March 26, 2015, were Duke Rodriguez and Alan Abrams.  Duke Rodriguez was the President before March 26, 2015.  This corporation owns and operates an Arizona medical marijuana dispensary in Kingman, Arizona, that leases its dispensary premises at 2095 Northern Ave., Kingman, AZ, from Kingman Property Group, LLC, an LLC that is 100% owned by Zoned Properties, Inc.
  • MAC CAM, LLC, an Arizona limited liability company whose members are Alan Abrams, Christopher Carra and Marc Brannigan (former President and former majority stockholder of Zoned Properties, Inc.    As of April 15, 2014, MAC CAM, LLC, owned 700,000 shares of preferred stock, but its shares apparently have been redeemed.

Defendant Entities

  • Stormwind Group, LLC, is an Arizona limited liability company owned by Duke Rodriguez.
  • Cumbre Investment, LLC is an Arizona limited liability company owned by Duke Rodriguez.
  • CVUH, LLC, is an Arizona limited liability company owned by Ultra Health, LLC, and managed by Duke Rodriguez.
  • Sold By Group, LLC, is an Arizona limited liability company owned and managed by Duke Rodriguez.

Allegations Stated in the Complaint

Here are some of the more interesting allegations made in the 45 page Complaint (paragraph numbers are the paragraph numbers in the Complaint):

1.  Plaintiff CA2 Capital, LLC . . . (“CA2”) . . . has provided and . . . nearly $12,000,000.00 . . . in financing for an entity known as Ultra Health, LLC, . . . (“Ultra Health”).

5.  Defendant Duke Rodriguez . . .

[is] the former Manager of Ultra Health, who has been removed as Manager of Ultra Health and is succeeded in that role by the current Manager of Ultra Health, plaintiff Alan B. Abrams.

14.  Plaintiffs have invested nearly $12,000,000.00 . . . in Ultra Health or on its behalf, by directly financing and arranging for financing which has occurred in that amount to date, essentially all of the funding by, for and behalf of that entity.

35.  On information and belief, Rodriquez did not have substantial personal assets in the Summer of 2013.

39.  In the Summer of 2013, Rodriguez caused to be produced and distributed a written investment prospectus which he used to solicit investment in Ultra Health (the “Ultra Health Prospectus“), entitled “Financial and Market Analysis & Recommendations on Entering the Arizona Medical Marijuana Market”.

41.  The Ultra Health Prospectus contained numerous false and misleading statements.

42. Ultra Health, LLC (UH) was awarded three dispensary certificates: Duncan/Morenci (No. 83), Graham County (no. 84), and Gilbert E (No. 77). With these certificates, UH has the right to acquire, possess, cultivate, manufacture, deliver, transfer, supply, sell, and dispense medical marijuana to qualifying patients and designated caregivers.

44.  Ultra Health was, in fact, “awarded” zero dispensary registration certificates.

Author’s Comment:  This allegation states a fact.  See “Arizona Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary.”  See also the letter from the Arizona Department of Health Services, submitted to the judge on March 14, 2014, that contains the statement “AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”

47.  The Ultra Health Prospectus also represented . . . that Ultra Health “has made a capital call of $300,000 to its partners to be used as start-up capital.” Ultra Health Prospectus, p. 23.

49.  The statement which Rodriguez caused to be made in the Ultra Health Prospectus that a $300,000 capital call has been “made” on Ultra Health’s “partners” was false, on information and belief.

51.  Rodriguez provided the Ultra Health Prospectus to Abrams and Christopher Carra as part of an investment presentation he made to them, and which he referenced in numerous related discussions in which he repeatedly but falsely represented to Abrams and Carra that Ultra Health “was awarded three dispensary certificates“.

52.  As a result of the false representations Rodriguez made in the Ultra Health Prospectus, and his identical, false oral representations, Rodriguez successfully convinced Abrams and Carra became investors in Ultra Health through an entity named MACCAM, LLC, an Arizona a limited liability company (“MACCAM”).

53.  MACCAM later transferred its investment in Ultra Health to CA2 with the knowledge and consent of Ultra Health.

54.  Abrams made substantial payments and incurred substantial out of pocket costs in making the initial investments encouraged by Rodriguez, which roughly total around one-half of Abrams’ total investment of nearly $12,000,000.00 . . . .

57. He later learned that Ultra Health in fact had not been awarded three dispensary registration certificates, but instead had been awarded zero dispensary registration certificates.

60.  Rodriguez made reassuring but false representations to Abrams at that time that Ultra Health could still obtain those three dispensary registration certificates through litigation with the non-profit companies which had actually been awarded the three certificates.

Author’s Comment: This is a troubling allegation.  See “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.”  This article starts “Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) hold Dispensary Registration Certificates issued by the Arizona Department of Health Services.  These companies were involved in lawsuits with Duke Rodriguez, Zoned Properties, Inc. (aka ZDPYD), Ultra Health, LLC, and Cumbre Investment, LLC.”

67.  Abrams’ funds were indeed used to pay for litigation with the control persons of the non-profits which held the three dispensary registration certificates which Rodriguez had represented had been “awarded” to Ultra Health, funded the acquisition of control and management rights for two additional non-profit companies awarded dispensary registration certificates, and funded the acquisition of a large medical marijuana cultivation facility in Chino Valley, Arizona and related real estate and water rights.

68.  The aggregate investment of CA2 in Ultra Health today is nearly $12,000,000.00 . . . substantially all of which consists of funds invested by Abrams in or for Ultra Health through MACCAM and CA2. A true and correct compilation of documents summarizing much of the plaintiffs’ monies invested as alleged herein is attached hereto as Exhibit 4.

69.  Rodriguez represented to Abrams that he (Rodriguez) had invested $1,000,000.00 of his own money in Ultra Health which, on information and belief, was untrue.

72.g.  Rodriguez has placed himself in a position of substantial ownership of Ultra Health’s cultivation facility in Chino Valley and has not transferred ownership of that property and facility to Ultra Health

72.l.  [Rodriguez] has not caused the preparation of audits for either of the two nonprofit dispensary companies managed by Ultra Health, nor has he properly accounted for financial transactions between Ultra Health and those entities

73.  Rodriguez’s conduct alleged herein constitutes acts or omissions in breach of the OA [Operating Agreement] and or which constitute fraud, gross negligence, willful misconduct and or breach of fiduciary duty to Ultra Health and or plaintiffs

74.  . . . Rodriguez convinced Abrams and CA2 to make substantial payments for and on behalf of Ultra Health to entities controlled by Rodriguez, which entities were supposed to convey their assets into Ultra Health and or for the benefit of CA2 and Abrams, but Rodriguez has failed or refused to cause those transfers to occur.

75.  Specifically the following entities have received transfers from Abrams and/or CA2 directly of monies intended to be used to acquire assets for Ultra Health, which were supposed to have been ultimately conveyed to and for the benefit of Ultra Health, but with respect to which, today, substantial monies, and assets purchased with those monies, remain m the possession, custody and control of the entities and not Ultra Health: Cumbre; Stormwind; CVUH; Sold By Group.

Plaintiffs’ Claims for Relief

The plaintiffs’ Complaint asks for the following twelve claims for relief:

1.  First Claim for Relief:  The court issue a declaratory judgment that: (i) Rodriguez has been removed, effective as of March 26, 2015, as the Manager of Ultra Health, and (ii) Rodriguez is not entitled to any indemnity under the OA on grounds that his wrongful conduct as alleged herein constitutes acts or omissions in breach of the OA, constituted fraud, gross negligence willful misconduct and or breach of fiduciary duty to Ultra Health and or plaintiffs.

2.  Second Claim for Relief:  The court issue temporary and preliminary injunctive relief that Rodriguez was removed as a manager of Ultra Health.

3.  Third Claim for Relief:  CA2 and Abrams request for Uniform Fraudulent Transfer Act (“UFTA”) injunctive relief and will file a motion for appointment of a Special Master pursuant to Rule 53(a), Ariz. R. Civ. P.  Plaintiffs seek a UFTA injunction on a temporary and preliminary basis against Rodriguez, Stormwind, Cumbre, Sold By Group and CVUH.

4.  Fourth Claim for Relief:  CA2 seeks damages and specific performance.

5.  Fifth Claim for Relief:  CA2 seeks damages for breach of fiduciary duty.

6.  Sixth Claim for Relief: CA2 and Abrams seek damages for violations of the Arizona Consumer Fraud Act.

7.  Seventh Claim for Relief:  CA2 and Abrams seek any and all applicable restitutionary remedies from Rodriguez, Stormwind, Cumbre, Sold By Group and CVUH with respect to any monies or assets, if  any, not otherwise covered by the investment contract, the OA, including without limitation disgorgement.

8.  Eighth Claim for Relief:  Broken Arrow seeks two declaratory judgments against Rodriguez, first for his removal from the board of directors and second for a determination that he is not entitled to indemnification from the corporation.

9.  Ninth Claim for Relief:  Plaintiff Broken Arrow seeks temporary and preliminary injunctive relief that Rodriguez was removed as an officer and director.

10.  Tenth Claim for Relief:  CJK seeks two declaratory judgments against Rodriguez, first for his removal from the board of directors and second for a determination that he is not entitled to indemnification from the corporation.

11.  Eleventh Claim for Relief:  CJK seeks temporary and preliminary injunctive relief that Rodriguez was removed as an officer and director.

12.  Twelfth Claim for Relief:  CA2 and Abrams seek punitive damages.

Defendants’ Response to the Complaint

The defendants filed an Opposition to Application for Temporary Restraining Order in which they generally deny all of the allegations made in the Complaint.  A hearing was held on the plaintiffs’ application for a temporary restraining order and the court denied the application.  The following are interesting statements in the Opposition to Application for Temporary Restraining Order (paragraph numbers are from the Opposition):

II. Having passed through the difficult start-up period, CA2 Capital and Mr. Abrams are attempting a coup that would oust Mr. Rodriguez from the company he founded to take control over the operations.

II.B. Messrs. Abrams and Carra arc founding shareholders of an entity known as Zoned Properties, Inc. . . . Upon information and belief virtually all of the properties Zoned Properties holds are properties operated by Ultra Health, with one critical exception – the Chino Valley Property.  The Chino Valley Property would be a great additional asset for Zoned Properties, Inc. to acquire and then lease-back to Ultra Health. Unfortunately, however, Ultra Health retains ownership and control over the Chino Valley Property through its wholly owned subsidiary CVUH, LLC and it is not in Ultra Health’s best interest to sell the property to Zoned Properties under an exorbitant lease-back scenario. The only group this would benefit is the Zoned Properties, Inc. shareholders – Abrams and Carra aka CA2 Capital, LLC.  [Author’s Comment:  Duke Rodriguez’ company Cumbre Investments, LLC, owns 12.18% of Zoned Properties.]

II.B.  [Mr. Carra] has experience selling and promoting penny stocks, such as Zoned Properties, Inc. (OTC: ZDPY). In fact, Mr. Carra entered into a Letter of Consent with FINRA and paid a fine arising from FINRA’s allegations that he used multiple names or “handles” on internet message boards to promote certain stocks.  Attached here as Exhibit 2.

Stay tuned.  This case should get very interesting.

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By |2019-06-14T08:29:17-07:00April 18th, 2015|AZ Marijuana Law Lawsuits, Zoned Properties & Duke Rodriguez|Comments Off on Zoned Properties’ Major Stockholders in Court Fight over Money & Control of Two Dispensaries
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Ultra Health, LLC Sued Again: Now in 4 Lawsuits

On March 5, 2014, Ultra Health, LLC, filed its first lawsuit in Maricopa County, Arizona.  On May 19, 2014, JDT Construction, LLC., sued Duke Rodriguez’ Ultra Health, LLC, in Yavapai County Superior Court for Ultra Health’s alleged failure to pay $826,493 .68 under a contract for construction at 2144 North Road l East, Chino Valley, Yavapai County, Arizona 86323.  The JDT Construction Complaint states that Ultra Health, LLC, did pay $1,778,383.91 under the contract and that:

“On May 5, 2014, pursuant to an order from the United States Bankruptcy Court of the District of Nevada on April 11, 2013 (Case No. BK-S-13-11930-btb) allowing Ultra Health to purchase the Property, Ultra Health designee, CVUH LLC recorded in Yavapai County, Arizona a Trustee’s Deed granting CVUH LLC all legal and beneficial interest in the Property subject to other liens, liabilities and encumbrances.”

JDT Construction, LLC, is asking the court to find that JDT has a valid mechanics’ lien, that the lien be foreclosed and the Sheriff of Yavapai County sell the Chino property to the highest bidder.

With the filing of the JDT Construction lawsuit, Ultra Heatlth, LLC, is now a party in four lawsuits filed in the last two and one half months.  To learn about Ultra Health’s other three lawsuits read “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.”  See also “AZ Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary.”

Disclosure:  Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) are parties to some of the Ultra Health, LLC, lawsuits.

By |2019-06-14T08:28:37-07:00May 20th, 2014|AZ Marijuana Law Lawsuits, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Ultra Health, LLC Sued Again: Now in 4 Lawsuits
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Zoned Properties, Inc. & Duke Rodriguez Lawsuits

Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC (all clients of mine) hold Dispensary Registration Certificates issued by the Arizona Department of Health Services.  These companies are involved in lawsuits with Duke Rodriguez, Zoned Properties, Inc. (aka ZDPYD), Ultra Health, LLC, and Cumbre Investment, LLC. ZDPYD focuses “on properties in the medical marijuana industry.” See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement.  To learn more about Zoned Properties, Inc., read “Zoned Properties, Inc. Public Disclosures.”

According to page 16 of Zoned Properties, Inc.’s April 15, 2014, Disclosure Statement its major stockholders as of that date were Duke Rodriguez (2,200,000 shares – 9.29%), Marc Brannigan (1,500,000 shares – 6.34%), Alan Abrams (3,200,000 shares – 13.51%), Christopher Carra (2,200,000 shares – 9.29%), Greg Johnson (1,500,000 shares – 6.34%), MJ Trust (1,200,000 shares – 5.07%) and MAC CAM, LLC (700,000 preferred shares).  MAC CAM, LLC is owned by Marc Brannigan, Alan Abrams and Christopher Carra.  On May 13, 2014, ZDPYD did a 1:120 reverse stock split.  Duke Rodriguez is the member and manager of Ultra Health, LLC, and Cumbre Investment, LLC.  Zoned Properties, Inc., Cumbre Investment, LLC, and Ultra Health, LLC, have domestic addresses at 16624 N. 90th Street, Scottsdale, Arizona.

Zoned Properties, Inc., is now a party to three lawsuits involving the eviction (see lawsuit #5 below about the Clifton, Arizona premises) and attempted eviction (see lawsuits #2 and #3 below about the 410 S. Madison, Tempe, Arizona premises) of a medical marijuana dispensary tenant, Holistic Patient Wellness Group, LLC.

Check back from time to time because we will be adding pleadings as these cases progress.

Summary of Lawsuits

1. Ultra Health, LLC vs. Healing Healthcare 3, Inc., Scan4Health, LLC. and Holistic Patient Wellness Group, LLC

This lawsuit is Maricopa County Superior Court case number CV2014-005642.  On March 5, 2014, Ultra Health, LLC, filed a lawsuit against Healing Healthcare 3, Inc. and Scan4Health, LLC. Ultra Health, LLC’s Complaint contains the following statements:

“On September 15, 2013, Ultra Health and Healing Healthcare 3 entered into a Joint Venture Agreement for purposes of operating a marijuana cultivation facility with its principal place of business at the Tempe Lease facility. 

[The JV Agreement attached as Exhibit 3 to the Complaint ends abruptly at page 5 and does not have a signature page.]

The Tempe Joint Venture Agreement provided that legal title to the Joint Venture property and all assets, including the Joint Venture itself, shall remain in the name of Ultra Health.

Brannigan at Ultra Health threatening Duke Rodriguez [This incomplete sentence apparently refers to Marc Brannigan, the then CEO of Zoned Properties, Inc.]

Healing Healthcare has converted the marijuana product owned by Ultra Health [emphasis added]

Pleadings & Documents

  • Amended Complaint.  Ultra Health, LLC, added Holistic Patient Wellness Group, LLC, as a defendant.

“AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”

2.  Holistic Patient Wellness Group, LLC vs. Zoned Properties, Inc., Duke Rodriguez, Marc Brannigan & Tempe Industrial Properties, LLC

On March 14, 2014, the plaintiff sued the defendants in Maricopa County Superior Court case number CV2014-003047.

Pleadings

3.  Tempe Industrial Properties, LLC, vs. Holistic Patient Wellness Group, LLC, & Healing Healthcare 3, Inc.

On March 19, 2014, twelve days after ZDPYD purchased the real property located at 410 S. Madison, Tempe, Arizona, ZDPY’s wholly owned subsidiary Tempe Industrial Property, LLC, filed a lawsuit to evict its first and only medical marijuana dispensary tenant.  This is Maricopa County Superior Court case number CV2014-005961.  ZDPYD focuses “on properties in the medical marijuana industry.”  On April 24, 2014, Tempe Industrial Properties, LLC, conveyed the real property back to Zoned Properties, Inc.

Pleadings

4. Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC vs. State of Arizona, Janice Brewer, Arizona Department of Health Services, Will Humble, Christopher Miller, Meagan Miller and Alexander De Soler.

On April 22, 2014, Plaintiffs sued Christopher Miller, Meagan Miller and Alexander De Soler to get a court order that they are not members, officers, board members or affiliated with Plaintiffs.  This is Maricopa County Superior Court case number CV2014-007233.

Pleadings

5.  Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC vs. Duke Rodriguez, Zoned Properties, Inc., Cumbre Investment, LLC, and Ultra Health, LLC.

This lawsuit was filed on April 25, 2014.  It is Maricopa County Superior Court case number CV2014-007302.  The lawsuit involves real property in Clifton, Arizona, in which Holistic Patient Wellness Group, LLC,, operated a medical marijuana dispensary until the dispensary was locked out of the premises by Duke Rodriguez’ company called Cumbre Investments, LLC.  Attorney Jeffrey Kaufman appeared at a hearing before Maricopa County Superior Court Judge Brain and told to the court that he represents Zoned Properties, Inc., and that Cumbre Investment, LLC, assigned the Clifton lease to Zoned Properties.  Zoned Properties, Inc., which focuses “on properties in the medical marijuana industry” now owns two parcels of Arizona real estate, is a tenant on a third parcel and is involved in three eviction lawsuits with a licensed medical marijuana dispensary.

Update:  Plaintiffs voluntarily dismissed this lawsuit on May 20, 2014, because in an April hearing in Maricopa County Superior Court Judge Brain stated he believed contracts involving Arizona medical marijuana dispensaries are not enforceable because they violate public policy.

Pleadings

6.  Ultra Health, LLC, vs. Healing Healthcare 3 Inc , Rakesh Pahwa, Geeta Pahwa, Scott Armstrong, David Sanchez & Kathy Sanchez

The complaint in this lawsuit was filed on April 29, 2014.  It is Maricopa County Superior Court case number CV2014-053115.

Pleadings

7.  JDT Construction, LLC., vs. Ultra Health, LLC

The complaint in this lawsuit was filed on May 19, 2014, in Yavapai County.  JDT Construction claims Ultra Health, LLC, owes JDT $826,493 .68 under a contract for construction at 2144 North Road l East, Chino Valley, Arizona.  It is Yavapai Superior Court case number P-1300-CV-201400555.

Pleadings

8.  Scott Armstrong vs. Duke Rodriguez & Sold By Group, LLC

The lawsuit was filed on December 13, 2013.  It is Maricopa County Superior Court case number CV2013-055265.  Sold By Group, LLC, is owned and managed by Duke Rodriguez.

Pleadings

9.  Sweetwater Ranch Association vs. Duke Rodriguez

The lawsuit was filed on May 20, 2011.  It is Maricopa County Superior Court case number CV2011-095146.

10.  Cavalry Spv I L L C  vs. Duke Rodriguez

The lawsuit was filed on October 25, 2002.  It is Maricopa County Superior Court case number TJ2002-004927.

11.  Bank of America vs. Duke Rodriguez

The lawsuit was filed on October 26, 2000.  It is Maricopa County Superior Court case number CV2000-019427.

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By |2019-06-14T08:28:25-07:00May 15th, 2014|AZ Marijuana Law Lawsuits, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Zoned Properties, Inc. & Duke Rodriguez Lawsuits
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Zoned Properties, Inc. Public Disclosures

Zoned Properties, Inc., is a publicly traded corporation (symbol ZDPYD) that claims to “focus on properties in the medical marijuana industry.” See page 8 of ZPI’s April 15, 2014, Company Information & Disclosure Statement.  ZDPYD stock price per share in the last six months went from $.0754 on November 8, 2013, to a high of $21.98 on March 5, 2014, and down to $.68 on May 12, 2014.  On May 13, 2014, ZDPYD did a 1:120 reverse stock split.

The purpose of this article is to help people in the Arizona medical marijuana industry learn about Zoned Properties, Inc., a company that purchased its first of two Arizona real estate properties on January 20, 2014, and is now involved in three lawsuits in Arizona Superior Court with three medical marijuana dispensary clients of mine: Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC. To learn more about the Zoned Properties, Inc., lawsuits read “Zoned Properties, Inc. & Duke Rodriguez Lawsuits.”

The text inside quotes below was taken from ZDPYD’s public disclosures and press releases.  Text inside brackets

[ ] and outside of quotation marks was written by the author of this article.

1.  November 8, 2013, Company Information & Disclosure Statement

  • “The Company is a strategic real estate investment firm whose primary focus is acquiring commercial properties that face unique zoning challenges in the medical marijuana industry. The Company acquires commercial properties zoned within a variety of usage types such as industrial, agricultural, as well as mixed use. . . . The Company also manages a portfolio of properties that it owns and leases. The Company provides oversight on each and every property it manages”  Page 3.  [Emphasis added.  ZDPYD’s total assets as of 12/31/13 was $11,965. Page F-3 of the December 31, 2013, Financial Statement.]
  • “In September of 2013, Marc Brannigan, an individual resident of the State of Arizona, acquired 15,000,000 shares of common stock of the Company, representing approximately 91.54% of the issued and outstanding voting power of the Company.”  Page 4.
  • “On September 16, 2013, the Board of Directors of the Company appointed Marc Brannigan as President and Chief Executive Officer of the Company and Chairman of Board of Directors (sole director).”  Page 5.
  • “The Company also manages a portfolio of properties that it owns and leases.”  Page 6.
  • “The company’s initial holdings and acquisition targets are in the state of Arizona.”  Page 7.
  • “Additionally, the company has acquired a note for a medical marijuana dispensary located in Safford, Arizona. ZPI will soon foreclose on the building and own the property outright.”  Page 8.  [See the March 12, 2014, Press Release.]
  • “Once a property is acquired and re-zoned for a medical marijuana cultivation or dispensary location, ZPI can charge in some cases three to five times more than market value for rent”  Page 8.
  • “The Company currently has 5 full time employees.”  Page 9.
  • “We are a leader in our industry.”  Page 10.  [Emphasis added.  See the December 31, 2013, Financial Statement, which says ZDPYD’s only assets as of 12/31/13 was $11,965 cash & cash equivalent and it had no income in 2012 and 2013.]
  • “The Company devotes substantially all of its efforts to establishing a new business, and there has been no significant revenue therefrom since incorporation [2003].”  Page 10.  Emphasis added.
  • “Item X: The nature and extent of the issuer’s facilities.”  [This is question on Page 10, but ZDPYD did not answer it.]
  • “President, Chief Executive Officer and Director” is Marc Brannigan, owner of 15,000,000 shares of Common Stock.  Page 11.
  • “Conviction in a criminal proceeding or named as a defendant in a criminal proceeding: None”  Page 11.
  • “the Company borrowed funds to cover its daily operation, including but not limited to, consulting and advising fees, accounting fees, legal fees, compliance fees and others, from MAC CAM LLC, a related party owned by the Company’s President. As of September 30, 2013, the balance of notes payable to MAC CAM LLC was $25,000, which was evidenced by a convertible promissory note, dated on September 30, 2013, bearing interest at an interest rate of 8% per annum and due on demand (the “Note”). The holder of the Note has an option to convert all or any portion of the accrued interest and unpaid principal balance of the Note into the common stock of the Company or his successors, at a price of $0.05 per share.”  Page 11.
  • “Provide a list of the name, address and shareholdings of all persons beneficially owning more than five percent (5%) of any class of the issuer’s equity securities.  As of November 5, 2013: . . . Marc Brannigan . . . 15,000,000 Common Shares 91.54%.”  Page 12.
  • “The Company also manages a portfolio of properties that it owns and leases.”  Page 13.  [See the December 31, 2013, Financial Statement, which says ZDPYD’s only assets as of 12/31/13 was $11,965 cash & cash equivalent and it had no income in 2012 and 2013.]
  • “The Company devotes substantially all of its efforts to establishing a new business, and there has been no significant revenue therefrom since incorporation [in 2003].”  Page 13.  Emphasis added.
  • “There can be no assurance that revenues will be sufficient to cover future operating costs, and it may be necessary to continuously raise additional capital to sustain operations.”  Page 13.
  • “Material Contracts:  None.”  Page 15.

2.  December 31, 2013, Financial Statement

  • Total assets = $11,965 cash & cash equivalents. page F-3.  Emphasis added.
  • Revenue years 2012 + 2013 = $0.  page F-4.  Emphasis added.
  • Expenses 2013 = $336,547 & 2012 = $248,432. page F-4.  Emphasis added.

3.  February 5, 2014, Press Release

  • “Zoned Properties[SM], Inc. closes on site for 8th largest medical marijuana dispensary in the state of Arizona.” [Emphasis added.  As of May 4, 2014, no dispensary has ever operated on the Gilbert property.]
  • “ZDPY . . . announces that it has closed on all of the real estate associated with the approved site for a medical marijuana dispensary located in Gilbert, Arizona for $1.115 million.”  [“the Company acquired the land located in Gilbert, Arizona, for a total payment of $300,000.  April 15, 2014, Company Information & Disclosure Statement, Page 6.]
  • “Zoned Properties[SM], Inc. is in advanced discussions with the dispensary license holder who intends to occupy the facility”

4.  February 19, 2014, Press Release

  • “Zoned Properties, Inc. . . . has entered into a definitive agreement and opened escrow on a multi-tenant industrial complex in Tempe, Arizona.”
  • “The facility has several tenants including a state licensed Arizona medical marijuana cultivator.”

5.  March 7, 2014 Deed from Maryland, LLC, to Zoned Properties, Inc.

  • Special Warranty Deed
  • This is the first property acquired by ZDPYD that has a tenant (Holistic Patient Wellness Group, LLC, a client of my law firm) that is a licensed Arizona medical marijuana dispensary.  A co-tenant on the lease is Healing Healthcare 3, Inc.  The property is located at 410 S. Madison, Tempe, Arizona (the “Madison Property”).

6.  March 12, 2014, Press Release

  • “Monetizing Note for $210,500 Books First Profit of 2014”
  • “Zoned Properties, Inc. . . . announced that it has monetized the note on the Safford, Arizona dispensary location.”

7.  March 17, 2014, Deed from Zoned Properties, Inc., to Tempe Industrial Properties, LLC

  • Special Warranty Deed
  • ZDPYD transferred title of the Madison Property to its wholly owned subsidiary.

8.  March 17, 2014, Deed from Zoned Properties, Inc., to Gilbert Property Management, LLC

  • Special Warranty Deed
  • ZDPYD transferred title of the Gilbert real property to its wholly owned subsidiary.

9.  March 19, 2014, Tempe Industrial Properties, Inc. sues to Evict Holistic Patient Wellness Group, LLC, & Healing Healthcare 3, Inc.

  • The new landlord, a subsidiary of ZDPYD, which claims to “focus on properties in the medical marijuana industry.” started an eviction proceeding to evict its first and only medical marijuana dispensary tenant 12 days after ZDPY purchased the Madison Property.

10.  March 31, 2014 Press Release

  • ZDPYD “announced that after careful consideration, the board has recommended that Marc Brannigan should step down as acting CEO and board member of the company. As such, effective immediately, Marc Brannigan has resigned as the company’s CEO.”

11.  April 11, 2014, Arizona Corporation Commission Authorizes ZDPYD to Do Business in Arizona

12.  April 15, 2014, Press Release

  • ZDPYD ” is pleased to announce that Irvin Rosenfeld has joined their board of directors.”

13.  April 15, 2014, Company Information & Disclosure Statement

  • “The Company manages a portfolio of properties that it owns and leases and provides direct development on each and every property it acquires.”  Page 5.
  • On January 24, 2014, Zoned Properties, Inc., issued 100,000 shares to Cumbre Investment, LLC.  Page 6.
  • “During the first quarter of 2014, the Company issued 5,857,000 shares of restricted common stock at a price of $1.00 per share to approximately 28 accredited investors pursuant to a private placement, exempt from registration pursuant to Rule 506(c) under the Securities Act of 1933, as amended. The total proceeds the Company received from this private placement were approximately $5,857,000.”  Page 7.
  • “The Company manages a portfolio of properties that it owns and leases and provides direct development on each and every property it acquires. This can include complete architectural design and subsequent build-outs, general support, landscaping, general up-keep, and state of the art security systems.”  Page 8.
  • “Arizona offers opportunities in addition to acquiring . . . water rights and assured water supply credits (“Water”). Water is a strong focus of ZPI.”  Page 10.
  • “The Company devotes substantially all of its efforts to establishing a new business, and there has been no significant revenue therefrom since incorporation [in 2003]”  Page 10.  Emphasis added.
  • “Zoned Properties is the sole member of two established Limited Liabilities Companies: Tempe Industrial Properties LLC, which is the owner of one real estate asset managed by the Company, and Gilbert Property Management LLC, which has no operating activities as of the date of this Report.”  Page 11.  Emphasis added.
  • “The Company currently has 3 full-time employees.”  Page 12.
  • “We are a leader in our industry.”  Page 12.  Emphasis added.
  • “Item X: The nature and extent of the issuer’s facilities.”  [This is question on Page 13, but ZDPY did not answer it.]
  • “President, Treasurer and Secretary . . . Bryan McLaren . . . Number and class of issuer’s securities beneficially owned: Bryan McLaren 700,000 shares of Common Stock.”  Page 13.
  • “Former President, Chief Executive Officer, Secretary and Director* . . .  Marc Brannigan . . . Number and class of issuer’s securities beneficially owned: 1,500,000 shares of Common Stock.  * Mr. Brannigan resigned from all his positions and directorship of the Company on March 31, 2014.
  • “The Company borrowed funds to cover its daily operations, including but not limited to, consulting and advisory fees, accounting fees, legal fees, compliance fees and others, from MAC CAM LLC, a related party partially owned by the Company’s President.”  Page 14.
  • “Provide a list of the name, address and shareholdings of all persons beneficially owning more than five percent (5%) of any class of the issuer’s equity securities as of April 15, 2014.”  [The shareholders listed are:  Duke Rodriguez (2,200,000 shares – 9.29%), Marc Brannigan (1,500,000 shares – 6.34%), Alan Abrams (3,200,000 shares – 13.51%), Christopher Carra (2,200,000 shares – 9.29%), Greg Johnson (1,500,000 shares – 6.34%), MJ Trust (1,200,000 shares – 5.07%).  MAC CAM, LLC is listed as owning 700,000 shares of preferred stock.]  Page 16.
  • “The Company manages a portfolio of properties that it owns and leases and provides direct development on each and every property it acquires.”  Page 17. [Emphasis added.  According to its Press Releases and documents recorded with the Maricopa County Recorder ZDPY owns two parcels of land in Maricopa County, Arizona: the Madison Property leased to Holistic Patient Wellness Group, LLC, and Healing Healthcare 3, Inc., and the Gilbert property.]
  • “There was no cash flow from investing activities during the years ended December 31, 2013 and 2012, respectively.”  Page 18.
  • “The Company devotes substantially all of its efforts to establishing a new business, and there has been no significant revenue therefrom since incorporation [in 2003]”  Page 18. Emphasis added.  [See the March 12, 2014, Press Release that states: “Monetizing Note for $210,500 Books First Profit of 2014”]
  • “We had operating expenses of $336,547 and $248,432 for the years ended December 31, 2013 and 2012, respectively.”  Page 18.
  • “Net loss for the year ended December 31, 2013 was $387,316, increased by $180,030 compared to net loss of $207,286 for the year ended December 31, 2012.”  Page 18.
  • “There was no cash flow from investing activities during the years ended December 31, 2013 and 2012, respectively.”  Page 18.  Emphasis added.
  • “We had cash of $11,965 on hand as of December 31, 2013. On the short-term basis, we will be required to raise a significant amount of additional funds over the next 12 months to sustain operations. On the long-term basis, we will potentially need to raise capital to grow and develop our business.”  Page 19.  Emphasis added.

14.  April 24, 2014, Deed from Tempe Industrial Properties, LLC, to Zoned Properties, LLC

  • Quit Claim Deed
  • The subsidiary conveyed the Madison Property back to ZDPYD after holding title for 36 days.

15.  April 25, 2014, Officer/Director Change Form Filed with the Arizona Corporation Commission

  • ZDPYD notifies the Arizona Corporation Commission that Irvin Rosenfeld and Bryan McLaren became members of its Board of Directors.

16.  April 28, 2014, Officer/Director Change Form Filed with the Arizona Corporation Commission

  • ZDPYD notifies the Arizona Corporation Commission that Irvin Rosenfeld and Bryan McLaren ceased to be members of its Board of Directors.

17.  May 1, 2014 Court Hearing in Holistic Patient Wellness Group, LLC, East Valley Patient Wellness Group, LLC, and Natural Remedy Patient Center, LLC vs. Duke Rodriguez, Zoned Properties, Inc., Cumbre Investment, LLC, and Ultra Health, LLC.

This lawsuit was filed on April 25, 2014.  It is Maricopa County Superior Court case number CV2014-007302.  The lawsuit involves real property in Clifton, Arizona, in which Holistic Patient Wellness Group, LLC,, operated a medical marijuana dispensary until the dispensary was locked out of the premises by Duke Rodriguez’ company called Cumbre Investments, LLC.  Attorney Jeffrey Kaufman appeared at a hearing before Maricopa County Superior Court Judge Brain and told to the court that he represents Zoned Properties, Inc., and that Cumbre Investment, LLC, assigned the Clifton lease to Zoned Properties.  Zoned Properties, Inc., which focuses “on properties in the medical marijuana industry” now owns two parcels of Arizona real estate, is a tenant on a third parcel and is involved in three eviction related lawsuits.

Pleadings

By |2019-06-14T08:29:24-07:00May 15th, 2014|Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Zoned Properties, Inc. Public Disclosures
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Ultra Health, LLC, vs. Healing Healthcare, Inc., & Scan4Health, LLC

Ultra Health, LLC, sued Healing Healthcare 3, Inc. (Rocky Pahwa’s nonprofit corporation) and Scan4Health, LLC. See Ultra Health, LLC’s Verified Complaint and Application for Restraining Order and Preliminary and Permanent Injunction.  The basis of the lawsuit is a Joint Venture Agreement between the parties.  At a hearing on March 14, 2014, Judge Herrod asked the parties for evidence as to who has a license to own and operate an Arizona medical marijuana dispensary.  The defendants gave the judge the letter dated March 14, 2014, from the Arizona Department of Health Services, which states “AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”

Ultra Health, LLC, amended its Complaint in the above-referenced lawsuit to add Holistic Patient Wellness Group, LLC, as a defendant.  HPWG is a client of my law firm, KEYTLaw, LLC.

By |2019-06-14T08:27:54-07:00April 9th, 2014|AZ Marijuana Law Lawsuits, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Ultra Health, LLC, vs. Healing Healthcare, Inc., & Scan4Health, LLC
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Ultra Health Threatens to Sue Florence

Florence Reminder & Blade Tribune:  “Duke Rodriguez, principal officer of Ultra Health in North Scottsdale, has hired a Scottsdale attorney to represent his company when it pursues a lawsuit against the town of Florence.  Jeffrey S. Kaufman will represent Ultra Health when it begins its legal battle to establish a medical marijuana dispensary in Florence. . . . Rodriguez said the decision comes in the aftermath of the Town Council’s 5-2 vote on March 17, which denied a conditional use permit to his company to dispense medical marijuana . . . . The lawsuit could be filed in Pinal County Superior Court as soon as tomorrow, Rodriguez said. . . .

[Rakesh “Rocky”] Pahwa, who was trying for his fourth conditional use permit in Florence, urged the council to vote against Ultra Health’s request. He said his nonprofit company, Healing Healthcare, has the dispensary license for the Florence Community Health Analysis Area, but was not on the application for the town’s permit.”

See also “Florence denies medical marijuana permit, again.”  This story states:

Rakesh “Rocky” Pahwa, up for his fourth try for a conditional use permit to open a dispensary in Florence, asked the council to deny it. He explained his nonprofit company, Healing Healthcare, has the dispensary license for the Florence community health analysis area but is not on the application for the town’s permit.  Pahwa was in partnership with the medical marijuana company Ultra Health of North Scottsdale, which was the applicant.

By |2017-02-04T07:39:01-07:00April 9th, 2014|AZ Marijuana Law Lawsuits, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Ultra Health Threatens to Sue Florence
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Warning to Arizona Medical Marijuana Dispensaries

If you own or operate or are involved in management of an Arizona medical marijuana dispensary you need to take extra care to prevent people from hacking into your computer systems, camera systems and dispensary agent records of the Arizona Department of Health Services.  Many types of computer hacks are felonies under Arizona criminal law.  Today I contacted an Assistant Arizona Attorney General and discussed the following statute:

Arizona Revised Statutes Section 13-2316.A states:

A person who acts without authority or who exceeds authorization of use commits computer tampering by:

1. Accessing, altering, damaging or destroying any computer, computer system or network, or any part of a computer, computer system or network, with the intent to devise or execute any scheme or artifice to defraud or deceive, or to control property or services by means of false or fraudulent pretenses, representations or promises.

2. Knowingly altering, damaging, deleting or destroying computer programs or data.

3. Knowingly introducing a computer contaminant into any computer, computer system or network.

4. Recklessly disrupting or causing the disruption of computer, computer system or network services or denying or causing the denial of computer or network services to any authorized user of a computer, computer system or network.

5. Recklessly using a computer, computer system or network to engage in a scheme or course of conduct that is directed at another person and that seriously alarms, torments, threatens or terrorizes the person. For the purposes of this paragraph, the conduct must both:

(a) Cause a reasonable person to suffer substantial emotional distress.

(b) Serve no legitimate purpose.

6. Preventing a computer user from exiting a site, computer system or network-connected location in order to compel the user’s computer to continue communicating with, connecting to or displaying the content of the service, site or system.

Arizona Revised Statutes Section 13-2316.E states:

Computer tampering pursuant to subsection A, paragraph 1 of this section is a class 3 felony. Computer tampering pursuant to subsection A, paragraph 2, 3 or 4 of this section is a class 4 felony, unless the computer, computer system or network tampered with is a critical infrastructure resource, in which case it is a class 2 felony. Computer tampering pursuant to subsection A, paragraph 5 of this section is a class 5 felony.

By |2017-02-11T20:49:55-07:00April 2nd, 2014|Legal Issues, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Warning to Arizona Medical Marijuana Dispensaries
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AZ Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary

Ultra Health, LLC, an Arizona limited liability company, sued Healing Healthcare 3, Inc., an Arizona nonprofit corporation for among other things, breach of a joint venture agreement that involves the marijuana grow facility at 410 S Madison, Tempe, Arizona (the “Premises”). See a copy of Ultra Health, LLC’s, Complaint.

During a hearing in Maricopa County Superior Court on March 14, 2014, Ultra Health, LLC’s attorney claimed that Ultra Health, LLC, has some kind of license related somehow to medical marijuana.  The judge asked the parties to submit to him by the end of business that day proof from the Arizona Department of Health Services that the party had a medical marijuana dispensary license.

Healing Healthcare 3, Inc., is a co-tenant on the lease for the Premises with Holistic Patient Wellness Group, LLC.  Below is the text of a March 14, 2014, the letter sent by AZDHS to Holistic Patient Wellness Group, LLC, that Healing Healthcare 3, Inc., submitted to the judge on March 14, 2014.

March 14, 2014

Kathy Sanchez, Principal Officer
Holistic
45000 S, Lakeshore Drive, Suite 343
Tempe, Arizona 85285

RE: Medical Marijuana Program

Dear Ms. Sanchez:

Pursuant to the request of the dispensary certificate holder to clarify ownership and authority to operate a medical marijuana dispensary and cultivation site, the Arizona Department of Health Services (AZDHS) confirms that a dispensary registration certificate (DRC) was issued to Holistic Patient Wellness Group, LLC.  Further, AZDHS issued an approval to operate to Holistic Patient Wellness Group, LLC to operate a dispensary and cultivation site and AZDHS recognizes them as the current and sole holders of the DRC.

AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.

Sincerely,

Jeff Bloomberg, Manager
Division for Planning and Operations, Administrative Counsel and Rules

I’m sorry, but I can’t help but repeat my favorite part of the above letter:

“AZDHS can confirm that it does not recognize Ultra Health, LLC as a holder of this or any other dispensary registration certificate.”

To learn more about Ultra Health, LLC, enter Ultra Health in the search box at the top right of this page and press your enter key or click on the topic in the right column called “Zoned Properties & Duke Rodriguez.”

For the record, Holistic Patient Wellness Group, LLC, is a client of mine.

By |2014-05-24T09:26:13-07:00March 15th, 2014|AZ Marijuana Law Lawsuits, Dept Health Services, Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on AZ Dept. of Health Services Confirms Ultra Health, LLC Lacks a License for a Medical Marijuana Dispensary
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Zoned Properties, Inc. Acquires Real Estate for Key Arizona Medical Marijuana Dispensary

Wall St. Journal:  “Zoned Properties, Inc. . . . a lessor of land, facilities, and equipment to the medical marijuana market in Arizona announces that it has closed on all of the real estate associated with the approved site for a medical marijuana dispensary located in Gilbert, Arizona for $1.115 million. The Town of Gilbert has already granted a conditional use permit and approved the design of the property, which is properly zoned for a medical marijuana dispensary.”

A search of deeds filed with the Maricopa County Recorder shows a Warranty Deed and affidavit of property value for a parcel of vacant land acquired by Zoned Properties, Inc., on January 30, 2014, for $300,000.  The property is located at 988 South 182nd Place, Gilbert, Arizona.

Query:  Why does Zoned Properties, Inc., say it purchased the Gilbert property for $1.115 million when the affidavit of property value states the purchase price was $300,000?

Zoned Properties, Inc., a Nevada corporation, lists its headquarters in Scottsdale, Arizona, but it is not a corporation formed in Arizona or licensed to do business in Arizona. Zoned Properties, Inc., is violating Arizona Revised Statutes Section 10-1501.A, which states “A foreign corporation shall not transact business in this state until it is granted authority to transact business in this state.”

The corporation was formerly named “Vanguard Minerals Corp” until 10-2013, “knewtrino, Inc.” until 10-2007 and “Mongolian Explorations Ltd.” until 5-2006.  See its financial statement for the nine month period ending September 30, 2013.

Zoned Properties, Inc., appears to be a publicly traded company.  Marc J. Brannigan is the President & CEO and Charles Randall is the COO.

By |2019-06-14T08:28:49-07:00February 22nd, 2014|Stories & Articles, Zoned Properties & Duke Rodriguez|Comments Off on Zoned Properties, Inc. Acquires Real Estate for Key Arizona Medical Marijuana Dispensary
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Tax Prof Thinks Medical Marijuana Dispensaries can Beat Section 280E

American University Washington College of Law Professor Benjamin Leff thinks there is a way that medical marijuana dispensaries in states that have legalized medical marijuana can avoid the application of Internal Revenue Code Section 2080E that causes taxpayers to pay extraordinarily high federal income taxes.  Professor Leff wrote an article in Slate called “How legal marijuana sellers can beat a draconian tax” in which he states:

“‘The federal tax situation is the biggest threat to businesses and could push the entire industry underground,’ . . . . sellers of controlled substances—in other words, drugs, including marijuana—are not permitted to deduct any ordinary business expenses other than the cost of the goods they are selling. That’s because of section 280E of the federal tax code . . . . I teach tax law, and I have a solution: Marijuana sellers should operate as nonprofit ‘social welfare organizations’.”

I am not a professor of tax law, but I do hold a masters in law degree (LL.M.) in income tax from New York University School of Law and have studied and written about Code Section 280E.  My opinion is that the IRS and the federal courts are not going to allow taxpayers to violate federal criminal law (growing, possessing and selling marijuana) and avoid paying federal income taxes or the application of Code Section 280E.

By |2013-03-05T08:04:03-07:00March 5th, 2013|Stories & Articles, Tax Issues|Comments Off on Tax Prof Thinks Medical Marijuana Dispensaries can Beat Section 280E
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New U.S. Attorney for Arizona John Leonardo Continues DOJ’s Refusal to Say If It Will or Will Not Prosecute Arizona Medical Marijuana Dispenary Owners

KJZZ’s Steve Goldstein interviews John Leonardo who was recently appointed as the U.S. Attorney for Arizona.  Mr. Leonardo says the following in the interview:

Question:  “Can you give us the perspective on how this office is going to how that jives with state and federal law?”

John Leonardo: “It’s an unusual situation in that state law conflicts with federal law and of course when that happens federal law prevails.  Having said that I think the Department of Justice has spoken with one voice.  All U.S. Attorney’s that I am aware of have addressed have all concurred in that statement that is that the possession of marijuana is a violation of federal law, but we are going to concentrate our resources on prosecuting those that are significant traffickers under the Controlled Substances Act.  We doubt that it would be a efficient and appropriate use of our limited resources to be prosecuting people who are in compliance with state law and perhaps using marijuana as part of a medical treatment for some serious disease such as cancer or something along those lines.”

Mr. Leonardo’s statement that the DOJ won’t prosecute seems limited to patients, but he did not address whether his office will prosecute Arizona licensed medical marijuana dispensaries, their owners and landlords.  Why?

Why does the Department of Justice refuse to state in clear understandable terms whether it will prosecute people who are involved in growing, selling and possessing marijuana in connection with providing services for a medical marijuana dispensary that is licensed by the Arizona Department of Health Services and complying with Arizona’s medical marijuana laws? The following statement is the stated and restated position of the Department of Justice with respect to state legal medical marijuana:

“The federal government will ‘vigorously enforce’ federal laws against those who ‘operate and facilitate large marijuana production facilities and marijuana production facilities involved in the cultivation, sale and distribution of marijuana, even if purportedly for medical purposes’.”

What the DOJ has done is prosecute some dispensaries and their owners and not prosecute others.  See Federal Attacks on Dispensaries.  The decision to prosecute or not prosecute seems to be completely at the whim of the DOJ.  For example, the largest medical marijuana dispensary in the U.S. is Harborside Health Center in Oakland, but it has not been shut down nor have its owners been charged with violating federal marijuana laws.  Instead, the DOJ seeks to cause the owners of the land on which Harborside operates two dispensaries to forfeit the land and the IRS is seeking millions of dollars in back taxes from Harborside.  See “IRS Claims Harborside Health Center Owes $2.5 Million in Back Taxes on Sales of $22 Million” and “Feds Sue to Take Land Occupied by Harborside Health Center, the Largest Medical Marijuana Dispensary in the US.”

Why won’t the DOJ tell people exactly when it will prosecute and when it will not prosecute state legal medical marijuana dispensaries?  The DOJ has a duty to be clear on this issue.  If its goal is to prevent the growing and selling of medical marijuana in all or some circumstances then tell the public in clear unambiguous statements what it will do.  Why keep people in the dark and allow them to spend huge amounts of money and spend large amounts of time to pursue an activity that will result in convictions for felonies and jail time?  Not only will clarity save people from making a bad decision it will also save the DOJ tons of money because the DOJ will not have to prosecute people who will get involved with medical marijuana dispensaries because they mistakenly read the DOJ’s statements as saying the DOJ won’t prosecute state legal medical marijuana dispensaries.

Plea to Mr. John Leonardo, the U.S. Attorney for Arizona

Please do the right thing with respect to the people who intend to open medical marijuana dispensaries in Arizona.  If you are going to raid and shut down dispensaries and prosecute those involved then tell them now in clear unambiguous terms.  Do your duty.  Deterrence may not work for many crimes, but it will definitely work with respect to the owners of prospective Arizona medical marijuana dispensaries.  These people are now spending large amounts of money that they would not spend if they knew they were going to  be prosecuted or their business was going to raided and shut down even if they will not be prosecuted.

By |2012-08-18T10:57:51-07:00August 18th, 2012|Stories & Articles|Comments Off on New U.S. Attorney for Arizona John Leonardo Continues DOJ’s Refusal to Say If It Will or Will Not Prosecute Arizona Medical Marijuana Dispenary Owners
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Arizona Attorney General’s Opinion Kinda Corrects Arizona Governor & Concludes Arizona’s Medical Marijuana Act is Partially Preempted by Federal Law

Last week Arizona Governor Jan Brewer’s response to a letter from 13 Arizona County Attorneys that the Arizona Medical Marijuana Act was preempted by federal law was to say you legal types don’t know what you are talking about and “I am duty-bound to implement the AMMA.”  Now her lawyer says oops-e-dazey, not so fast.  In a press release issued today Arizona Attorney General Tom Horne said:

Arizona Attorney General Tom Horne issued the following statement in connection with an Opinion being issued today regarding the Arizona Medical Marijuana Act (AMMA) stating the law is pre-empted in part:

“I have received formal requests from State Representative John Kavanagh and Yavapai County Attorney Sheila Polk, as to whether the Arizona medical marijuana initiative is preempted by federal law. This past Friday, August 3rd, I received the same request from 13 of Arizona’s 15 county attorneys, including county attorneys of both political parties. The request from the 13 county attorneys stated: ‘your immediate action is requested in light of the pending licensing of dispensaries beginning on August 7th.’

The 13 county attorneys have clearly communicated their view that the AMMA is preempted by federal law.

I have taken seriously the request of the 13 county attorneys that immediate action is needed, and the Opinion is attached. The Opinion was prepared by professional attorneys entirely on the basis of legal precedent, without regard to policy considerations as to medical marijuana as an issue, and without regard to my views. This is a purely legal analysis, as is the duty of this office.

Two recent cases, one from California, and one from Oregon, hold that the state cannot ‘authorize’ actions that are forbidden under federal law. A state can, however, decriminalize marijuana under its own laws. These cases compel the Opinion being issued today.

The AMMA ‘authorizes’ dispensaries, and the growing of marijuana. Under the California and Oregon court decisions, those provisions would be preempted by federal law. However, the provisions of the AMMA that relate to patient and caregiver identification cards would not be preempted because they merely identify those individuals who are exempt from prosecution under state law for the possession or use of marijuana for medical purposes. The use of the cards for that purpose would not be preempted.

This is an Attorney General’s opinion, not a court order, and a court may or may not agree with this opinion. We expect that there will be a motion for accelerated resolution of this issue in a pending court case.

Accordingly, I have advised the Department of Health Services that the law does not prevent them from proceeding with the planned lottery on Tuesday, August 7, and the issuance of registration certificates. The receipt of a registration certificate does not give a certificate holder permission to open or operate a dispensary. Certificate holders must subsequently apply for approval to operate after having completed a number of additional requirements. Dispensary certificate holders are advised that it would be prudent to delay additional work and expenditures pending resolution of the preemption issue by a court, which I expect will be resolved in an accelerated manner.

Emphasis added.

Note to Prospective Arizona Medical Marijuana Dispensary Owners:  Read the last sentence of the above press release twice because it appears to me that the Arizona Attorney General is giving prospective Arizona medical marijuana dispensary owners legal advice.  Mr. Horne won’t stop the Arizona Department of Health Services from issuing dispensary registration certificates and moving forward with its rules that implement the parts of the AMMA that are preempted by federal  law, but he seems to suggest that a future court case will have more to say on the subject of the life or death of Arizona medical marijuana dispensaries.

Read the Attorney General’s August 6, 2012, Opinion, which states:

Is the Arizona Medical Marijuana Act (“the AMMA”) preempted by the federal Controlled Substances Act (“the CSA”)? . . . Yes, in part. . . . Because of federal prohibitions, those AMMA provisions and related rules that authorize any cultivating, selling, and dispensing of marijuana are preempted.

Emphasis added.

The following is the text of Will Humble’s blog post of today.  Mr. Humble is the Director of the Arizona Department of Health Services.

The AZ Attorney General issued an Opinion and a media release this afternoon about the Arizona Medical Marijuana Act.  The Opinion states, in part, that the voter approved Act is pre-empted by Federal Law – specifically the part that allows the cultivation, selling or distribution of marijuana.  It references 2 recent court cases that states cannot ‘authorize’ actions that are forbidden under federal law.

Today’s Opinion is just that, an Attorney General Opinion…  not a court order, and a court (or courts) may or may not agree.  Attorney General Horne has said in his media release today that he expects that there will be a motion for accelerated resolution of this issue in a pending court case.

The AGs Office also advised us this afternoon that today’s Opinion doesn’t prevent us from proceeding with tomorrow’s planned lottery on Tuesday, August 7, and the issuance of Registration Certificates- so we’ll be proceeding tomorrow as planned at 9 a.m.  I’m not sure how or whether today’s Opinion will impact the issuance of subsequent Operating Licenses for the folks that are allocated a Registration Certificate tomorrow morning.

 So, at least for now, we’ll take it one day at a time.

Player Update

For those who are keeping score at home, here’s the latest stats in the game of Arizona’s wack-a-mole medical marijuana dispensary industry:

  • Arizona Governor Jan Brewer:  Opposes the AMMA, but will  allow it to be implemented because “though the Department of Justice has prosecuted a select number of large medical-marijuana operations in California and other states, the federal government’s position remains unclear with regard to the AMMA and participation in this law by Arizona State employees.”
  • Arizona Attorney General Tom  Horne:  “AMMA provisions and related rules that authorize any cultivating, selling, and dispensing of marijuana are preempted,” but go for it prospective dispensary owners and Arizona Department of Health Services.
  • Will Humble, Director of the Arizona Department of Health Services:  “The AGs Office also advised us this afternoon that today’s Opinion doesn’t prevent us from proceeding with tomorrow’s planned lottery on Tuesday, August 7, and the issuance of Registration Certificates- so we’ll be proceeding”
  • Gila County Attorney Daisy Flores:  “Arizona voters determined that dispensaries should be permitted if in compliance with our Arizona law, as county attorney, I must respect the will of the people.”
  • Arizona Attorney Ryan Hurley:  “even in California, where there is a lot of uncertainty, these notions that the sky is going to fall just don’t hold up.”
  • Arizona Republic columnist E. J. Montini:  “federal authorities, who have expressed no interest in prosecuting medical-marijuana cases”
  • 13 Arizona County Attorneys:  The AMMA is preempted by federal law.
  • Former U.S. Attorney for the District of Arizona Ann Birmingham Sheel:  “compliance with the AMMA and Arizona regulations will not provide a safe harbor or immunity from federal prosecution for anyone involved in the cultivation and distribution of marijuana. . . . state employees who conduct activities authorized by the AMMA are not immune from liability under the CSA.”
  • Former U.S. Attorney for Arizona Dennis Burke:  “The United States Attorney’s Office for the District of Arizona (“the USAO”) will continue to vigorously prosecute individuals and organizations that participate in unlawful manufacturing, distribution and marketing activity involving marijuana, even if such activities are permitted under state law. . . . The public should understand, however, that even clear and unambiguous compliance with AMMA does not render possession or distribution of marijuana lawful under federal statute.”
  • U.S. Department of Justice:  “The federal government will ‘vigorously enforce’ federal laws against those who ‘operate and facilitate large marijuana production facilities and marijuana production facilities involved in the cultivation, sale and distribution of marijuana, even if purportedly for medical purposes’.”

Half Time Score

AMMA Dispensaries Good Team: 5.5
(1 each for Gov. Brewer, Will Humble, Daisy Flores, Ryan Hurley & EJ Montini + .5 for AG Horne)
vs.
AMMA Dispensaries Bad Team:  115.5
(.5 for AG Horne + 13 county attorneys + 2 former U.S. attorneys + 100 because the DOJ is the DOJ).

By |2015-04-06T18:55:44-07:00August 6th, 2012|Legal Issues, Stories & Articles, Will Humble Speaks|Comments Off on Arizona Attorney General’s Opinion Kinda Corrects Arizona Governor & Concludes Arizona’s Medical Marijuana Act is Partially Preempted by Federal Law
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Tax Court Decision Vaporizes the Vapor Room

On August 2, 2012, the U.S. Tax Court issued its decision in the case of Martin Olive vs. Commissioner of the Internal Revenue Service.  Martin Olive, a young man unconcerned with the normal formalities of operating a business, owns a relatively well known medical marijuana dispensary in San Francisco, California, called the Vapor Room Herbal Center that used to operate in a 1,250 square foot store in a low income neighborhood.  The Tax Court said that Mr. Martin “consciously opted not to keep adequate books and records and that action was in reckless or conscious disregard of rules or regulations.”  The Vapor Room was in the news recently because it announced that it was going out of business.

Martin Olive started the Vapor Room in 2004 and operated it as a sole proprietorship rather than through an entity that would protect him from the debts and liabilities of the business.  Martin operated the business as a cash business and apparently did not keep records of any kind other than journals written by him that contained income and expense information.  The IRS assessed deficiencies against Martin Olive of $692,501 for 2004 and $1,199,814 for 2005 plus accuracy-related penalties to $138,500 for 2004 and $239,963 for 2005. On his federal income tax returns Martin Olive reported that the Vapor Room’s “principal business” is “Retail Sales” and that its product is “Herbal.”

The court ruled:

  • Martin Olive under-reported his gross income.
  • He could deduct his cost of goods sold (COGS) in an amount greater than the IRS allowed.
  • Section 280E of the Internal Revenue Code prevented the deduction of any of his business expenses because his only business was selling marijuana.
  • Martin Olive is liable for the accuracy-related penalties.

The Tax Court was not impressed by witnesses who testified on behalf of the Vapor Room.  The Court said:

“Petitioner’s testimony and the testimony of his other witnesses was rehearsed, insincere and unreliable. We do not rely on petitioner’s testimony to support his positions in this case, except to the extent his testimony is corroborated by reliable documentary evidence. We also do not rely on the uncorroborated testimony of petitioner’s other witnesses, three of whom are (or were) patrons of the Vapor Room and all of whom are closely and inextricably connected with the medical marijuana industry and with a desired furtherance of that movement.”

The Court found that Martin Olive’s gross receipts for the were $1,967,956 om 2004 and $3,301,898 in 2005.

Cost of Goods Sold

The case is a road map for how medical marijuana dispensaries should not conduct their businesses.  For example, the self-prepared journals in which Martin Olive wrote his income and expenses were ignored by the Court as proof of any expenses.  The Court said:

“Petitioner argues nonetheless that the ledgers alone are sufficient substantiation for taxpayers operating in the medical marijuana industry because, he states, that industry “shun[s] formal ‘substantiation’ in the form of receipts.” We disagree with petitioner that the ledgers standing alone are sufficient substantiation.  The ledgers did not specifically identify the marijuana vendors or reflect any marijuana that was received or given away. The ledgers neither were independently prepared nor bore sufficient indicia of reliability or trustworthiness. The substantiation rules require a taxpayer to maintain sufficient reliable records to allow the Commissioner to verify the taxpayer’s income and expenditures. . . .

Neither Congress nor the Commissioner has prescribed a rule stating that a medical marijuana dispensary may meet that substantiation requirement merely by maintaining a self-prepared ledger listing the amounts and general categories of its expenditures. It is not this Court’s role to prescribe the special substantiation rule that petitioner desires for medical marijuana dispensaries and we decline to do so. . . .

Petitioner consciously chose to transact the Vapor Room’s business primarily in cash. He also chose not to keep supporting documentation for the Vapor Room’s expenditures. He did so at his own peril. . . . Petitioner asserts that he minimized the Vapor Room’s use of checks because he did not want his bank to know that the Vapor Room was a medical marijuana dispensary. We find that assertion incredible, especially given that petitioner informed the bank that his business was named ‘Vapor Room’. . . .

Petitioner informs us that California did not allow medical marijuana dispensaries to earn a profit for the years at issue. The need to report no profit may improperly cause a dispensary to understate gross receipts or to overstate expenditures. We are especially wary here, where petitioner by his own admission understated his gross receipts and took steps to disguise his cash withdrawals from his business to conceal them from his employees”

Martin Olive did win one big victory.  Despite lacking any records of the cost of goods sold and saying it didn’t believe his expert witnesses, the Court accepted the testimony of Henry C. Levy, C.P.A. that the average COGS of a medical marijuana dispensary is 75.16% of its gross receipts despite stating that “we generally found Mr. Levy to be unreliable” and “his testimony improperly consisted mainly of legal opinions and conclusions.”

Section 280E

Section 280E of the Internal Revenue Code provides that a taxpayer may not deduct any amount for a trade or business where the “trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances.  Selling marijuana is a controlled substance for the purposes of Section 280E.  Martin Olive argued that the Vapor Room that in addition to selling marijuana the Vapor Room operated the separate business of “care-giving.”  Unlike the Tax Court case of Californians Helping to Alleviate Med. Problems, Inc. v. Commissioner (CHAMP), where the Court found that CHAMP did operate a separate business and allowed deductions for expenses of that business, the Court in this case found no evidence that Martin Olive had any business other than selling marijuana.

The Court’s discussion of why it found that CHAMP operated two businesses and the Vapor Room did not is instructive for all medical marijuana dispensaries.

“The record establishes that the Vapor Room is not the same type of operation as the medical marijuana dispensary in CHAMP that we found to have two businesses. The differences between the operations are almost too numerous to list.  The dispensary there was operated exclusively for charitable, educational and scientific purposes and its income was slightly less than its expenses. . . . The director there was well experienced in health services and he operated the dispensary with caregiving as the primary feature and the dispensing of medical marijuana (with instructions on how to best consume it) as a secondary feature. . . . Seventy-two percent of the CHAMP dispensary’s employees (18 out of 25) worked exclusively in its caregiving business and the dispensary provided its caregiving services regularly, extensively and substantially independent of its providing medical marijuana. . . . It rented space at a church for peer group meetings and yoga classes and the church did not allow marijuana on the church’s premises. . . . It provided its low-income members with hygiene supplies and with daily lunches consisting of salads, fruit, water, soda and hot food. . . . Its members, approximately 47% of whom suffered from AIDS, paid a single membership fee for the right to receive caregiving services and medical marijuana from the taxpayer. . . . The names of the dispensaries are even diametrically different.  The name of the dispensary there, ‘Californians Helping To Alleviate Medical Problems,’ stresses the dispensary’s caregiving mission. The name of the dispensary here, ‘The Vapor Room Herbal Center,’ stresses the sale and consumption (through vaporization) of marijuana.”

The opinion does not state how much Martin Olive owes for 2004 and 2005, but it must be a big number.  Also unmentioned is whether the IRS audited Martin Olive for years after 2005.  I suspect that it did because of what it found in its 2004 and 2005 audits.

For more on this case read “Tax deductions for medical pot business go up in smoke, court rules” and “Bad News for Medical Marijuana Dispensaries (and Especially for the Vapor Room).”

By |2019-06-14T08:28:43-07:00August 5th, 2012|California News, Stories & Articles, Tax Issues|Comments Off on Tax Court Decision Vaporizes the Vapor Room
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Warning to Arizona Medical Marijuana Dispensaries that Plan to Make their Dispensary Not-for-Profit by Siphoning Funds to Affiliated Entities

Since Arizona voters approved Proposition 203 in November of 2010 I have talked to many people who were interested in obtaining a license to grow marijuana and sell it in an Arizona medical marijuana dispensary.  In general these people fall into two categories: (1) people whose primary goal is to provide medicine to patients, and (2) people who want to make a lot of money.  When I mention to the people in category 2 that all Arizona medical marijuana dispensaries must be operated on a not-for-profit basis they usually say I know, but I’m going to form one or more companies to provide services to the dispensary to move money from the dispensary to the for profit companies.

In theory this seems like a reasonable plan that could work, but I suspect that in practice most category 2 people will be “over paying” for services rendered by a for profit company to the category 2 person’s not-for-profit dispensary.  Let’s consider two scenarios and compare the results.

Scenario 1:  AZ Medical Marijuana Dispensary, LLC (“AMMD”), has a license to operate an Arizona medical marijuana dispensary.  It is owned equally by Homer Simpson and Ned Flanders.  The total cost for salaries, bonuses, employee benefits, payroll taxes and expenses for all of AMMD’s personnel for the first year of its business is $X, which amount can be deducted from AMMD’s gross income for the purposes of determining if AMMD is a not-for-profit dispensary as required by Arizona’s medical marijuana laws.  Whether any portion of this amount is deductible from AMMD’s federal income tax return depends on Internal Revenue Code Section 280E.

Scenario 2:  Same facts as Scenario 1 except Homer and Ned form Suck Off the Profits, LLC (“SOTP”), an employee leasing company that employs and leases to AMMD all personnel needed by AMMD to operate AMMD’s dispensary business.  SOTH bills AMMD $X times 3.  In computing its not-for-profit bottom line for Arizona medical marijuana dispensary requirements AMMD now can reduce its gross income by the cost of its leased personnel = $3X instead of $X.

In both scenarios AMMD must submit audited financial statements to the Arizona Department of Health Services.  These financial statements will disclose in the case of Scenario 1 that AMMD paid $3X to SOTP.  I suspect that ADHS will inquire into the ownership of SOTP and when it finds that Homer and Ned own both companies ADHS may claim that AMMD was not operated on a not-for-profit basis.  How will Homer and Ned explain why AMMD paid 3 times the actual cost of the employees to SOTP?  Homer and Ned may think ADHS is stupid, but if so, that would be a big mistake that could lead to the loss of AMMD’s license to operate an Arizona medical marijuana dispensary.

However, AMMD’s loss of its license to operate an Arizona medical marijuana dispensary might be the least of its worries.  Don’t you think that the federal law enforcement agencies will get copies of the audited financial statements of every Arizona medical marijuana dispensary and do their own investigations as to whether Arizona medical marijuana dispensaries are operated on a not-for-profit basis?  Evidence that a dispensary is a money making machine is a good way to entice the feds to bust your medical marijuana dispensary.

Read the post called “Feds Indict 6 California Medical Marijuana Dispensary Owners & Sue to Take Landlord’s Land” about a California dispensary called G3 Holistic that was very good at making money.  The story linked to in the preceding sentence said:

“In a civil forfeiture complaint, the government claimed that a forensic investigation by the IRS identified 19 bank accounts linked with G3 Holistic Inc. or individuals connected with it. The accounts had received $3.3 million in deposits during an eight-month period in 2011, with withdrawals nearly equaling that amount. The IRS concluded it was to make G3 appear to be a nonprofit organization.”

The Los Angeles Times has a detailed story about California medical marijuana dispensaries making big bucks called “Some Southern California ‘Nonprofit’ Pot Shops Make Big Money.”  This story says:

“Tax may be the biggest cudgel the feds have against medical pot. Increasingly, the IRS is applying an obscure provision of the tax code, 280E, which prohibits drug traffickers from claiming routine business deductions, for costs like wages and rent, when federal agents are trying to get back-taxes from them. Already dispensaries were in a quandary: Pay the IRS and literally document your federal crime to the federal government, or don’t report it and risk going down for tax evasion. Now they face 280E, and potentially crippling tax bills.”

If you are a category 2 person you should read about the G3 Holistic case, note in your mind that your dispensary will be giving ADHS a road map of how your dispensary spends its money (the audited financial statements) and then answer the question San Francisco Detective Harry Callahan asks a crook in the movie “Dirty Harry” after Callahan points his gun at the crook who must decide whether to go for his gun or give up.  Dirty Harry says:

I know what you’re thinking. Did he fire six shots or only five? Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do ya punk?”

If you are a category 2 person who is involved with an Arizona medical marijuana dispensary and you plan on siphoning profits from the dispensary, you must ask yourself “Do I feel lucky.”

For those category 2ers who are not familiar with the not-for-profit requirement of Arizona’s medical marijuana law applicable to all Arizona medical marijuana dispensaries I suggest you read the following text taken from my article called “Warning to Everybody Considering Becoming Involved with an Arizona Medical Marijuana Dispensary.”

Arizona Medical Marijuana Dispensaries Must be Operated on a Not-for-Profit Basis

A lot of people believe that owning an Arizona medical marijuana dispensary is a way to get rich despite the fact that all Arizona medical marijuana dispensaries must be operated on a not-for-profit basis.  Unfortunately neither Arizona’s medical marijuana laws nor the ADHS rules explain what that term means.  The only guidance with respect to the meaning of this term is found in Arizona Department of Health Services rule R9-17-304(D).8 that states that the Bylaws of a dispensary must contain “Provisions for the disposition of revenues and receipts to ensure that the dispensary operates on a not-for-profit basis.”  That’s it.  Nobody has a clue what the phrase means.

We do know, however, that all Arizona medical marijuana dispensaries must provide annual audited financial statements to ADHS.  Most businesses do not get audited financial statements, which are very expensive.  The fact every dispensary will be giving ADHS audited financial statements means that ADHS will be able to examine in detail how dispensaries are spending money, i.e., who the dispensaries pay and how much they pay.  I believe that all expenditures of money by a dispensary must be commercially reasonable or the dispensary is opening itself up to a claim that the dispensary is being operated on a for profit basis.

For example, if a member of the board of directors attends one two hour meeting of the board every quarter and provides no other services the board member may be paid for the reasonable value of the services rendered.  What is the value of 8 hours of time spent at a meeting of the board of directors?  Surely payments of $25, $100 or $250 hour may be justified since many professionals, plumbers and Xerox printer technicians charge those hourly rates.  However, if that board member is paid $100,000 for eight hours of time I submit that ADHS will have a problem with that and ADHS could refuse to renew the dispensary’s license.

Money dispensaries pay to employees and insiders will be scrutinized closely.  The dispensary must be able to justify the reasonableness of all payments to employees, insiders and affiliates.  Dispensaries should not agree to pay for any services provided by employees, insiders and affiliates without tangible evidence that the payments are commercially reasonable.  One way to do this is to follow the same rules used by bona fide tax exempt charities.  To learn more about this important topic a good start is to read “Nonprofit Payments to Insiders and Outsiders: Is the Sky the Limit?“  This article contains footnotes that refer to sources of information that can be used to justify payments to insiders of tax exempt charitable organizations.

Dispensary people must also understand that law enforcement and prosecutors will be able to access dispensaries’ audited financial statements given to ADHS for the purpose of determining if any dispensaries are not operating on a not-for-profit basis.  I am sure law enforcement and prosecutors will pay special attention to payments of large amounts of money to “management” companies or service provider companies owned by the owners, officers or board members of a dispensary.  It is a mistake to think you can make a dispensary operate on a not-for-profit basis by siphoning money from the dispensary to affiliated entities.

The bottom line with respect to the not-for-profit requirement is that Arizona medical marijuana dispensaries must actually operate a not-for-profit business so why would anybody want to invest the large amounts of money and time into a business that cannot pay profits that justify that risk?

June 23, 2012 Update:  Will Humble’s June 23, 2012, blog post confirms what I suspected, i.e., ADHS will investigate large payments by a dispensary to third parties.  Read “Will Humble Warns Arizona Medical Marijuana Dispensaries Not to Pretend to be a Not-for-Profit Business.”

By |2015-04-06T18:53:12-07:00June 16th, 2012|Legal Issues, Stories & Articles|Comments Off on Warning to Arizona Medical Marijuana Dispensaries that Plan to Make their Dispensary Not-for-Profit by Siphoning Funds to Affiliated Entities
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New York Times Writes a Superficial Article on Arizona’s Medical Marijuana Law

Wow!  What can I say.  The New York Times has an article dated June 7, 2012, that reads like it was written by a high school newspaper reporter – short, fluffy, lacking substance and out of touch with reality.  It does disclose for the first time that Will Humble had a fake Facebook page on medical marijuana. The article says:

“Will Humble, director of the Arizona Health Services Department, said his staff used a fake Facebook page to monitor the conversation about the state’s medical marijuana program, which is how they got to hear about loopholes they never knew existed.

For example, the state gives preference to people who have $150,000 or more in cash for each dispensary application they file; a bank statement would have sufficed as proof the money was there. But people suggested they would just transfer the money from one bank to another, then use the statements to support different applications.

The state went on to ask applicants to prove the money had been in the bank for at least 30 days, Mr. Humble said.”

I was at a public presentation last year given by Will Humble right after ADHS’ third and “final” draft of Arizona’s medical marijuana regulations were published.  This was the version of the rules that contained the $150,000 capital requirement.  A man asked Will Humble if it would be ok to put the money in the bank on Monday, get a letter from the bank and then take the money out of the bank on Tuesday.  You should have seen the surprised look on Will’s face as he realized the carefully drafted rule had a door a mile wide in it.  ADHS then quickly published a fourth and really final version of the rules that modified the capital requirement rule that applicants show they had at least $150,000 in the bank for at least 30 days.

By |2012-06-13T05:20:10-07:00June 8th, 2012|Stories & Articles|Comments Off on New York Times Writes a Superficial Article on Arizona’s Medical Marijuana Law
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Landlord Who Leased Land to Marijuana Dispensary Sentenced to One Year in Prison

This story out of Montana should be a wake up call for anybody who leases or is considering leasing land that would be used to grow, store or sell marijuana, medical or non-medical.  I knew that the federal government has sued landlords who leased to medical marijuana dispensaries for the purpose of causing the landlords to forfeit the land, but this is the first case I have heard about where the landlord was convicted of a crime.

Billings Gazette:  “A Flathead Valley landlord has been sentenced to a year in prison for his tenants’ medical marijuana operation.”

By |2012-05-26T07:14:31-07:00May 25th, 2012|Federal Dispensary Attacks, Marijuana Crimes, Real Estate Issues|Comments Off on Landlord Who Leased Land to Marijuana Dispensary Sentenced to One Year in Prison
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Warning to Everybody Considering Becoming Involved with an Arizona Medical Marijuana Dispensary

If You Might Become Involved in any Way with an Arizona Medical Marijuana Dispensary I Urge You to Read All of This Article

The Arizona Department of Health Services will begin accepting applications for Arizona medical marijuana dispensary registration certificates on May 14, 2012.  Applications will not be accepted after 5:00 pm Arizona time on May 25, 2012.  Applications must be accompanied by a $5,000 application fee of which $1,000 will be returned to unsuccessful applicants.

Applying for a dispensary registration certificate is the first big step for any person or company that wants to obtain a license to be an Arizona medical marijuana dispensary.  Only dispensaries licensed by ADHS can grow marijuana and sell it to Arizona medical marijuana licensed patients and other Arizona licensed dispensaries.  ADHS Director Will Humble estimated that the number of dispensary licenses that will ultimately be issued is between 90 and 110.

I have been studying Arizona’s medical marijuana laws and closely watching news stories about medical marijuana since October of 2010, a month before the Arizona voters approved Proposition 203, the ballot initiative that created Arizona’s medical marijuana laws.  The primary purpose of this website has been to help people interested in this topic to keep informed and up to date about what is happening in Arizona and in other states that have legalized medical marijuana.  If you are new to this website and want to learn you will be able to spend many hours reading and learning from the 500+ posts we have made since January 1, 2011, when this website was created.

Federal Government’s War on Medical Marijuana Dispensaries

Over the last year and especially the last six months I have watched the federal government make a 180 degree turn from its 2009 position on medical marijuana in states that have legalized it.  The Department of Justice no longer looks the other way with respect to medical marijuana dispensaries.  The written position statements issued by the DOJ in the last year and its actions in closing dispensaries in states that legalized medical marijuana are sending an obvious message that can been seen by everybody except those that are blind.  The DOJ’s message is this:

The federal government will “vigorously enforce” federal laws against those who “operate and facilitate large marijuana production facilities and marijuana production facilities involved in the cultivation, sale and distribution of marijuana, even if purportedly for medical purposes.”

The quoted text above is in a February 16, 2012, letter from acting U.S. Attorney for Arizona Ann Birmingham Scheel to Arizona Governor Jan Brewer.  Not only has the DOJ made the above statement many times in the last year it is actively raiding and closing dispensaries in states that have legalized medical marijuana.  The evidence of the feds war on medical mairjuana dispensaries is everywhere and only the blind cannot see it.

I urge you to read as many of the 78+ articles found in one of our topic areas called Federal Dispensary Attacks.  These posts describe actual situations where the federal government has taken actions to close medical marijuana dispensaries.

The Federal Government’s Multi-Prong Attack on Medical Marijuana Dispensaries

The feds are using many different weapons to close medical marijuana dispensaries.  Here is my list of the primary weapons the federal government is using in its war on state legal medical marijuana dispensaries: (more…)

By |2017-10-07T09:54:52-07:00May 13th, 2012|Federal Dispensary Attacks, Stories & Articles|1 Comment
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Maricopa County Superior Court Ruling May be Last Nail in the Coffin of the Unborn Arizona Medical Marijuana Dispensary Industry

On April 17, 2012, Maricopa County, Arizona, Superior Court Judge Michael R. McVey signed a Judgment of Dismissal that could be the death blow to Arizona’s fledgling medical marijuana dispensary industry.  The case is Michele Rene Hammer v. Today’s Health Care II, a Colorado corporation (“THC”).  Although the judge’s decision has not yet been appealed and may not be appealed, the legal significance of the case cannot be ignored by anybody who is considering becoming involved in a prospective or actual  Arizona medical marijuana dispensary or anybody who is a party to or may become a party to a contract that involves the growing, transporting, storing, infusing, processing, selling or dealing in any way with marijuana in Arizona.

Hammer v. Today’s Health Care II involves a very common situation.  Michele Hammer and Mark Haile each loaned $250,000 to Today’s Health Care II, a Colorado corporation.  Each lender and borrower signed a loan agreement that stated:

“Borrower shall use the loan proceeds for a retail medical marijuana sales and grow center.”

THC defaulted on both loans.  Although the loan proceeds were to be used only in Colorado, a state where medical marijuana is legal, each lender sued in Maricopa County Superior Court to collect the amounts owed under the promissory notes signed by THC.  The two cases (Hammer v. THC and Mark W. Haile v. Todays Health Care II) were consolidated.  The plaintiffs and defendant filed motions for summary judgment.  On April 17, 2012, the judge signed the Judgment of Dismissal in which he ruled that THC is not obligated to repay all or any part of either loan.  Judge McVey stated:

“The explicitly stated purpose of these loan agreements was to finance the sale and distribution of marijuana. This was in clear violation of the laws of the United States. As such, this contract is void and unenforceable. This Court recognizes the harsh result of this ruling.  Although Plaintiffs did not plead any equitable right to recovery such as unjust enrichment, or restitution, this Court considered whether such relief may be available to these Plaintiffs.  Equitable relief is not available when recovery at law is forbidden because the contract is void as against public policy.”

Result:  The borrower can keep the $500,000 and it has no legal obligation to repay the loans.  The borrower does not get to keep all of the money, however, because it will be required to report $500,000 as taxable income on its 2012 federal income tax return.  Forgiveness of a debt causes “discharge of indebtedness income” that must be reported to the IRS and taxed at the taxpayer’s marginal tax rate.

There is an equitable concept in the law called unjust enrichment.  There are many cases where a court has ruled that even though the plaintiff could not prove a legal basis on which the plaintiff should be paid damages, a court of equity looking at all of the facts gave the plaintiff a judgment for money because the actions of the plaintiff caused the defendant to be unjustly enriched and it would not be fair for the defendant to keep the economic benefit bestowed on the defendant.  Judge McVey wrote that he considered ruling in favor of the lenders on the basis of unjust enrichment, but that remedy is also denied when the contract involved is void as against public policy.

Judge McVey based his decision on the fact the purpose of the loan was for a purpose that is illegal under federal law.  He did not examine whether the loans should be enforced because they were legal under state law.  After all, collection of a loan arises from legal obligations and rights created under state law, not federal criminal law.  It seems logical and lawful to me that the judge could have ruled in favor of the plaintiffs had he considered the legality of the loans under state law.

This case does not have the legal precedent of a written opinion from the Arizona Court of Appeals or the Arizona Supreme Court.  Nevertheless Hammer v. Today’s Health Care II stands for a very important principle that everybody who is contemplating becoming involved with the Arizona medical marijuana industry cannot ignore, i.e.:

Unless and until an Arizona appellate court rules that contracts involving Arizona medical marijuana are enforceable under Arizona law (as opposed to unenforceable under federal law), any contract that has a purpose related to Arizona medical marijuana may be unenforceable and not worth the paper it is written on!

What Does the Case Mean to People Considering Becoming Involved in Arizona Medical Marijuana Dispensaries?

Until an Arizona appellate court reverses the result in this case it means that people who enter into contracts that relate in any way to Arizona medical marijuana will have to hope the other side to the contract satisfies his/her/its obligations because it may not be possible to sue for breach of contract and get a judgment against the party who defaults.  This case should cause the following people to think twice or three times before getting involved:

  • Landlords who lease to dispensaries.  The lease may not be enforced.  If a dispensary tenant defaults on the rent would a court evict the tenant or give the landlord a money judgment for damages for breach of the lease?
  • Investors in dispensaries.  Would the investment be treated the same as a loan with no legal way to force the dispensary to repay the investment or profits?
  • Lenders who loan to dispensaries.  This is the same facts as Hammer v. Today’s Health Care II.  Why would any person or entity make a loan to a dispensary when there is a good chance a court would refuse to enforce the loan?
  • Medical directors of dispensaries.  What if the dispensary doesn’t pay for the doctor’s services?
  • High paid employees or independent contractors.  Are you willing to work and have the dispensary refuse to pay and dare you to sue?

The above list is not complete.  If you are contemplating entering into any type of contract (oral or written) with a prospective or actual Arizona medical marijuana dispensary you are taking a risk that an Arizona court may rule that the contract is unenforceable.

You might think that the ultimate winner as a result of Hammer v. Today’s  Health Care II is the Arizona medical marijuana dispensary.  Perhaps, but I submit that dispensaries are actually the ultimate losers because this case stands for the proposition that it will be very difficult if not impossible for Arizona medical marijuana dispensaries to operate because prudent people and businesses will not want to contract with dispensaries until an Arizona appellate court rules that the contracts are enforceable under Arizona law.

Update:  Richard Keyt and Judge McVey’s ruling are discussed in the following stories:

  • Fox News Chicago story called “Contracts with medical marijuana companies unenforceable, Arizona court rules.”
By |2015-04-06T18:53:12-07:00May 7th, 2012|AZ Marijuana Law Lawsuits, Legal Issues, Stories & Articles|4 Comments
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Where are the Final Arizona Medical Marijuana Rules?

On February 27, 2012, Will Humble, the Director of the Arizona Department Health Services said that during the prior week ADHS finished the final version of Arizona’s medical marijuana rules and sent the rules to the Arizona Attorney General for its approval.  That was 39 days ago.  What gives?  It does not take 39 days for the AG to approve minor changes made to rules it previously approved in 2011.

Will Humble is silent.  He said “We’re still on track to be able to accept dispensary applications in April,” but we are now one week into April and ADHS, the AG and Arizona Governor Jan Brewer are not talking about the law, the rules or anything related thereto.

Will my March 10, 2012 prediction, come true when I said the Arizona Governor “will order ADHS to terminate the implementation of medical marijuana dispensaries in Arizona for a second time.”

By |2012-04-06T08:43:15-07:00April 6th, 2012|Stories & Articles|Comments Off on Where are the Final Arizona Medical Marijuana Rules?
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Why Has the Arizona Department of Health Services Failed to Issue the Revised Medical Marijuana Rules?

On January 13, 2012, Arizona Governor Jan Brewer issued a press release that said in part:

“I have directed the Arizona Department of Health Services to begin accepting and processing dispensary applications, and issuing licenses for those facilities once a pending legal challenge to the Department’s medical marijuana rules is resolved. . . . Know this: I won’t hesitate to halt State involvement in the AMMA if I receive indication that State employees face prosecution due to their duties in administering this law.”

In a January 13, 2012, blog post Director of the Arizona Department of Health Services Will Humble wrote:

“the Governor has asked us to implement the dispensary portion of the AZ Medical Marijuana Act.”

On January 25, 2012, Will Humble wrote:

“Our teams are busy dotting the i’s and crossing the t’s right now on an express rule package that would remove the dispensary selection criteria that was struck down last week (AZ residency, child support, previous bankruptcies etc.) and to set new dates to accept dispensary applications.”

On February 27, 2012, Will Humble wrote:

“Last week our team finished the revisions to the regulations by making adjustments to comply with the judge’s decision and to set a process for identifying a new timeline for accepting dispensary applications. We’ve shipped the revised rules to the Attorney General’s Office for final review. Once their review is complete, the AG’s office will file the final package with the Secretary of State- and the revised rules will become immediately effective.  I’ve heard that there’s a buzz in the community that we’re completely revamping the rules for dispensaries. This is not the case. We’ve simply made revisions to comply with the recent Superior Court Ruling. We’re still on track to be able to accept dispensary applications in April.”

The Court in  Compassion First, LLC vs. Arizona ruled that the ADHS rules must eliminate the following provisions from the Rules that prohibited ADHS from issuing a license for an Arizona medical marijuana dispensary if any principal officer or director of the applicant:

  • Was not an Arizona resident for at least three years immediately before filing for a dispensary license.
  • Had ever filed personal or corporate bankruptcy.
  • Did not file Arizona personal income tax returns for three years immediately before filing for a dispensary license;
  • Was not current on court-ordered child support.
  • Is delinquent in paying taxes, interest or penalties to the government or has an unpaid judgment to the government or is in default on a government issued student loan.

It is a simple matter to eliminate those provisions from the Rules and would have taken ADHS less than an hour.  The only other changes to the rules would be the dates for accepting dispensary applications and all the other dates in the dispensary licensing process.  ADHS determined these dates last year so all it has to do is pick a new dispensary application start date and the other dates would flow from that date.  In short, the time needed for ADHS to revise its Rules and for the Attorney General to approve the revised Rules is/was very short.  Why then has the Arizona Attorney General failed to approve the revised rules?

My guess is that the AG’s delay in issuing the final revised Rules is because Jan Brewer and Tom Horne are trying to come up with another excuse to kill medical marijuana dispensaries in Arizona.  Governor Brewer now has concrete evidence to base her decision to shut down Arizona’s medical marijuana dispensaries for a second time.  The Delaware United States Attorney office sent a letter to Delaware Governor Jack Markell dated February 9, 2012, that said in part:

“[G]rowing, distributing and possessing marijuana, in any capacity, other than as part of a federally authorized research program, is a violation of federal law regardless of state laws permitting such activities . . . . Moreover, those who engage in financial transactions involving the proceeds of such activities may also be in violation of federal money laundering statutes. . . . State employees who conduct activities mandated by the Delaware Medical Marijuana Act are not immune from liability under” the Controlled Substances Act“

Here is Governor Markell’s February 12, 2012, statement on this issue:

“I am very disappointed by the change in policy at the federal department of justice, as it requires us to stop implementation of the compassion centers.  To do otherwise would put our state employees in legal jeopardy and I will not do that.   Unfortunately, this shift in the federal position will stand in the way of people in pain receiving  help.  Our law sought to provide that in a manner that was both highly regulated and safe.”

Given the Governor’s statement in her January 13, 2012, press release that she would not “hesitate to halt State involvement in the AMMA if I receive indication that State employees face prosecution due to their duties in administering this law” I am predicting that she will order ADHS to terminate the implementation of medical marijuana dispensaries in Arizona for a second time.

By |2015-04-06T18:58:27-07:00March 10th, 2012|Stories & Articles|Comments Off on Why Has the Arizona Department of Health Services Failed to Issue the Revised Medical Marijuana Rules?
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Northeast Phoenix Medical-pot Site Exercises Caution

Arizona Republic:  “Patients with medical-marijuana cards can buy their medicines at one location in Phoenix.   Elements Caregivers Collective is the only permitted location for a dispensary so far in northeast Phoenix, and the only one of several applications for the area to meet the city’s zoning standards and receive a permit. The nearest dispensary applicants with approved permits are near Deer Valley Airport and Metrocenter. . . . According to permit holder Ingrid Joya, the shop is able to distribute medical marijuana as a group of caregivers who are allowed by law to grow marijuana for their patients. . . . Memberships range from $75 to $100, and they entitle patients to 1/8 ounce. Further purchases cost extra.  The collective keeps tight records on its patients, Joya says, and exceeds legal requirements.”

This story is troubling from a legal perspective for several reasons:

1.  Arizona’s medical marijuana law does not allow patients to buy medical marijuana from any source other than a dispensary licensed by the Arizona Department of Health Services.  ADHS has not issued a single medical marijuana dispensary license so how can patients legally buy marijuana from Elements Cargivers Collective or its caregivers?  Was the reporter ignorant of the law and did he misstate what actually happens at the collective?

2.  How can Elements Caregivers Collective be the “only permitted location for a dispensary”  when there are no licensed medical marijuana dispensaries in Arizona?

3.  Sounds like patients are paying money to purchase marijuana, which is not authorized by Arizona’s medical marijuana laws.  Arizona Revised Statutes Section 36-2811.B, states:

“A registered qualifying patient or registered designated caregiver is not subject to arrest, prosecution or penalty in any manner, or denial of any right or privilege, including any civil penalty or disciplinary action by a court or occupational or professional licensing board or bureau . . . For offering or providing marijuana to a registered qualifying patient or a registered designated caregiver for the registered qualifying patient’s medical use or to a registered nonprofit medical marijuana dispensary if nothing of value is transferred in return and the person giving the marijuana does not knowingly cause the recipient to possess more than the allowable amount of marijuana.”

4.  How can a collective have patients?  Arizona’s medical marijuana law does not authorize anybody to have medical marijuana patients except licensed dispensaries and a licensed caregiver who can have as many as five patients.  Elements Caregivers Collective is not a licensed dispensary nor is it a licensed caregiver.

4.  What does it mean to “keep tight records on patients?”   Does Elements Caregivers Collective keep written records of the following transactions:

a.  Source of all medical marijuana, date of acquisition, amount of marijuana and consideration paid for the marijuana?

b.  Indicate on all marijuana its source so the marijuana can be tracked?  Caregiver A’s marijuana must go only to Caregiver A’s patients.  Caregiver B’s marijuana must go only to Caregiver B’s patients.  The collective must be able to prove the trail of marijuana from its source to the patient.

c.  Name of patient who receives marijuana, name of caregiver who provided the marijuana, date of the delivery, amount, and a signed representation and warranty from the patient that the receipt of the marijuana will not cause the patient to exceed his or her allowable 2.5 ounces of marijuana every two weeks.

I recommend that the transactions described in a. and c. above be evidenced by a written document signed by each party whose signatures are acknowledged before an Arizona notary public.  I  would also attach a copy of each signer’s photo id and a copy of the patient’s and caregiver’s ADHS registration card to the signed document.

When it comes to record keeping, the caregiver must be able to prove to the police and ADHS that the caregiver gave his or her marijuana to one of his or her patients and that the gift did not cause the patient to exceed the two week allowance of 2.5 ounces.  If you are a caregiver can you prove your marijuana went to your patients?  If not, you are not complying with Arizona’s medical marijuana laws.

5.  Does Elements Caregivers Collective or its agents ever possess marijuana?  The only parties who are allowed to possess marijuana under Arizona medical marijuana laws are licensed:  (i) patients, (ii) caregivers, (iii) dispensary agents, and (iv) dispensaries.  Elements Caregivers Collective is none of those.

I am not suggesting that Elements Caregivers Collective is violating Arizona’s medical marijuana laws.  I don’t know what it does exactly.  My information about Elements Caregivers Collective comes from the article in the Arizona Republic linked to above, which was apparently written by a reporter who does not understand Arizona’s medical marijuana laws and may have made statements that are misleading and/or inaccurate.

P.S.  Words of advice to all licensed Arizona medical marijuana patients, caregivers and dispensaries (would be and actual in the future):  Do not give interviews to the media.  Keep a low profile.  Try to be invisible.  Stay off the radar scope of ADHS, the police and the DEA.

For more on this topic read my article called “Are Arizona Cannabis Clubs Legal Under Arizona’s Medical Marijuana Laws?“

By |2012-03-07T07:45:45-07:00March 6th, 2012|Cannabis Clubs, Stories & Articles|2 Comments
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Prospective Dispensary’s Single Most Important Task Before April 30, 2012

Nonprofit entities that want to obtain a dispensary registration certificate (aka license) to sell medical marijuana in Arizona have a lot of tasks to accomplish before they can open for business.  At this time, however, the single most important task for all would-be dispensaries is to locate a properly zoned place within the desired CHAA to operate the dispensary and tie it up with a lease or an option to lease.

Arizona’s medical marijuana law and the Arizona Department of Health Services rules provide that the application for a dispensary registration certificate must show the location where the dispensary will operate.  In addition, Arizona Department of Health Services Rule R9-17-304 states:

To apply for a dispensary registration certificate, an entity shall submit to the Department the following

6.Documentation from the local jurisdiction where the dispensary’s proposed physical address is located that:

a. There are no local zoning restrictions for the dispensary’s location, or

b. The dispensary’s location is in compliance with any local zoning restrictions;

7. Documentation of:

a. Ownership of the physical address of the proposed dispensary, or

b. Permission from the owner of the physical address of the proposed dispensary for the entity applying for a dispensary registration certificate to operate a dispensary at the physical address;

Translation:  The dispensary applicant must obtain and submit with the application for a dispensary registration certificate a written statement from the applicable zoning authority that the proposed dispensary premises is “groovy” and a written statement from the landlord that the applicant can operate a dispensary at the location designated in the application (or proof the applicant owns the land).

Actions Prospective Dispensaries Must Take Yesterday

Here are the actions every would be dispensary must take as soon as possible:

1.  Hire a zoning attorney who can tell you which locations in your desired CHAA are properly zoned and meet the requirements of the ADHS rules.  This step is very important because it is a total waste of time to search for a location and get it leased and find out the location is not properly zoned or too close to a school.  The zoning attorney will also apply for the Rule R9-17-304.D.6 zoning comfort letter from the applicable zoning authority.

2. Visit only properly zoned sites that are not too close to a prohibited structure and identify where you want to operate the dispensary.

3.  Sign a lease or an option to lease for your desired location (or enter into a contract to purchase it).  Make sure the lease has language in it that requires the landlord to give you a written Rule R9-17-304.D.7 comfort letter not later than April 1, 2012.

Cities are severely limiting the areas where a dispensary can be located.  When you add the complexity of understanding the applicable zoning ordinance with the further limiting CHAAs, the result is a very difficult problem simply to determine where dispensaries can be located within a CHAA.  In many CHAAs, the number of usable sites is limited, which is causing a modern day equivalent to the Oklahoma land rush of the 1800s.

If you cannot find a location and legally tie it up with a lease or a lease option, it’s game over.  If your dispensary has not yet found and tied up a site, you should immediately contact an experienced zoning lawyer to explain the zoning rules for your desired area and show you how the CHAAs interact with the zoning.  You want the zoning attorney to give you a map that shows exactly where within a city and a CHAA the zoning is right for a dispensary.  Use that map to find a site.  Enter into a lease or an option to lease with the landlord.  Have your zoning lawyer assist in completing the necessary city paperwork to get your site approved by the city.

Nothing else matters as much now as finding a site that is properly zoned and getting it under lease or an option to lease.

I recommend Maricopa County zoning attorney Michael Curley.  Call him at 602-903-3077.  You need a zoning lawyer to explain where you can lease your site and what locations are available in your desired CHAA.

See “Must My Dispensary Obtain a Conditional Use Permit from the City before it can File an Application for an Arizona Medical Marijuana Dispensary License?,” “How Does My Dispensary Tie Up Land for its Retail & Cultivation Sites?” and “CHAA on This!“

By |2012-01-27T07:41:42-07:00January 27th, 2012|Dispensary Leases, Legal Issues, Real Estate Issues|Comments Off on Prospective Dispensary’s Single Most Important Task Before April 30, 2012
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Eleven Critical Tasks Every Prospective Arizona Medical Marijuana Dispensary Must Accomplish to Be Able to Submit an Application to DHS for a Medical Marijuana Dispensary License

Updated on January 14, 2012, from my task list first published on April 24, 2011.

I am reposting and updating this article in light of the fact that Arizona Governor Jan Brewer ordered the Arizona Department of Health Services to implement medical marijuana dispensaries in Arizona.  Check back because I will update this task list when ADHS issues the new time lines and changes to its regulations.

Here is my list of critical tasks that each prospective Arizona medical marijuana dispensary must accomplish before it can file an application for a dispensary registration certificate beginning [new date to come from ADHS].  If any one of the following is not satisfied on or before [new date to come from ADHS], the last day to file the application for a dispensary registration certificate, the application will be rejected.

1.  Find a Properly Zoned Site Where the Dispensary Will Operate.  Find a site where the nonprofit entity could operate its dispensary. You must show the “physical address of the proposed dispensary” on the application.  R9-17-304.D.1.b.  The site must be properly zoned.  See “Prospective Dispensary’s Single Most Important Task Before April 30, 2012,” “How Does My Dispensary Tie Up Land for its Retail & Cultivation Sites?” and “CHAA on This!“

2.  Landlord Comfort Letter.  R9-17-304.D.7 requires that the dispensary applicant get written “Permission from the owner of the physical address of the proposed dispensary for the entity applying for a dispensary registration certificate to operate a dispensary at the physical address.”

3.  Zoning Comfort Letter.  Obtain a comfort letter from the appropriate zoning authority that says the the proposed location of the dispensary is “groovy.”  Rule R9-17-304.D.6 states that the comfort letter must be “from the local jurisdiction where the dispensary’s proposed physical address is located” and it must say that “There are no local zoning restrictions for the dispensary’s location, or . . . The dispensary’s location is in compliance with any local zoning restrictions.”  See “Must My Dispensary Obtain a Conditional Use Permit from the City before it can File an Application for an Arizona Medical Marijuana Dispensary License?,” the DHS FAQ DI12 & DI13 about certificates of occupancy and special use permits,

4.  Medical Director.  Enter into a contract with a medical director who has obtained a license from Arizona Department of Health Services to act as the medical director.  The application must include the medical director’s DHS license number.  R9-17-304.D.1.e.  This means the medical director must apply for his or her DHS license asap.  See “Clauses to Include in a Contract between a Medical Director & a Dispensary.”

5.  Policies & Procedures.  Prepare the following written policies and procedures per R9-17-304.D.4 that comply with the requirements in the DHS rules for:

a. Inventory control (task 5),
b. Qualifying patient record-keeping (task 6),
c. Security (task 7), and
d. Patient education and support (task eight)

You should be working on these documents now so they will be ready when you submit the application.

9.  By-laws.  Prepare the dispensary’s by-laws containing provisions for the disposition of revenues and receipts.  R9-17-304.D.8 See “What the Final DHS Rules Require to Be In Dispensary Bylaws,” “Bylaws for Arizona Medical Marijuana Dispensaries,” “Bylaws – We Don’t Need No Stinking Bylaws or Do We?”

10.  Business Plan.  Prepare a business plan demonstrating the on-going viability of the dispensary on a not-for-profit basis.  R9-17-304.D.9.  See “What Must be In an Arizona Medical Marijuana Dispensary Applicant’s Business Plan.”

11.  Bank Comfort Letter.  Last minute rules R9-17-302A.5 and R9-17-304.D.1.f.ii. require that every application for an Arizona medical marijuana dispensary license contain a financial institution comfort letter that:

(1) Is from an in-state financial institution or an out-of-state financial institution;

(2) Is dated within 30 days before the date the dispensary registration certificate application was submitted; and

(3) Demonstrates that the entity applying for the dispensary registration certificate or a principal officer of the entity has at least $150,000 under the control of the entity or principal officer to begin operating the dispensary and has had control of the $150,000 for at least 30 days before the date the dispensary registration certificate application was submitted“

By |2012-05-13T16:18:49-07:00January 14th, 2012|Legal Issues, Stories & Articles|Comments Off on Eleven Critical Tasks Every Prospective Arizona Medical Marijuana Dispensary Must Accomplish to Be Able to Submit an Application to DHS for a Medical Marijuana Dispensary License
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Checklist for Opening an Arizona Medical Marijuana Dispensary

Updated on January 13, 2012, from my checklist first published on January 16, 2011.

Here’s my checklist for the legal issues that every prospective Arizona medical marijuana dispensary business must complete, sooner rather than later than the yet to be announced date when the Arizona Department of Health Services will stop accepting applications for dispensary registration certificates.  Check back in the future because I will update the checklist as I find more legal issues to add to the list.

See “Prospective Dispensary’s Single Most Important Task Before April 30, 2012” and “Ten Critical Tasks Every Every Prospective Arizona Medical Marijuana Dispensary Must Accomplish to Be Able to Submit an Application to DHS for a Medical Marijuana Dispensary License.”

1.  Create an Arizona LLC to own and operate the dispensary business and hold the medical marijuana dispensary license.

A. Make sure that all members satisfy all of the requirements for ownership set forth in the DHS rules.

B.  Members adopt Bylaws that comply with the DHS rules.  R 9-17-304.D.8 states that the Bylaws must contain “provisions for the disposition of revenues and receipts.”  See “What the Final DHS Rules Require to Be In Dispensary Bylaws,” “Bylaws for Arizona Medical Marijuana Dispensaries,” “Bylaws – We Don’t Need No Stinking Bylaws or Do We?”

C. Members sign a resolution approving the Bylaws.

D.  Members adopt a buy-sell agreement that contains their exit strategy and deals with issues such as having the LLC purchase the interest of a deceased owner to make sure that no person becomes an owner who does not satisfy all of the requirements of the DHS rules. to be an owner.

E.  Members sign a resolution approving the buy-sell agreement.

F.  Members sign a resolution giving the designated officers managers the power and discretion to sign any and all contracts they deem necessary and appropriate to carry out the purposes of the business.

G.  The LLC enters into written Nondisclosure / Confidentiality Agreements with all members.

2.  Obtain a federal employer identification number for the LLC.

3.  Open a bank account in the name of the LLC.  See “Will Some Banks Refuse to Give My Dispensary a Bank Account?” and Banking Issues.

4.  Hire a Certified Public Accountant to determine if the LLC should be taxed as a sole proprietorship (if it has one owner or husband and wife owners who own their interest in the LLC as community property), a partnership (if there are two or more members), a C corporation under subchapter C of the Internal Revenue Code of 1986, or an S corporation under subchapter S of the Internal Revenue Code (if the LLC meets the requirements to be an S corporation for federal income tax purposes. (more…)

By |2017-10-07T09:54:53-07:00January 13th, 2012|Legal Issues, Medical Directors|Comments Off on Checklist for Opening an Arizona Medical Marijuana Dispensary
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Arizona Governor Reinstates Medical Marijuana Dispensaries

The following is the text of Arizona Governor Jan Brewer’s January 13, 2012, press release announcing she instructed the Arizona Department of Health Services to move forward with implementing Arizona’s medical marijuana dispensaries:

“The State of Arizona will not re-file in federal court a lawsuit that sought clarification that State employees would not be subject to federal criminal prosecution simply for implementing the Arizona Medical Marijuana Act (AMMA). Instead, I have directed the Arizona Department of Health Services to begin accepting and processing dispensary applications, and issuing licenses for those facilities once a pending legal challenge to the Department‟s medical marijuana rules is resolved.

“I also have sent a letter to Ann Birmingham Scheel, Acting U.S. Attorney for Arizona, notifying her of the State‟s action at this time and – once again – seeking assurance and clarification as to the federal government’s position regarding State employee participation in the licensing or regulation of medical marijuana dispensaries.

“It is well-known that I did not support passage of Proposition 203, and I remain concerned about potential abuses of the law. But the State’s legal challenge was based on my legitimate concern that state employees may find themselves at risk of federal prosecution for their role in administering dispensary licenses under this law. Last week, to my great disappointment, the U.S. District Court of Arizona dismissed the State‟s lawsuit on procedural grounds and refused to provide clarity on the likely conflict between Proposition 203 and federal drug law.

“Remember how we got to this point. The State of Arizona was fully implementing the provisions of Proposition 203 last spring. That’s when Arizona was among a host of states that received letters from the U.S. Department of Justice threatening potential legal ramifications for any individual participating in a medical marijuana program, even in states where it had been legally approved. Specifically, the Arizona letter – dated May 2, 2011 – warned that growing, distributing and possessing marijuana in any capacity, other than as part of a federally authorized research program, is a violation of federal law regardless of state laws that purport to permit such activities.”

“Would state employees at the Department of Health Services, charged with administering and licensing marijuana dispensaries face federal prosecution? This was the basis for calling a ‘time out’ in order for the State to seek a straightforward answer from the court. With our request for clarification rebuffed on procedural grounds by the federal court, I believe the best course of action now is to complete the implementation of Proposition 203 in accordance with the law.

“Know this: I won‟t hesitate to halt State involvement in the AMMA if I receive indication that State employees face prosecution due to their duties in administering this law.”

For Prospective Arizona Medical Marijuana Dispensary Owners

Stay tuned.  I will be watching the ADHS for the new dispensary application process and deadlines.  If you have not yet formed your nonprofit entity to seek a license to operate an Arizona medical marijuana dispensary, I want to form it for you.  Call me at 602-906-4953, ext. 1 if you have questions.

By |2012-03-10T09:01:57-07:00January 13th, 2012|AZ Marijuana Law Lawsuits, Stories & Articles|Comments Off on Arizona Governor Reinstates Medical Marijuana Dispensaries
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Medical Marijuana Dispensaries are Dead in the United States

Arizona Governor Jan Brewer killed Arizona’s medical marijuana dispensaries before the dispensaries even got to the starting gate.  The six lawsuits involving Arizona’s medical marijuana dispensary industry and cannabis clubs are slowly proceeding in court.  What happens in each of the lawsuits is not as important as the elephant in the medical marijuana room, which is that the United States has now made it clear even to the blind who will not see that the U.S. will prosecute people involved in selling medical marijuana any where in the U.S., including in states that have legalized it.  Here is the evidence:

The U.S. Justice Department has said in no uncertain terms that it will do the following in all fifty states:

  1. Prosecute people involved in selling medical marijuana to medical marijuana patients or caregivers.
  2. Prosecute people involved in growing medical marijuana for the purpose of selling to medical marijuana patients and caregivers.
  3. Prosecute landlords who lease real property to people or businesses that grow or sell marijuana on the premises.
  4. Prosecute lenders who loan money to people or businesses that grow medical marijuana for distribution or that sell  marijuana to medical marijuana patients or caregivers.

It does not matter if the parties who want to establish medical marijuana dispensaries and cannabis clubs are successful in all six of the Arizona lawsuits.  Even if the six lawsuits authorize medical marijuana dispensaries and cannabis clubs in Arizona, the federal government will prosecute anyone involved in growing and selling marijuana – medical or recreational.

People involved  in the cannabis club industry should also be very afraid.  The only people who have any comfort from the U.S. Justice Department’s current medical marijuana policies are state approved medical marijuana patients and caregivers who do not sell marijuana.  Cannabis clubs do not fall in that category.  It is clear to me that the U.S. Justice Department’s policy is to prosecute everybody involved in growing, selling and distributing marijuana except patients and caregivers.

By |2015-04-06T18:52:31-07:00October 11th, 2011|Federal Dispensary Attacks, Stories & Articles|2 Comments
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Are Arizona Cannabis Clubs Legal Under Arizona’s Medical Marijuana Laws?

Alan Sobol and his 2811 Club are breaking unchartered ground by creating an organization where card-carrying Arizona medical marijuana patients can pay a fixed fee of $75 to enter the club’s facility and obtain “free” marijuana.  Sobol claims his cannabis club is legal under Arizona’s medical marijuana laws, but he filed a lawsuit in Maricopa County Superior Court to get a court ruling on the legality of his cannabis club under Arizona’s law.

Arizona Revised Statutes Section 36-2811.B, states:

“A registered qualifying patient or registered designated caregiver is not subject to arrest, prosecution or penalty in any manner, or denial of any right or privilege, including any civil penalty or disciplinary action by a court or occupational or professional licensing board or bureau . . . For offering or providing marijuana to a registered qualifying patient or a registered designated caregiver for the registered qualifying patient’s medical use or to a registered nonprofit medical marijuana dispensary if nothing of value is transferred in return and the person giving the marijuana does not knowingly cause the recipient to possess more than the allowable amount of marijuana.”

This statute apparently protects a registered Arizona medical marijuana patient from violating Arizona’s criminal marijuana laws if the patient gives not more than 2.5 ounces of marijuana (or less if the recipient has additional marijuana) to another Arizona medical marijuana patient.  Stated another way, this statute protects registered Patient A if Patient A gives an allowable amount of marijuana to registered Patient B and nothing of value is received by Patient A.

If a cannabis club wants to be protected by ARS Section 36-2811.B then the events that occur at the club must be limited to registered Patient A or registered caregiver C giving an allowable amount of marijuana to registered Patient B.  Here are some potential problems that could cause a cannabis club to not be protected from Arizona state prosecution:

  • Charging patients a fee when the club is involved in the marijuana gift transaction.  If a patient pays $75 to enter the club’s facility will a judge or jury find that the charge is for something other than to obtain marijuana?  If a cannabis club charged $75 to get in its door would anybody pay that amount if the club did not provide free marijuana?  Can you think of any business establishments that charge $75, $50 or $25 to get in the door?  Private country clubs charge a lot, but they provide golf and other amenities.  There are also private clubs that charge a high membership fee, but these cannot survive unless they provide value in return for the fee.  Yes amusement parks charge big admission fees, but cannabis clubs are not amusement parks or country clubs.  The best argument a cannabis club would have to avoid prosecution for violating Arizona’s criminal marijuana laws is if the club merely charges a fee for the use of its premises and the club is not involved in any way in the marijuana gift transaction.  Example 1:  Consider Cannabis Club 1 that charges $75 for a registered patient or caregiver to enter its premises.  It does not store or possess marijuana or assist donors and donees in finding each other or in consummating a marijuana gift transaction.  The donor must find a donee while both are in Club 1’s premises and the donor personally gives the donor’s marijuana to the donee.  Example 2:  Compare that scenario with Cannabis Club 2 that charges the same premises entry fee, but it accepts marijuana from patients and caregivers who then depart the premises and are not thereafter involved in the gift transaction.  Club 2 holds the marijuana and gives it to a patient.  Neither the marijuana donor nor the donee ever meet or are involved in consummating the gift transaction.  I do not believe Club 2 will be protected by ARS Section 36-2811.B.
  • Who is making the gift of marijuana?  ARS Section 36-2811.B protects Patient A who gives marijuana to Patient B in exchange for nothing of value.  The cannabis club must be able to prove that the marijuana transaction involved Patient A giving to Patient B.  The transaction cannot be cannabis club giving marijuana to Patient B.  The club must keep detailed records to show the source of all marijuana given to patients.  If a person wants to be able to rely on the protection provided by ARS Section 36-2811.B that person must be able to prove that a gift of marijuana complied with the requirements of ARS Section 36-2811.B.  If Patient A merely gives marijuana to Patient B how does Patient A prove the gift complied with ARS Section 36-2811.B?  At a minimum, the club should have a document signed by Patient A (or Caregiver C) and Patient B in which it states that on a certain date Patient A (or Caregiver C) gave Patient B a specified amount of marijuana for free.  The document should contain a statement that the recipient represents and warrants to the giver that acceptance of the marijuana will not cause the recipient to possess more than 2.5 ounces of marijuana.  Donor and donee must sign the document.  Although not required, the signatures should be acknowledged before a notary public.  The document should contain proof of the identity of the parties such as the party’s Arizona driver’s license number and patient or caregiver ADHS registration numbers.  I also recommend the parties make a photo copy of each party’s Arizona driver’s license and patient or caregiver card and attach the copies to the acknowledgment of gift document.
  • Does a registered patient or caregiver make the gift of marijuana or is the gift made by a third party?   For ARS Section 36-2811.B to apply, Patient A or Caregiver C must make a gift to Patient B.  If neither Patient A or Caregiver C is at the club’s facility to actually make the gift and the gift is made by club personnel, then a court could find that Section 36-2811.B does not apply.
  • What is the source of the marijuana that is given to a patient?  The cannabis club must be able to prove that the marijuana that was actually given by Patient A to Patient B was Patient A’s marijuana.  This means that at a minimum the club must have an inventory system to track the source and disposition of all marijuana.  It must also have a system to segregate each patient’s and caregiver’s marijuana so it can show the source of the marijuana when another patient receives a gift of marijuana.
  • Does Arizona law allow the cannabis club to possess Patient A’s marijuana?  I don’t think so.  Arizona’s medical marijuana law allows registered patients and caregivers to possess marijuana, but it does not allow a third party like a club to possess a registered patient’s or caregiver’s marijuana.  If the club rather than the registered patient or caregiver possess marijuana, those involved with the club could be charged with violating Arizona’s criminal marijuana laws.

I am sure there are other potential problems that I have not addressed, but the ones listed above are the most obvious.  Another issue involves registered caregivers who cannot be a caregiver for more than five registered patients.  A registered caregiver’s marijuana must go to one of the caregiver’s five registered patients.  Is that what happens at a cannabis club?

By |2011-10-13T00:31:19-07:00July 20th, 2011|Cannabis Clubs, Stories & Articles|Comments Off on Are Arizona Cannabis Clubs Legal Under Arizona’s Medical Marijuana Laws?
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