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arizona medical marijuana dispensary

The Value-Added Insurance Agent

What should MMJ entrepreneurs expect from their insurance agent? Besides providing the correct coverages for one’s business, a dedicated insurance professional can deliver other services that support your goal of obtaining an ADHS dispensary license.

For example: to help prospective dispensary owners finalize their applications, agents can provide them with quotes for all pieces of the business: General Liability, Professional Liability, Property (to include Crop Coverage), Business Auto, Directors & Officers coverage for your Board, Med Mal and Workers Compensation for your staff. Doing so will make your application that much more appealing to ADHS.

Another advantage of working with your agent, especially right now, is that fine-tuning your building layout and operational plans will help you to realize all available premium discounts for meeting the safety and security criteria insurance carriers have.

Your agent can also help you win a Special or Conditional Use Permit by writing a letter in support of your zoning request to the city or county you want to locate in; a personal appearance on your behalf is even better.

My experience has been that those in advisory or decision-making positions find it compelling when a risk-management professional testifies that MMJ businesses pose no more threat to the community than pharmacies, jewelry stores or even the local Circle K.

One issue often overlooked is the effect an MMJ business will have on the landlord; many of their current “Lessor’s Risk” policies will be canceled by mainstream (“preferred” or “admitted”) carriers when a medical marijuana use begins operations in their building.  Your agent should be on top of this so that you don’t end up paying for a big premium increase to your landlord’s policy.

Correctly insuring your dispensary, grow, delivery service or testing lab demands knowledge of the MMJ industry, because Medical Marijuana surely ain’t tiddly-winks.  Find an agent that knows the business, has their ear to the ground and offers value-added service to get the most from your partnership.

Doug Banfelder is a Commercial Insurance Specialist.  He can be reached  at www.PremierDispensaryInsurance.com or by calling 480-315-9051

May 18th, 2011|Dispensary Insurance, Stories & Articles|Comments Off|

Beware of the Single Owner Arizona Medical Marijuana Dispensary

Question:  Should I be the sole owner of my Arizona medical marijuana dispensary?

Answer:  Probably not.  Although the Arizona Department of Health Services rules allow an Arizona medical marijuana dispensary to be owned by a single person (a sole proprietor) or a company that has only one owner, I strongly recommend that no dispensary owner be the sole owner of the business.  The reason every dispensary should have at least two owners is to prevent the lose of the valuable dispensary license if the sole owner were to die or to become ineligible to be an owner, officer or director of the business.

Two examples will illustrate the terrible consequences of having a sole owner dispensary business.

Example 1:  Homer Simpson is the sole owner of an Arizona LLC called Bart’s Greenies, LLC.  Homer invested $500,000 to get a dispensary license and open his dispensary in Scottsdale in the food court of the Fashion Square Mall and to set up his 20,000 square foot cultivation farm in Pine Top.  Homer unexpectedly dies from joy and pride while attending Bart’s graduation ceremony at the Penn State University Hershey School of Medicine where Bart received his M.D. degree.  Because the LLC no longer has an owner approved by the Arizona Department of Health Services to be an owner, the LLC’s dispensary license automatically evaporates and so does all of its value.  There is no LLC with a dispensary license to be inherited by Homer’s family.

Example 2:  Same facts as in Example 1 except Homer does not die.  Instead, Homer divorces Marge and defaults on his child support payments for Maggie.  Because Homer is no longer eligible to be an owner, officer or director of an Arizona medical marijuana dispensary the LLC’s dispensary license automatically evaporates and so does all of its value.

Solution:  I recommend that every Arizona medical marijuana dispensary organization have at least two owners so that if one of the owners were to die or cease to be eligible to own an interest in the business, the other owner could continue as the sole owner of the business so that the business does not automatically lose its dispensary license.  Although a husband and wife who jointly own a dispensary are technically do not have a sole owner business, they should consider having another nominal owner in case the husband and wife were killed in a common accident.

Caution 1:  The December 17, 2010, first draft of the proposed rules contains 18 requirements that must be satisfied for a person to become an owner, officer or director of an Arizona medical marijuana dispensary business.  If any owner, officer or director ever becomes ineligible to be an owner, officer or director, the business will automatically lose its license to operate the dispensary.  This risk of automatic termination is one very big reason why all entities that want to obtain a dispensary license need to purchase my Bylaws that contain provisions intended to protect against the loss of the license if an owner, officer or director ceases to be eligible to be an owner, officer or director.  For more about why all dispensaries need properly drafted Bylaws see “Bylaws for Arizona Medical Marijuana Dispensaries.”

Caution 2:  Whenever a business has multiple unrelated owners, the owners must enter into a buy-sell agreement that contains their exit strategy.  Medical marijuana dispensaries especially need a good buy-sell agreement that covers the automatic buy-out of any owner who ceases to be eligible to be an owner.

January 18th, 2011|Legal Issues, Questions People Ask|Comments Off|

Can I Get a License to Grow Medical Marijuana in Arizona, but Sell Only to Dispensaries?

Question:  Can I create a business in Arizona that only grows marijuana and sells it to licensed medical marijuana dispensaries?

Answer as of 1/31/11:  Yes.  The January 31,2011, second draft of the rules eliminated the requirement that all dispensaries grow any portion of the marijuana.  A condition to growing, however, is that the grower must have a license to operate a dispensary.  It is not possible to get a license to grow without operating a dispensary.

Answer Before 1/31/11:  Not unless the Arizona Department of Health Services changes its proposed rules.  Proposition 203 and the December 17, 2010, first draft of the proposed rules allow only licensed dispensaries to grow and sell medical marijuana.  The  proposed rules contains this provision:

“R9-17-307. Administration.  C. A dispensary:

1.  Shall cultivate at least 70% of the medical marijuana the dispensary provides to qualifying patients or designated caregivers;

2.  Shall only provide medical marijuana cultivated or acquired by the dispensary to another dispensary in Arizona, a qualifying patient, or a designated caregiver authorized by A.R.S. Title 36, Chapter 28.1 and this Chapter to acquire medical marijuana;

3.  May only acquire medical marijuana from another dispensary in Arizona, a qualifying patient, or a designated caregiver;

4.  May acquire up to 30% of the medical marijuana the dispensary provides to qualifying patients and designated caregivers from another dispensary in Arizona, a qualifying patient, or a designated caregiver; and

5.  Shall not provide more than 30% of the medical marijuana cultivated by the dispensary to other dispensaries.”

December 28th, 2010|DHS Rules, Questions People Ask|Comments Off|

Possible Class Action Lawsuit vs. ADHS to Eliminate Arizona Residency Requirement

Possible Class Action Lawsuit Against the Arizona Department of Health Services

Several non-Arizona residents who want to apply for and obtain a license to operate a medical marijuana dispensary in Arizona have asked me if I would file a class action lawsuit against the Arizona Department of Health Services to force it to eliminate the requirement that all officers and directors of the dispensary be Arizona residents.  This requirement was invented by ADHS without any basis.  I am not aware of any other Arizona business that Arizona law requires that the owners be Arizona residents.

The people who have asked me about a lawsuit would like to share the cost of the lawsuit.  If you are interested in being a co-plaintiff in a class action lawsuit vs. the ADHS to eliminate the Arizona residency requirement, complete our comment form and I will contact you and put you on my list of possible co-plaintiffs.

December 23rd, 2010|Legal Issues|Comments Off|

DHS Says Dispensaries Can Be Limited Liability Companies

Good news.  The first draft of the proposed Arizona medical marijuana rules issued by the Arizona Department of Health Services on December 17, 2010, says that the entity that owns and operates a medical marijuana dispensary can be a limited liability company (the preferred entity of choice in Arizona), a corporation, sole proprietorship (a mistake), general partnership (a mistake) or a limited partnership (not a mistake, but somewhat obsolete in Arizona).

Although the nonprofit corporation is the only type of entity recognized by Arizona statutory law as a nonprofit entity, the ADHS correctly did not interpret the language of Proposition 203 as requiring that medical marijuana dispensary nonprofits be Arizona nonprofit corporations.  The biggest problem with a nonprofit corporation used for a business is that nobody actually owns an Arizona nonprofit.  See my June 6, 2010, article  called “Arizona Proposition 203 – Legalization of Medical Marijuana” on whether MMD nonprofits must be Arizona nonprofit corporations in which I stated:

“Proposition 203 creates a big problem for people who are contemplating creating an MMD?  The $64,000 question is must an Arizona MMD be created as an Arizona nonprofit corporation or can it be one of the types of entities typically formed to make a profit, but operated as a nonprofit entity?  We will not know the answer to this question until DHS gives us the answer or it approves MMDs that are not Arizona nonprofit corporations.”

If you need an Arizona attorney to form your Arizona LLC, see the links on the right column of this website and hire Arizona medical marijuana attorney Richard Keyt, aka the Arizona medical marijuana lawyer, to form your Arizona LLC.

December 21st, 2010|Legal Issues, Stories & Articles|Comments Off|