Compassionate Care Dispensary v. Arizona Department of Health Services (1/16/2018)

January 23, 2018

Arizona Court of Appeals Division One holds that a prospective marijuana dispensary is not required to obtain a conditional use permit to participate in a lottery for a medical marijuana dispensary registration certificate.

Prospective marijuana dispensaries are required to register with the Arizona Department of Health Services (“ADHS”) for a certificate to serve as a dispensary; the registration requires documentation that the proposed dispensary location complies with local zoning laws.  A.R.S. §§ 36-2803, -2804.  In addition, ADHS regulations limit the number of authorized dispensaries in prescribed geographic areas.  If more than one prospective dispensary applies in a single area, then ADHS conducts a lottery.  Here, a prospective marijuana dispensary’s application for a certificate included a Conditional Use Permit (a “CUP”) to show compliance with local zoning laws.  A competitor dispensary did not submit a CUP; instead, it submitted documentation from city attorney that the competitor would comply with local zoning laws.  ADHS accepted both applications, conducted a lottery, and selected the competitor.  Prospective dispensary sued, contending that ADHS had unlawfully accepted competitor’s application without a CUP.  The superior court agreed with ADHS, and the prospective dispensary appealed.

The Court of Appeals affirmed.  ADHS regulations require a prospective dispensary to submit “[d]ocumentation from the local jurisdiction” that the proposed dispensary would comply with zoning restrictions.  A.A.C. R9-17-304(C)(6).  After obtaining the certificate, the dispensary must obtain approval to operate by presenting a “certificate of occupancy, a special use permit, or a conditional use permit.”  A.A.C. R9-17-305(A)(2).  The Court of Appeals held that these requirements are distinct and therefore a dispensary must only provide a CUP when seeking approval to operate, not when initially applying for a certificate.

Judge Jones delivered the unanimous opinion of the court; Judge Thompson and Judge Gemmill joined.