Arizona Court of Appeals Division One holds that the Arizona Department of Health Services did not exceed its rule making authority when it established regulations governing when it accepts applications for dispensary registration certificates in administering the state’s medical marijuana program.

Under Arizona’s Medical Marijuana Act, a nonprofit entity seeking to operate a dispensary must apply for and obtain a dispensary registration certificate from the Department of Health Services. The Department is prohibited from issuing more than one certificate for every ten pharmacies in the state unless the applicant applies for a certificate in a county with no dispensaries, called an “empty county.” To implement the Act, the Department promulgated Rule 303 instructing that (1) it would not invite applications during time frames when it could not possibly issue any certificates; (2) it would review certificate registrations annually; and (3) after its annual review, if it could award additional certificates, it would open the application period timely. When the Department failed to review certificates for a four-year period between 2017 and 2021, health centers that had submitted applications in empty counties in that period sought an order requiring the Department to accept and process their applications. The Superior Court denied relief, finding that the health centers had no legal basis to insist that the Department review the applications they submitted outside an application period.

The issue on appeal was whether the Department acted within its rulemaking authority when it issued Rule 303 and whether the health centers were entitled to mandamus relief. The health centers argued that the Department lacked discretion to determine when to accept applications because it must comply with the 1:10 ratio and empty county rules. The Court disagreed, holding that the Department did not exceed its authority in establishing Rule 303. Arizona law does not limit agencies to the powers expressly set forth by the legislature. Rather, agencies can take actions that are reasonably implied from the whole statutory scheme. Rule 303 was reasonable given the Department’s mandate to implement the Act and as a mechanism to avoid placing undue burden on dispensaries that would otherwise be required to monitor the number of registered pharmacies. A.R.S. § 36-2803(A)(4)(a)’s requirement that the Department issue rules “to protect against diversion and theft” did not limit the Department, but rather specified that it must do so in addition to making rules under its broader, general rule-making authority.

The Court further held that the health centers were not entitled to mandamus relief. The centers succeeded in showing that the Department did not follow its rules when it failed to review applications between 2017 and 2021. However, mandamus relief is only appropriate when the law specifically requires an official to act, and Rule 303 did not require the Department to accept the health centers’ applications.

Judge Gass authored the opinion, in which Judges Furuya and Thumma joined.

Posted by: Michael Price