Medical Marijuana Dispensary Operators Deal With Regulations, Landlords

Don’t look for medical marijuana dispensaries to pop up next door to your neighborhood drug store anytime soon.

Cities are wrestling with a host of issues to determine where the new businesses can set up shop, even as the Arizona Department of Health Services tries to figure out who can operate them and who can use them.

After publishing preliminary guidelines, followed by a period of public comment, ADHS issued start-up regulations on March 28.

The state agency divided Arizona into 126 community health analysis areas, or CHAAs, based on population density. The agency will issue a maximum of 124 dispensary licenses, with no more than one license within a CHAA, says Will Humble, ADHS director.

State regulators will start taking applications on June 1 and will dole out licenses starting in August after vetting the sites and the potential business owners, Humble said.

If more than one acceptable application is submitted within a CHAA’s boundaries, a lottery will decide who gets the license, he added. The first dispensary in the state could debut by fall. Humble said he expects to issue 90 to 100 licenses within the first full year of start-up. After that, ADHS will revisit the rules to determine if some tweaking is necessary.

“By the end of a year, we’ll know where the qualified patients are,” he says.

Proposed dispensary sites must comply with the zoning requirements of the municipalities they fall into, so cities have been scrambling to get zoning in place and start vetting potential locations, otherwise, they risk the state issuing licenses in unsuitable areas, says Thomas Ritz, Glendale senior planner.

Glendale passed zoning guidelines on Feb. 22, and the rules are similar to those of most cities in regard to type of site, such as office or industrial. In addition, a dispensary must be 1,320 feet from schools, 500 feet from residences, and one mile from another dispensary, Ritz says.

Scottsdale will allow medical marijuana dispensaries on campuses, and within 2,000 feet of another dispensary. Tucson will allow them to do business in retail centers, as long as they are the required distance from schools and residences.

Tucson, among the first off the block to embrace the new businesses, completed its zoning rules in November, says Craig Gross, Tucson’s deputy director for planning and development. But Gross pointed out the complexities of working within the state’s guidelines.

Tucson has 10 CHAAs within its city limits, he added, but because CHAAs are based on population density irrespective of municipality boundaries, nearly all are partly in other cities, towns or even unincorporated county land.

“That makes it interesting,” Gross says.

Tucson has a handful of applications and a dozen or so serious inquiries in some stage of processing, Gross said, but he doesn’t know if there are sites also in process by other government agencies for the same CHAAs.

And in Scottsdale, which houses two CHAAs but has about the same number of applicants or pre-applicants in the pipeline as Tucson, most of its potential operators are opting for the Scottsdale Airpark area, says Kira Wauwie, project coordinator for the city’s dispensary rollout.

Meanwhile, Glendale is bracing for a deluge of dispensary operator wannabees.

“We had a neighborhood meeting, and we had about 35 people learning, listening — a healthy stream of people asking questions,” Ritz says. “We’ll see how many turn in applications.”

But first those hopeful applicants have to snag sites that conform to state and city regulations. And even in this high-vacancy real estate market, potential landlords are leery of housing dispensaries.

“I’m surprised that individuals are finding it tough to get into a building they like,” Gross says. “Property owners don’t necessarily want to rent to them.”

Arizona real estate brokers confirm that many building owners are reluctant to lease space for dispensaries, despite the numerous hoops the potential business owners need to jump through to get a license.

Gross says building owners are slow to the table because the process is so new, and he thinks more will opt in now that ADHS rules have been set in stone — or at least for a year.

AZRE Magazine May/June 2011