SCR1047 - 572R

Be it resolved by the Senate of the State of Arizona, the House of Representatives concurring:

1. Under the power of the referendum, as vested in the Legislature, the following measure, relating to fraud, is enacted to become valid as a law if approved by the voters and on proclamation of the Governor:

AN ACT

Amending Title 36, chapter 28.2, Arizona Revised Statutes, by adding sections 36-2868 and 36-2869; Amending title 38, chapter 3, article 4, Arizona Revised Statutes, by adding section 38-452; AMENDING Title 41, chapter 1, article 5, Arizona Revised Statutes, by adding section 41-191.14; relating to fraud.

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 36, chapter 28.2, Arizona Revised Statutes, is amended by adding sections 36-2868 and 36-2869, to read:

START_STATUTE36-2868. Attorney general marijuana enforcement fund

A. The attorney general marijuana enforcement fund is established consisting of the monies transferred to the attorney general pursuant to section 36-2856 and interest earned on those monies. Monies in the fund are continuously appropriated and are exempt from the provisions of section 35-190 relating to lapsing of appropriations. Monies in the attorney general marijuana enforcement fund may not be transferred to any other fund except as provided in this section. The attorney general shall administer the fund.

B. Monies in the fund must first be used to pay the reasonable costs incurred by the attorney general to administer the fund.

C. After the payments required by subsection B of this section, the attorney general shall use all remaining monies in the fund to enforce laws relating to marijuana and for such other purposes as the attorney general determines are appropriate, including:

1. Investigating and prosecuting fraud in connection with marijuana establishment licenses.

2. Enforcing this chapter relating to the social equity ownership program.

3. Supporting reentry programs for individuals with prior marijuana-related convictions.

4. Providing grants to communities that were disproportionately impacted by marijuana enforcement before the enactment of this chapter.

5. Administering receivership proceedings pursuant to section 36-2869.

D. The attorney general may prescribe any forms or procedures necessary to administer the fund and make expenditures pursuant to this section. END_STATUTE

START_STATUTE36-2869. Social equity ownership program; receivership; license restoration; enforcement; qualifications; definitions

A. The attorney general may appoint a receiver to oversee any marijuana establishment license issued under the social equity ownership program established pursuant to section 36-2854, subsection A, paragraph 9 if the attorney general determines that any of the following conditions exists:

1. The original principal officer or board member who held at least fifty-one percent ownership in the marijuana establishment has been subject to a predatory agreement.

2. Fraud was committed in connection with the application for the marijuana establishment license or operation of the marijuana establishment.

3. A principal officer or board member who held a minority interest in the marijuana establishment violated any rules adopted pursuant to this chapter.

4. A principal officer or board member of the marijuana establishment failed to disclose an excluded felony offense at the time of application.

5. The marijuana establishment license is not being operated in compliance with the intent of the social equity ownership program.

B. A receiver who is appointed pursuant to subsection A of this section must meet both of the following qualifications:

1. Demonstrate competence in marijuana establishment management through at least one of the following:

(a) A minimum of ten years of experience as a principal officer, board member or senior manager of a marijuana establishment in this state or another state with a regulated marijuana program.

(b) Completion of a marijuana business management certification program approved by the department combined with a minimum of ten years of general business management experience.

(c) A combination of relevant cannabis industry and business management experience totaling at least ten years, as deemed sufficient by the attorney general.

2. Be a bona fide resident of this state for a minimum of ten consecutive years immediately preceding the appointment, as demonstrated by tax returns, voter registration, driver license records, property ownership records or other documentation acceptable to the attorney general.

C. The receiver shall:

1. Take possession and control of the marijuana establishment license and all associated assets, inventory and operations.

2. Operate the marijuana establishment in compliance with all applicable laws and rules.

3. Preserve the value of the marijuana establishment license and business operations for the benefit of the original social equity ownership program applicant or qualified resident of this state.

4. Provide quarterly reports to the attorney general on the status of the marijuana establishment operations and financial condition.

5. Facilitate the restoration of the marijuana establishment license to a qualified individual or entity as directed by the attorney general.

D. The original principal officer or board member with at least fifty-one percent ownership of any entity that received a marijuana establishment license under the social equity ownership program on April 8, 2022 may petition the attorney general to restore the marijuana establishment license to any entity of the officer's or board member's choice if any of the conditions prescribed in subsection A of this section applies.

E. The restoration of the marijuana establishment license pursuant to subsection D of this section is subject to the attorney general's approval following a determination that one or more of the conditions prescribed in subsection A of this section have been met and that the proposed transferee meets all applicable requirements.

F. The original principal officer or board member who held at least fifty-one percent ownership in the marijuana establishment and who believes the original principal officer or board member was the subject of a predatory agreement or that subsection A of this section otherwise applies may file a complaint with the attorney general. The attorney general shall investigate and determine whether the agreement is a predatory agreement or whether any other condition prescribed in subsection A of this section applies.

G. The attorney general, in conjunction with the department, may take appropriate enforcement action against any marijuana facility agent that entered into a predatory agreement or committed fraud to take control of a marijuana establishment license. Enforcement actions under this subsection may include:

1. Appointment of a receiver as provided in subsection A of this section.

2. Revocation of any marijuana establishment license held by the violating party.

3. Denial or revocation of a marijuana facility agent's card.

4. Permanent disqualification from holding any marijuana establishment license or marijuana facility agent card in this state.

H. The department shall take action against a party to a predatory agreement at marijuana establishment license renewal or marijuana facility agent card renewal as directed by the attorney general.

I. A person who has been the subject of a predatory agreement may also bring a private action if the predatory agreement constitutes fraud against this state.

J. For the purposes of this section:

1. "Minimum fair market value" means the greater of:

(a) The total annual recreational marijuana revenue in tax year 2025 for all marijuana establishment licenses, divided by the total number of all marijuana establishment licenses, including those held by dual licensees.

(b) The fair market value as determined by an independent appraiser licensed in this state.

2. "Predatory agreement" means any agreement signed before or within eighteen months after a marijuana establishment license under the social equity ownership program was issued that required the original principal officer or board member who held at least fifty-one percent ownership of the marijuana establishment to sell, transfer, assign, pledge, encumber or otherwise give control of the original principal officer's or board member's ownership interest, voting rights or operational control for less than minimum fair market value or under terms that a reasonable person would consider unconscionable. END_STATUTE

Sec. 2. Title 38, chapter 3, article 4, Arizona Revised Statutes, is amended by adding section 38-452, to read:

START_STATUTE38-452. Elected officials; public monies; liability; definition

A. Notwithstanding any other law, An elected official or appointed official in this state or any political SUBDIVISION of this state who knowingly votes for, approves or directs public monies to provide benefits, services or payments to INDIVIDUALS who are not United States citizens or lawful permanent residents may be personally liable for both of the following:

1. The total amount of public monies allocated.

2. Reasonable attorney fees and costs.

B. The attorney general may bring a civil action to ENFORCE this section.

C. Any immunity or privilege that is available to public officials or appointed officials does not apply to knowing violations of this section.

D. THIS state or a political SUBDIVISION of this state may not pay or reimburse any judgment, settlement or legal fees incurred by an official who violates this section.

E. For the purposes of this section, "political subdivision" means a city, town or county. END_STATUTE

Sec. 3. Title 41, chapter 1, article 5, Arizona Revised Statutes, is amended by adding section 41-191.14, to read:

START_STATUTE41-191.14. Fraud; violation; civil penalty

A. Notwithstanding any other law, A person may not do any of the following:

1. Knowingly present a false or fraudulent claim for payment or approval.

2. Knowingly make, use or cause an INDIVIDUAL to make or use a false record or material statement.

3. Have possession, custody or control of property or money used by this state and knowingly deliver less than all of the property or money.

4. Knowingly make or use a false record or statement that is material to an obligation to pay or transmit money or property to this state or knowingly conceal, improperly avoid or decrease an obligation to pay or transmit money or property to this state.

5. Knowingly obtain a license, permit, certificate, registration or other authorization from any state agency or political subdivision of this state by fraud.

6. Knowingly operate any activity or enterprise while authorization is obtained or maintained by fraud.

7. Knowingly benefit from the fraud of another in connection with any programs or benefits offered by this state.

B. A person who violates subsection a of this section is liable for any of the following:

1. A civil penalty of at least $11,000 and not more than $25,000 for each violation.

2. Triple the amount of damages SUSTAINED by this state.

3. The costs of any civil action, including reasonable attorney fees and investigative costs.

C. Any license, permit, certificate, registration or other authorization issued by any state agency or political subdivision of this state shall be revoked if the attorney general determines that fraud occurred in:

1. Obtaining the LICENSE, PERMIT, CERTIFICATE, REGISTRATION OR OTHER AUTHORIZATION.

2. The operation of the authorized activity.

3. Any dealings between the LICENSE, PERMIT, CERTIFICATE, REGISTRATION OR OTHER AUTHORIZATION holder and this state or any political subdivision of this state.

D. The attorney general may investigate and take appropriate action as prescribed in title 44, chapter 10, article 7.

E. A civil action pursuant to this section shall be brought Within six years after the date the violation was committed or Within three years after the date on which facts material to the action are known or reasonably should have been known by the attorney general. END_STATUTE

2. The Secretary of State shall submit this proposition to the voters at the next general election as provided by article IV, part 1, section 1, Constitution of Arizona.