 |
ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
public benefits; fraud; remedies
Purpose
Subject to voter approval, statutorily establishes the Attorney General Marijuana Enforcement Fund (Fund), prescribes requirements for the oversight of marijuana establishments, prohibits fraudulent activities made by public officials and entities and outlines penalties for violations.
Background
In 2020, Arizona voters approved the Smart and Safe Arizona Act which legalized the sale and use of recreational marijuana to Arizonans who are at least 21 years of age, to be regulated and overseen by the Department of Health Services (DHS). Monies collected from the sale of recreational marijuana are deposited in the Smart and Safe Arizona Fund and then allocated to outlined entities, including DHS, the Arizona Department of Revenue, the Arizona Supreme Court, the Department of Public Safety, community college districts, municipal fire and police departments and county sheriffs' departments, the Highway User Revenue Fund, the Justice Reinvestment Fund and the Attorney General (AG) (A.R.S. Title 36, Chapter 28.2).
In any action brought by the AG pertaining to antitrust, restraint of trade, or price-fixing activities or conspiracies for the recovery of damages by the state or any of its political subdivisions, school districts or municipalities, in addition to the AG's other powers and authority. The AG on behalf of the state may enter into contracts relating to the investigation and prosecution of such action with any other party plaintiff who has brought a similar action for the recovery of damages and with whom the AG finds it advantageous to act jointly or to share common expenses or to cooperate in any manner relative to such action. In any such action, notwithstanding any other laws to the contrary, the AG may undertake, among other things, to render legal services as special counsel or to obtain the legal services of special counsel from any department or agency that has brought or intends to bring a similar action for the recovery of damages or its duly authorized legal representatives in such action (A.R.S. § 41-192).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Oversite of Marijuana Establishments and Licenses
1. Allows the AG to appoint a receiver to oversee any marijuana establishment license issued under the Social Equity Ownership Program, if the AG determines that any of the following conditions exist:
a) the original principal officer or board member who held at least 51 percent ownership in the establishment has been subject to a predatory agreement;
b) fraud was committed in connection with the application for the license or operation of the establishment;
c) a principal officer or board member who held a minority interest in the establishment violated any adopted rules for the responsible adult-use of marijuana;
d) a principal officer or board member of the establishment failed to disclose an excluded felony offense at the time of application; or
e) the license is not being operated in compliance with the intent of the Program.
2. Stipulates that a receiver who is appointed by the AG must:
a) demonstrate competence in marijuana establishment management through at least one of the following:
i. a minimum of 10 years of experience as a principal officer, board member or senior manager of a marijuana establishment in Arizona or another state with a regulated marijuana program;
ii. the completion of a marijuana business management certification program approved by DHS combined with a minimum of 10 years of general business management experience; or
iii. a combination of relevant cannabis industry and business management experience totaling at least 10 years, as deemed sufficient by the AG; and
b) be a bona fide resident of Arizona for a minimum of 10 consecutive years immediately preceding the appointment, as demonstrated by tax returns, voter registration, driver license or property ownership records or other documentation acceptable to the AG.
3. Instructs the receiver to:
a) take possession and control of the marijuana establishment license and all associated assets, inventory and operations;
b) operate the marijuana establishment in compliance with all applicable laws and rules;
c) 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 the state;
d) provide quarterly reports to the AG on the status of the marijuana establishment operations and financial condition; and
e) facilitate the restoration of the marijuana establishment license to a qualified individual or entity as directed by the AG.
4. Allows the original principal officer or board member with at least 51 percent ownership of an entity that received a marijuana establishment license under the Social Equity Ownership Program on April 8, 2022, to petition the AG to restore the license to any entity of the officer's or member's choice if any of the conditions prescribed for receivership apply.
5. Subjects the restoration of a marijuana establishment license to the AG's approval following a determination that one or more conditions have been met and that the proposed transferee meets all applicable requirements.
6. Allows the original principal officer or board member who held at least 51 percent ownership in the marijuana establishment and who believes the officer or member was the subject of a predatory agreement or that other outlined conditions apply to file a complaint with the AG.
7. Requires the AG to investigate and determine whether the agreement is a predatory agreement or whether any other outlined condition applies.
8. Allows the AG, in conjunction with DHS, to 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.
9. Specifies that enforcement actions may include:
a) the appointment of a receiver;
b) the revocation of any marijuana establishment license held by the violating party;
c) the denial or revocation of a marijuana facility agent's card; and
d) the permanent disqualification from holding any marijuana establishment license or marijuana facility agent card in the state.
10. Requires DHS to take action against a party to a predatory agreement at marijuana establishment license or facility agent card renewal as directed by the AG.
11. Allows a person who has been the subject of a predatory agreement to bring a private action if the predatory agreement constitutes fraud against the State of Arizona.
12. Establishes the Fund consisting of the 0.2 percent of Smart and Safe Arizona Fund monies that are in excess of amounts paid and transferred from the State Treasurer to the AG and any interest earned on those monies.
13. Requires the AG to administer the Fund.
14. Requires Fund monies to first be used to pay the reasonable costs incurred by the AG to administer the Fund.
15. Prohibits Fund monies from being transferred to any other fund, expect as prescribed.
16. Requires, after the initial payment, the AG to use all remaining monies in the Fund to enforce laws relating to marijuana and for such other purposes as the AG determines are appropriate, including:
a) investigating and prosecuting fraud in connection with marijuana establishment licenses;
b) enforcing the statutes governing the responsible adult-use of marijuana relating to the Social Equity Ownership Program;
c) supporting reentry programs for individuals with prior marijuana-related convictions;
d) providing grants to communities that were disproportionately impacted by marijuana enforcement; and
e) administering receivership proceedings.
17. Allows the AG to prescribe any forms or procedures necessary to administer the Fund and make expenditures.
Fraud by Public Officials and Entities
18. Specifies that, notwithstanding any other law, an elected official or appointed official in the state or any political subdivision of the state who knowingly votes for, approves or directs public monies to provide benefits, services or payments to individuals who are not U.S. citizens or lawful permanent residents may be personally liable for both of the following:
a) the total amount of public monies allocated; and
b) reasonable attorney fees and costs.
19. Allows the AG to bring a civil action for the purposes of enforcement.
20. Asserts that any immunity or privilege that is available to public officials or appointed officials does not apply to knowing the prescribed violations.
21. Prohibits the state or a political subdivision of the state from paying or reimbursing any judgment, settlement or legal fees incurred by an official in violation.
22. Prohibits a person from doing any of the following:
a) knowingly presenting a false or fraudulent claim for payment or approval;
b) knowingly making, using or causing an individual to make or use a false record or material statement;
c) having possession, custody or control of property or money used by the state and knowingly delivering less than all of the property or money;
d) knowingly making or using a false record or statement that is material to an obligation to pay or transmit money or property to the state or knowingly concealing, improperly avoiding or decreasing an obligation to pay or transmit money or property to the state;
e) knowingly obtaining a license, permit, certificate, registration or other authorization from any state agency or political subdivision of the state by fraud;
f) knowingly operating any activity or enterprise while authorization is obtained or maintained by fraud; or
g) knowingly benefiting from the fraud of another in connection with any programs or benefits offered by the state.
23. Stipulates that a person found to be in violation of an outlined act is liable for the following:
a) a civil penalty of at least $11,000 and not more than $25,000 for each violation;
b) triple the amount of damages sustained by the state; and
c) the costs of any civil action, including reasonable attorney fees and investigative costs.
24. Revokes any license, permit, certificate, registration or other authorization issued by any state agency or political subdivision of Arizona if the AG determines that the fraud occurred in:
a) obtaining the license, permit, certificate, registration or other authorization;
b) the operation of the authorized activity; or
c) any dealings between the license, permit, certificate, registration or other authorization holder and the state or any political subdivision of the state.
25. Allows the AG to investigate and take appropriate action, as authorized by statute.
26. Asserts that a civil action must be brought within six weeks 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 AG.
Miscellaneous
27. Specifies that Fund monies are continuously appropriated and exempt from lapsing.
28. Defines minimum fair market value as 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; or
b) the fair market value as determined by an independent appraiser licensed in the state.
29. Defines a predatory agreement as any agreement signed before or within 18 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 51 percent ownership of the establishment to sell, transfer, assign, pledge, encumber or otherwise give control of the officer's or 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.
30. Defines a political subdivision as a city, town or county.
31. Requires the Secretary of State to submit the proposition to the voters at the next general election.
32. Becomes effective if approved by the voters and on proclamation of the Governor.
Prepared by Senate Research
February 16, 2026
KJA/KM/hk