Arizona Supreme Court holds that the Arizona Department of Health Services cannot deny a dispensary registration certificate to the only applicant from a county without a dispensary.

The Arizona Department of Health Services (“ADHS”) is required to review existing marijuana dispensary certificates on an annual basis and determine if it can issue more under a statutory threshold.  If ADHS can issue more, its rules provide that it must prioritize new certificates first to counties without a dispensary, and then to geographic regions known as Community Health Analysis Areas (“CHAAs”) based on the number of registry identification cards issued to qualifying patients within a CHAA.  In 2016, ADHS determined it could issue new certificates and that it would accept applications from July 18, 2016 to July 29, 2016.  Based on its annual review, every county had a dispensary, so ADHS planned to use only the secondary criterion for prioritization based on CHAAs. 

During the application period, the only dispensary in La Paz County relocated out of the county.  One applicant located in La Paz timely filed and was approved, but its CHAA did not have a high enough priority under the secondary criterion for prioritization, and the applicant did not receive a certificate, leaving La Paz without a dispensary.  The applicant filed a complaint for special action, arguing that ADHS should have determined priority based on the actual facts 60 days after the application period opened pursuant to Ariz. Admin. Code R9-17-303, and not on the facts as they were during the annual review period.  The superior court disagreed and dismissed the complaint.  The Court of Appeals affirmed.  The applicant then petitioned for review in the Supreme Court.

The Supreme Court granted review and reversed.  Under A.R.S. § 36-2804(C), ADHS is not allowed to issue more than one dispensary registration certificate for every ten pharmacies, except ADHS “may” exceed this limit “if necessary” to “ensure” there is at least one certificate in each county in which an application is approved.  Though “may” generally indicates discretion, the surrounding language confirms that ADHS is required to issue at least one certificate in each county where there is an approved application.  Because the requirement to ensure there is a certificate in each county where there has been an approved application is non-discretionary, ADHS cannot interpret its rules in a way that conflicts with that.  Here, ADHS’s rule required it to prioritize applications 60 working days after it began receiving applications, but ADHS interpreted that rule to allow it to determine how it would prioritize applications based on the factual situation that existed before the application period.  To avoid a conflict with the statute, ADHS must prioritize an approved application from a county without a dispensary during the application process, even if it had a dispensary at the start of the application process.

Dissenting, Justice Montgomery would have denied the application for review.  While he agreed with the majority’s statutory interpretation, he believed the bad facts of this case made bad law.  In his view, there was no time limit in the ADHS rules or the statute, and ADHS was entitled to set its prioritization process based on the facts that existed during the annual review.  Under those facts, the applicant’s CHAA was not entitled to a certificate.

Justice Beene delivered the opinion of the Court, in which Vice Chief Justice Timmer and Justices Bolick, Gould, Lopez, and Pelander (retired) joined.  Justice Montgomery concurred in part and dissented in part.