Premium Leaf v. Adhs

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

PREMIUM LEAF, INC., Plaintiff/Appellant,

v.

ARIZONA DEPARTMENT OF HEALTH SERVICES, et al.,
Defendants/Appellees.

No. 1 CA-CV 18-0433
FILED 12-12-2019

Appeal from the Superior Court in Maricopa County
No. CV2017-001137
The Honorable Sherry K. Stephens, Judge

AFFIRMED

COUNSEL

Wilenchik & Bartness, P.C., Phoenix
By Dennis I. Wilenchik, Ross P. Meyer
Counsel for Plaintiff/Appellant

Arizona Attorney General’s Office, Phoenix
By Aubrey Joy Corcoran, Louis Frank Caputo, III, J. Nicholas Bacon
Counsel for Defendants/Appellees Arizona Department of Health Services and
Dr. Cara Christ

Conant Law Firm, PLC, Phoenix
By Paul A. Conant
Counsel for Defendant/Appellee Buds & Roses, Inc.
 PREMIUM LEAF v. ADHS, et al.
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MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Jennifer B. Campbell and Judge Michael J. Brown joined.

W I N T H R O P, Judge:

¶1 Premium Leaf, Inc. (“Premium”) appeals the superior court’s
dismissal of its complaint for failure to state a claim against the Arizona
Department of Health Services and its director, Dr. Cara Christ,
(collectively, the “Department”) and Buds & Roses, Inc. (“B & R”)
(collectively, the “Appellees”). Premium argues the Department
wrongfully awarded a medical marijuana dispensary registration certificate
to B & R and alleges B & R’s proposed dispensary location did not comply
with local zoning restrictions at the time B & R submitted its registration
certificate application. Premium also contends the Department’s actions in
awarding the certificate frustrated the purpose of the Arizona Medical
Marijuana Act (“AMMA”) and created two classes of applicants, between
which the rules were applied inconsistently.

¶2 Because Premium failed to state a claim upon which relief
could be granted, we affirm the superior court’s dismissal with prejudice.

FACTS AND PROCEDURAL HISTORY

¶3 The Department is tasked with administering and
implementing the AMMA. See Arizona Revised Statutes (“A.R.S.”) sections
36-2801(4), -2803.1 The AMMA requires nonprofit medical marijuana
dispensaries2 to register with the Department, and it limits the number of

1 Absent material changes from the relevant date, we cite the current
version of all statutes, regulations, and rules.

2 “’Nonprofit medical marijuana dispensary’ means a not-for-profit
entity that acquires, possesses, cultivates, manufactures, delivers, transfers,
transports, supplies, sells or dispenses marijuana or related supplies and
educational materials to cardholders.” A.R.S. § 36-2801(12).

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dispensary registration certificates issued statewide to one per every ten
registered retail pharmacies.3 A.R.S. § 36-2804(A), (C).

¶4 The Department made its first allocation of dispensary
registration certificates in 2012. See Compassionate Care Dispensary, Inc. v.
Ariz. Dep’t of Health Servs., 244 Ariz. 205, 209, ¶ 6 (App. 2018). Periodically,
the Department must evaluate whether it may issue additional certificates
for potential dispensaries. Arizona Administrative Code (“A.A.C.”) R9-17-
303(A). If additional certificates may be issued, priority is given first to
counties without a dispensary and then to geographical units called
Community Health Analysis Areas (“CHAAs”) with the most registry
identification cards issued to qualifying patients. A.A.C. R9-17-101(8), R9-
17-303(B).

¶5 When the Department determines additional dispensary
registration certificates can be issued, individuals interested in operating a
nonprofit medical marijuana dispensary must submit an application for a
dispensary registration certificate to the Department. A.R.S. § 36-
2804(B)(1)(b). The application must contain, among other information, the
proposed location of the dispensary and, if the city or town has enacted
zoning restrictions applicable to dispensaries, “a sworn statement
certifying that the registered nonprofit medical marijuana dispensary is in
compliance with the restrictions.” Id. at § 36-2804(B)(1)(d). To satisfy this
requirement, regulations mandate an applicant provide:

[A] sworn statement signed and dated by the [principal
officers of the proposed dispensary] certifying that the
dispensary is in compliance with any local zoning restrictions;
[and]

Documentation from the local jurisdiction where the
dispensary’s proposed physical address is located that:

a. There are no local zoning restrictions for the dispensary’s
location, or

3 “Pharmacy” means a retailer “where drugs, devices, poisons or
related hazardous substances are offered for sale or retail.” A.R.S. § 32-
1901(71) (also including locations “in which the profession of pharmacy is
practiced”; any place displaying the words “pharmacist,” “drugstore,” or
the like; and locations “where the characteristic symbols of pharmacy” are
exhibited). Pharmacies must be registered according to A.R.S. § 32-1929.

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b. The dispensary’s location is in compliance with any local
zoning restrictions[.]

A.A.C. R9-17-304(C)(5)-(6).

¶6 After all applications have been submitted, the Department
conducts a multi-stage review to determine which of the potential
dispensaries should ultimately be awarded the certificate. See A.A.C. R9-
17-107. First, the Department conducts an administrative completeness
review, in which it verifies that the application contains all required
information and documents; if anything is missing, the Department must
provide the applicant with written notice and time to correct the deficiency.
See A.A.C. R9-17-107(A), (C). All applications deemed administratively
complete then move on to a substantive review, during which the
Department determines whether the information contained in the
application is what the applicant represents it to be. See A.A.C. R9-17-
107(D). At this point, the Department may complete an inspection of the
proposed dispensary site or make a written request for more information
from the applicant. Id.

¶7 If multiple applications are deemed administratively and
substantively complete, priority is given to the applicant whose proposed
dispensary location will provide services to the most qualifying patients
based on the number of registered medical marijuana cardholders and
other dispensaries operating within ten miles of the applicant’s proposed
dispensary location. A.A.C. R9-17-303(B)(2). If multiple applicants tie
within a 0.1% margin based on these parameters, the Department will select
one of the qualifying dispensaries at random. Id. at -303(B)(4).

¶8 After applying for and receiving a registration certificate, a
proposed dispensary must apply for approval to operate. A.A.C. R9-17-
305. There, the potential dispensary must provide, among other things,
“documentation issued by the local jurisdiction to the dispensary
authorizing occupancy of the building as a dispensary . . . such as a
certificate of occupancy, a special use permit, or a conditional use permit.”
Id. at -305(A)(2).

¶9 In 2016, the Department announced it would accept
applications for thirty-one new dispensary registration certificates. One of
these additional certificates was assigned to CHAA 70, for which both
Premium and B & R applied. The certificate was ultimately awarded to
B & R.

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¶10 CHAA 70 is located in the City of Mesa, but B & R’s proposed
location within CHAA 70 is on a Maricopa County island4 and is therefore
governed by Maricopa County zoning restrictions. The relevant zoning
restriction here, Maricopa County Zoning Ordinance (“Zoning Ordinance”)
804.2(45)(a), states: “Medical Marijuana Dispensaries shall not be located
within 1,500 feet of any other Medical Marijuana Dispensary.” The County
zoning form that is available to applicants for a dispensary registration
certificate provides two options to establish compliance with zoning
regulations:

□ There are no local zoning restrictions for a proposed
dispensary at the above location.

OR

□ The location of the proposed dispensary is in compliance
with local zoning restrictions related to where a dispensary
may be located.

¶11 At the time of the application, B & R’s proposed dispensary
address was already housing an existing dispensary. When B & R obtained
the county zoning form for its certificate application, the zoning authority
that issued the form marked the form’s latter option with an asterisk. Below
the asterisk, the zoning authority typed:

ALTHOUGH THIS LOCATION IS CORRECTLY ZONED,
ANY EXISTING MEDICAL MARIJUANA FACILITY
CURRENTLY OPERATING AT THIS LOCATION WOULD
NEED TO VACATE THE LOCATION BEFORE THIS
APPLICANT WOULD BE PERMITTED TO OPERATE THERE
SO THAT TWO DISPENSARIES DO NOT OPERATE THAT
[sic] THE SAME LOCATION.

In addition, the zoning authority had handwritten next to the statement:
“zoning is C-2,” which was the correct zoning classification for the location
of a dispensary. See Zoning Ordinance 804.2(45) (listing medical marijuana

4 A county island is an unincorporated pocket of land surrounded by
a municipality, multiple municipalities, or a municipality and a reservation,
which is not governed by the laws of the surrounding municipality. See
generally Sanderson Lincoln Mercury, Inc. v. Ford Motor Co., 205 Ariz. 202, 206,
¶ 12 (App. 2003) (explaining that although a county island is surrounded
by an incorporated municipality, it is not part of the municipality).

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dispensary facilities as a permitted within C-2 Intermediate Commercial
Zoning Districts).

¶12 When B & R was later awarded the dispensary registration
certificate from the Department for CHAA 70, the dispensary formerly
operating in B & R’s proposed location moved to another CHAA and B & R
began to operate out of the proposed location. Premium argues that by
using an existing dispensary’s address in its application, B & R’s proposed
location did not comply with all local zoning restrictions because the
location was within 1,500 feet of another dispensary—the dispensary
currently operating at that location. Based on this, Premium contends
B & R’s application should have been rejected. Premium claims it was the
only applicant whose proposed location fully complied with all local
zoning ordinances.

¶13 Premium filed suit against the Department, alleging the
Department’s decision to award B & R the dispensary registration
certificate violated the AMMA and harmed Premium by denying it the
opportunity to receive the certificate. The Department moved to dismiss
the complaint, arguing that Premium failed to state a claim on which relief
could be granted because the complaint rested on an erroneous
interpretation of the AMMA. The Department argued that Premium was
conflating the zoning requirements for obtaining a registration certificate
(“Step 1”) with the zoning requirements for obtaining approval to operate
(“Step 2”). Compare A.A.C. R9-17-304(C)(6) (requiring documentation by
the local jurisdiction that the proposed dispensary location meets any local
zoning restrictions in order to apply for a dispensary registration certificate)
with A.A.C. R9-17-305(A)(2) (requiring documentation by the local
jurisdiction authorizing occupancy of the building as a dispensary in order
to obtain approval to operate).

¶14 The superior court granted the Department’s motion to
dismiss in part, but declined to dismiss in full, reasoning that Premium’s
allegations against the Department rested heavily on the content of B & R’s
zoning form, which at the time had not been provided to the court. Taking
all facts alleged in the complaint as true, the court observed that the yet-to-
be-provided zoning form could include express language alerting the
Department to the fact that B & R’s proposed location was not in
compliance with local zoning requirements.5 At the Department’s request,

5 At this early stage, Premium was not aware of the exact location
B & R had given on its application; however, after evaluating properties

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the court found that B & R was an indispensable party under Arizona Rule
of Civil Procedure (“Rule”) 19 and directed Premium to join B & R in an
amended complaint. Premium filed its First Amended Complaint, which
included the local zoning form from B & R’s certificate application as an
exhibit, and joined B & R as a defendant in the action. The Department
again moved to dismiss the action for failure to state a claim, arguing
B & R’s zoning form demonstrated the proposed location was in
compliance with local zoning restrictions and was sufficient zoning
documentation for the certificate allocation stage.

¶15 This time, the superior court dismissed the action in full,
finding B & R’s zoning document sufficient and stating the Department
“was not required to do more” to verify the zoning information at this first
stage of the dispensary application process. The court explained, “The
zoning document was sufficient on its face and the Department could rely
on the local zoning authority’s determination of compliance . . . .” The court
noted that additional zoning verification would not have been required
until Step 2 of the dispensary authorization process (application for
approval to operate), which step was not at issue for the claims made in the
amended complaint.

¶16 Premium now argues the superior court erred in its
understanding of what is required at each step of the dispensary
registration process and maintains that B & R’s application should have
been denied at Step 1 based on noncompliance with local zoning
restrictions. Premium seeks permanent mandatory injunctive relief
ordering the Department to revoke its issuance of the CHAA 70 certificate
to B & R and to reallocate the certificate to Premium.

¶17 We have jurisdiction of Premium’s timely appeal pursuant to
A.R.S. § 12-2101(A)(1).

available for use as a dispensary, Premium deduced B & R had either
applied with an address located only 130 feet from an existing dispensary
or with an address of an existing dispensary. Premium later confirmed
B & R had applied with the address of an existing dispensary.

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ANALYSIS

I. Standard of Review

¶18 “We review de novo a dismissal for failure to state a claim.”6
Baker v. Rolnick, 210 Ariz. 321, 324, ¶ 14 (App. 2005). In reviewing, we
“assume all the facts alleged in the complaint are true.” Republic Nat’l Bank
of N.Y. v. Pima Cty., 200 Ariz. 199, 201, ¶ 2 (App. 2001). We will not affirm
a dismissal “unless satisfied as a matter of law that plaintiffs would not be
entitled to relief under any interpretation of the facts susceptible of proof.”
Fidelity Sec. Life Ins. Co. v. Ariz. Dep’t of Ins., 191 Ariz. 222, 224, ¶ 4 (1998).

¶19 We will affirm an agency’s decision unless it is “contrary to
law, is not supported by substantial evidence, is arbitrary and capricious or
is an abuse of discretion.” A.R.S. § 12-910(E).

II. B & R’s County Zoning Form

¶20 Premium argues that the Department’s actions were arbitrary
and capricious because it was aware or should have been aware that B & R’s
proposed dispensary location was not in compliance with local zoning
restrictions at the time B & R submitted its application, as shown by the
inclusion of qualifying language on B & R’s county zoning form. Further,
Premium contends the Department was aware or should have been aware
that B & R falsely claimed its proposed location was compliant with all local
zoning restrictions. Premium maintains that its complaints pertain only to
consideration of B & R’s application in Step 1 (the certificate allocation
process) and that it makes no arguments regarding Step 2 (the approval to
operate). In contrast, the Department argues that B & R’s zoning form
fulfilled the requirements for Step 1 and that Premium is conflating the level
of zoning verification required at each of the Steps.

¶21 The question before us, then, is whether the completed county
zoning form—with its supplemental language—was sufficient to show
B & R’s location was in compliance with local zoning restrictions as
required in Step 1.

6 In general, consideration of extrinsic evidence converts a Rule
12(b)(6) motion to a summary judgment motion; however, there are two
exceptions to this general rule: (1) a court may consider material which is
properly submitted as part of the complaint; and (2) a court may take judicial
notice of matters of public record. See Coleman v. City of Mesa, 230 Ariz. 352,
356, ¶ 9 (2012).

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¶22 This court has previously considered the difference in zoning
requirements mandated by Steps 1 and 2 of the dispensary registration
process. In Compassionate Care Dispensary, Inc. v. Arizona Department of
Health Services, we clarified:

[T]he application for a certificate—step one—requires
documentation from the local jurisdiction that “[t]he
dispensary’s location is in compliance with any local zoning
restrictions.” A.A.C. R9-17-304(C)(6). The application to
operate—step two—requires documentation from the local
jurisdiction “authorizing occupancy of the building,” such as
a certificate of occupancy or CUP.7 A.A.C. R9-17-305(A)(2).

244 Ariz. at 212, ¶ 21 (second alteration in original).

¶23 Premium has never argued B & R should have obtained a
CUP or other certificate of occupancy and we do not suggest that such
documentation is the issue now; however, our decision in Compassionate
Care confirms that Step 1, on its plain language, requires the proposed
location be compliant with zoning restrictions, while Step 2 requires
documentation authorizing occupancy of the location. Id. As such, Step 1 of
the application process “requires only a statement that the location
complies, generally, with local zoning restrictions.” Id. at 214, ¶ 30.

¶24 Here, the county zoning form, as submitted, was sufficient to
show the proposed location complied, generally, with the local zoning
requirements. The option marked on the form was: “The location of the
proposed dispensary is in compliance with local zoning restrictions related
to where a dispensary may be located.” Although the option was marked
with an asterisk, the supplemental language added below reiterated: “this
location is correctly zoned” and “zoning is C-2” (the appropriate zoning
classification for a medical marijuana dispensary). See Zoning Ordinance
804.2(45). Additional qualifying language focused on the proposed
dispensary’s ability to obtain approval to operate, noting: “[A]ny existing
medical marijuana facility currently operating at this location would need
to vacate the location before this applicant would be permitted to operate there
so that two dispensaries do not operate that [sic] the same location.”
(emphasis added). Issues with a proposed dispensary’s potential ability to
operate (Step 2 of the process) do not require rejection of the application at
Step 1. See Compassionate Care, 244 Ariz. at 213, ¶ 22 (“The statutes and
regulations do not require the Department to reject the initial application

7 CUP is an acronym for Conditional Use Permit.

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for a dispensary registration certificate because it lacks [documentation
necessary for Step 2].”). Because the regulations at issue for compliance
with Step 1 require only that an applicant provide documentation from the
local jurisdiction that its proposed location complies, generally, with local
zoning restrictions, and because B & R provided such documentation,
Premium’s argument fails as a matter of law. See A.A.C. R9-17-304(C)(6)(b);
Compassionate Care, 244 Ariz. at 214, ¶ 30.

¶25 Premium, however, contends we must consider the
incremental stages of review within Step 1 (the administrative
completeness review and the substantive review to determine accuracy of
application information) in order to evaluate whether the Department’s
actions in awarding the certificate were arbitrary and capricious.8 See
A.A.C. R9-17-107(A), (C). Premium argues that while B & R’s county
zoning form was sufficient to satisfy the requirements of the administrative
completeness review within Step 1, the Department should have found the
form insufficient during the substantive review of Step 1 based on the
form’s qualifying language.

¶26 In support of this argument, Premium relies on Waltz Healing
Center, Inc. v. Arizona Department of Health Services, in which the Department
disqualified an applicant at the certificate allocation stage because the
zoning letter provided with the application was dated four years prior to
the application submission. 245 Ariz. 610, 612-13, ¶¶ 4, 7 (App. 2018). The
Department examined the letter in its Stage 1 review and eventually
disqualified the applicant because “the 2012 letter . . . said nothing about
whether the . . . dispensary location was in compliance with zoning in
2016.” Id. at 614, ¶ 14. Premium argues the Department rejected the
application in Waltz because the proposed dispensary’s location failed to
meet local zoning restrictions. But, as the court noted in Waltz, the
Department “denied Waltz’s application because Waltz did not fully
respond to the Department’s [previous] request for information. In
particular, the Department identified Waltz’s failure to provide . . .
documentation from the local jurisdiction addressing zoning restrictions.”
Id. at 613, ¶ 7. In Waltz, the Department did not reevaluate the zoning
authority’s determination of current compliance; rather, the Department

8 “An agency acts arbitrarily and capriciously when it does not
examine the relevant data and articulate a satisfactory explanation for its
action including a rational connection between the facts found and the
choice made.” Compassionate Care, 244 Ariz. at 213, ¶ 25 (quoting Motor
Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43 (1983))
(internal quotation marks omitted).

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found the application incomplete because the expired letter, on its face, was
not current documentation that the proposed location complied with local
zoning restrictions. See id. at 614, ¶ 12; see also A.A.C. R9-17-304(C)(6). The
decision in Waltz supports our conclusion that during the administrative
and substantive review stages of Step 1, the Department merely verifies the
application includes facially-valid documentation that the location
complies, generally, with local zoning restrictions.

¶27 Here, the department did not act arbitrarily or capriciously in
relying on the county zoning form’s assurance that the location complied
with local zoning restrictions. The administrative completeness review of
Step 1 required the Department to check that the application contained all
necessary documents and information, while the substantive review
allowed the Department time to make a “request for more information,” as
it did in Waltz, or “complete an inspection” if needed. See A.A.C. R9-17-
107(A), (C). The substantive review stage of Step 1 is not, as Premium
argues, a time for the Department to “make its own evaluation of whether
the proposed address [meets] the standard of ‘substantively compliant’”
with all applicable local zoning ordinances. Documentation of compliance
from the local zoning authority is required with an application precisely
because the Department is not in the position to make evaluations of
compliance with all local zoning ordinances for every certificate
application.9 The Department may rely on the local zoning authority’s
representations of compliance with local restrictions at the certificate
application stage.

¶28 Premium contends that “[c]consistent with principles of due
process . . . ADHS’ review obligations were greater and more involved”
than simply receiving the local zoning form and deeming it acceptable. We
disagree. B & R’s county zoning form provided up-to-date confirmation
that the location was correctly zoned, qualified only by language about the
proposed dispensary’s eventual ability to operate, and the Department
could rely on that representation during the certificate allocation process.
Because Premium’s claim is based on a nonexistent, higher duty read into
the rules through its own interpretation of “substantive review,” its
argument fails as a matter of law.

9 The AMMA gives cities, towns, and counties the ability to enact
reasonable zoning regulations applicable to dispensaries. A.R.S. § 36-
2806.01. Those local entities are in the best position to ensure compliance
with the regulations they implement.

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¶29 Premium asserts that this court’s recent ruling in JH2K I, LLC
v. Arizona Department of Health Services supports the argument that the
Department has an enhanced duty to verify actual compliance with zoning
restrictions during the substantive review stage of Step 1. 246 Ariz. 307,
309, ¶ 4 (App. 2019). In JH2K I, the Department determined JH2K’s
application was not substantively complete because it was missing
verification that the proposed location was “at least 500 feet from a private
school or a public school that existed before the date the dispensary
submitted the initial dispensary registration certificate application.” Id.
(quoting A.A.C. R9-17-321(A)). Although JH2K tried to submit additional
documentation that it met the distance requirement, the Department
eventually denied the application finding that, when measured from
property line to property line, the proposed location was within 500 feet of
a school. Id.

¶30 Premium argues JH2K I confirms the Department must
conduct its own evaluation of zoning compliance during the Step 1
substantive review stage of the certificate application process. However,
we find JH2K I distinguishable from the case at hand. The distance
requirement at issue in JH2K I was not merely a local zoning restriction;
instead, it was a condition explicitly mandated by the AMMA and related
administrative code. See A.R.S. § 36-2804(B)(1)(b)(ii) (stating the physical
address of the dispensary given on a certificate application may not “be
within five hundred feet of a public or private school existing before the
date of the nonprofit medical marijuana dispensary application.”); A.A.C.
R9-17-322(A)(1) (“The Department shall deny an application for a
dispensary registration certificate or a renewal if . . . the physical address of
the building . . . is within 500 feet of a private school or a public school that
existed before the date the dispensary submitted the initial dispensary
registration certificate application[.]”).

¶31 Under A.A.C. R9-17-322(A)(1), the Department had a clear,
affirmative duty to deny JH2K’s certificate application if the proposed
location was not an appropriate distance from surrounding schools. See id.
The AMMA and related rules gave the Department notice of the school
distance requirement and of the Department’s responsibility to specifically
enforce that separation at the certificate application stage. See id. In
contrast, distance requirements mandated by local ordinances are not
explicitly included in the AMMA or related rules, so the Department may
not be immediately aware of specific local separation requirements that
apply to proposed dispensaries. In B & R’s case, the supplementary
language on the zoning form did not cite which local zoning ordinance was
at issue or even explain what distance was mandated by local restrictions

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between dispensaries. Nonetheless, Premium contends that the
supplementary language was included so that the Department itself could
evaluate if the location was compliant with local zoning restrictions. If this
were true, it would require the Department to research applicable zoning
restrictions specific to each locality and evaluate zoning compliance for
every application, which would essentially render the required
documentation of compliance from the local zoning authority superfluous.
We cannot accept such a counterintuitive interpretation of the application
requirements.

¶32 More to the point, unlike the applicant’s proposed location in
JH2K I—which could never physically be brought into statutory or
administrative compliance—the supplemental language provided by the
county on B & R’s form correctly confirmed appropriate zoning and noted
a path of operational compliance once the existing dispensary at the subject
location moved to a different location.

III. Frustrating the Purpose of the 2016 Allocation

¶33 Next, Premium argues that by awarding the dispensary
registration certificate to B & R, whose proposed location would replace an
existing dispensary, the Department frustrated the purpose of the AMMA10
and of the 2016 certificate allocation process. Premium asserts that “the
purpose and goal of the 2016 certificate allocation process . . . was to provide
a second dispensary in the 31 CHAAs with the highest patient cardholder
populations” based on the regulatory scheme in A.A.C. R9-17-303, “which
scored certificate applicants in Step One almost entirely according to the
number of patient card-holders served by the proposed dispensary’s
location.” See A.A.C. R9-17-303. Accordingly, Premium maintains that the
2016 allocation was meant to add a dispensary to those CHAAs with a high

10 We give primary consideration to the potential frustration of the
2016 certificate allocation process rather than frustration of the purpose of
the AMMA as a whole. “[T]he purpose of [the AMMA] is to protect patients
with debilitating medical conditions, as well as their physicians and
providers, from arrest and prosecution, criminal and other penalties and
property forfeiture if such patients engage in the medical use of marijuana.”
Ariz. Sec’y of State, 2010 Publicity Pamphlet 73 (2010),
https://apps.azsos.gov/election/2010/info/PubPamphlet/english/e-
book.pdf. The Department’s actions in awarding a dispensary registration
certificate to a proposed dispensary that would replace an existing
dispensary did not contravene this purpose.

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patient population density in order to serve more patients, which the
Department failed to do by instead substituting one dispensary for another.

¶34 The relevant rule, A.A.C. R9-17-303(B), explains that if
additional dispensary registration certificates are available after certificates
are allocated to counties that do not already contain a dispensary, then
“[t]he Department shall prioritize and assign a dispensary registration
certificate allocation to a CHAA based on which CHAA has the most
registry identification cards issued to qualifying patients who reside within
the CHAA.” A.A.C. R9-17-303(B)(2)(a). But the AMMA does not ensure
every CHAA will have a requisite number of dispensaries. See generally
A.R.S. §§ 36-2801 to -2819. Rather, the rules purposefully grant dispensaries
the flexibility to move to a different CHAA from that in which their original
certificate was issued. See A.A.C. R9-17-306(B)(1)(b) (“A dispensary may
change [its] location . . . [a]fter the first three years after the Department
issues a dispensary registration certificate to the dispensary, to another
location in the state[.]”). Considering these rules together, we recognize
that the process for allocating dispensary registration certificates must
coexist with the ability for current dispensaries to move. See State ex rel.
Larson v. Farley, 106 Ariz. 119, 122 (1970) (“[A] statute should be explained
in conjunction with other statutes to the end that they may be harmonious
and consistent.”). The existing dispensary that B & R replaced had the
ability to move at any time after three years, and the Department was not
obligated to award the registration certificate to ensure that two
dispensaries would operate in CHAA 70. Premium’s claim that the
Department’s actions frustrated the purpose of the 2016 certificate
allocation process fails.

IV. Due Process and Two Classes of Applicants

¶35 Premium argues that in accepting B & R’s certificate
application, the Department created two classes of applicants—those
affiliated with existing dispensaries and those who were not—and applied
the rules inconsistently between them. Appellees contend this argument
was waived because it was not pled in Premium’s complaint and was raised
for the first time in Premium’s motion for reconsideration of the superior
court’s dismissal.

¶36 On appeal, we generally do not consider arguments raised for
the first time in a motion for reconsideration because “the prevailing party
below is routinely deprived of the opportunity to fairly respond.” Evans
Withycombe, Inc. v. W. Innovations, Inc., 215 Ariz. 237, 240, ¶ 15 (App. 2006).

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Decision of the Court

However, we find this argument was briefly raised during the hearing for
the motion to dismiss and so we address the validity of the claim.

¶37 In support of its argument, Premium maintains that an
“applicant[] in collusion with an existing dispensary” would receive an
advantage when the Department measured the density of qualifying
patients around the proposed location because use of an existing
dispensary’s address would capitalize on the high patient population
around the current dispensary. Premium suggests B & R was able to
“artificially capture the existing dispensary’s surrounding patient
population,” which in Premium’s view was “the only determinative criteria
in [B & R’s] ultimate selection to receive the certificate.”11

¶38 We find Premium’s claim fails because it does not allege any
facts to support a conclusion that the Department treated applicants
inconsistently. Rather, Premium’s argument seems to admit that the
Department treated applicants the same, suggesting the Department
measured the patient cardholder population that would be served by each
proposed location and awarded the certificate to the proposed location that
would cover the most existing patients. Nothing in the AMMA or related
rules prohibits an applicant from contracting with an existing dispensary to
take over its space. Similarly, nothing prevented Premium itself from
seeking to contract with a current dispensary to take over an existing space
and benefit from any qualifying patients already in that area. Because
Premium did not allege any set of facts that would support a claim of
inconsistent treatment, its argument fails as a matter of law.

11 Premium also claims B & R should have been given the lowest
possible score for patient population covered because B & R’s proposed
location would cover the exact patient population already covered by the
existing dispensary at that address. See A.A.C. R9-17-303(B)(2)(c)
(prioritizing allocation of the certificate to the proposed location that will
provide services to the most qualifying patients). The argument falls short,
however, as Premium later admits that the “two dispensaries could not and
would not ever simultaneously exist [at the same location].” As the
proposed dispensary and existing dispensary could not simultaneously
operate at the same location, each would instead be capitalizing on the
surrounding patient population at a different time. B & R’s score was based
on the qualifying patients that its location would cover if it were to not only
obtain the dispensary registration certificate but also the approval to legally
operate.

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Decision of the Court

V. Right to Amend Complaint

¶39 Finally, Premium alleges that before a motion to dismiss for
failure to state a claim should have been granted, Premium should have
been given the opportunity to amend its complaint. But Premium never
moved to file a second amended complaint, nor did it request or argue for
leave to amend its complaint in its motion for reconsideration. See
Blumenthal v. Teets, 155 Ariz. 123, 131 (App. 1987) (When “the plaintiff did
not file any motion to amend the complaint[,] [t]he failure of the trial court
to allow plaintiff to amend the complaint was not error.”). Accordingly, we
will not reverse the court’s decision based on the lack of opportunity to
amend the complaint.

VI. Costs on Appeal

¶40 B & R requested its costs incurred on appeal under A.R.S.
§§ 12-341 and -342. We grant B & R its costs associated with this appeal
pursuant to A.R.S. § 12-341, contingent on its compliance with Arizona Rule
of Civil Appellate Procedure 21(a).

CONCLUSION

¶41 For the foregoing reasons, we affirm the superior court’s
dismissal of Premium’s first amended complaint in its entirety, with
prejudice, for failure to state a claim.

AMY M. WOOD • Clerk of the Court
FILED: AA

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