Tom Carlson Shell from p 18 the operating agreement that it offered ap- plicants. The 39-page contract, obtained by New Times, sheds light on how easy it can be for companies to wrest control of a social equity license away from an applicant. The contract signed by Piña’s son awards him 51 percent stake in the com- pany, as required by the state’s rules. But take a closer look, and it’s clear that his role in the company carries almost no weight. The Rose Law Group contract says that if Piña wins a license, the day-to-day oper- ation of the company would transfer to a management company. That company would be “selected by the [investor] for the purpose of delegating full, complete rights, obligations and benefits to use and opera- tion of any Social Equity License owned by the company.” In the hypothetical scenario presented in the contract to Piña, this management com- pany would collect “100 percent of net reve- nues derived by the Company” — leaving the applicant only with a $50,000 “success fee” in the company’s first year. Most dis- pensaries are expected to generate millions in revenue. In subsequent years, assuming nobody sells the licence, the management com- pany is entitled to all of the dispensary’s net revenues. The social equity applicant would not be entitled to even any success fees, the contract spells out. Jimmy Cool, a business attorney who worked on Acre 41’s case against the state, called the contract “deeply predatory.” According to the contract, he said, the social equity applicant’s role would be re- duced to “a voting obligation in a company where none of the votes matter and they don’t make any money.” Gunnigle, the attorney and advocate, 20 said that the contract was a clear attempt to “wrestle control away from the social equity applicant.” Alexander Tam considered partnering with well-funded investors but chose not to. Downing, the trade industry leader, said he found the contract interesting, but not a cause for concern. The applicant got the $50,000, he said. “This is a program with options,” he said. “People don’t have to take them.” The Rose Law Group agreement does not appear to violate any of Arizona’s rules, according to both Cool and Gunnigle. Those regulations require the applicant to have “at least 51 percent ownership” of the company. But all decision-making power, per the contract, is vested in a third- party management company. The state also mandates an applicant be entitled to an equivalent “portion of dis- tributed profits.” In this agreement, for ex- ample, the Piña family would be due 51 percent of those profits. But 51 percent of nothing is nothing. First the outside management company collects all the costs, in the form of various set fees. If there are any remaining profits, the language requires the outside manage- ment company would collect all of that, as well. In this way, the Rose contract language could skew how much those profits might trickle down to an applicant like Piña. In theory, the applicant is entitled to the ma- jority of those profits. But in reality, as writ- ten, the contract calls for the company to pay a series of management, investment, and contractor fees. The remaining pro- ceeds would go to the outside management company, leaving just $50,000 for the appli- cant. And in subsequent years, not even that. “You can enter into an agreement that technically conforms to all their restric- tions but in no way serves the spirit of those restrictions,” Cool said. The contract, he said, was a clear example of this. “This agreement is a really good >> p 22 FEB 24TH– MARCH 2ND, 2022 PHOENIX NEW TIMES | MUSIC | CAFE | FILM | CULTURE | NIGHT+DAY | FEATURE | NEWS | OPINION | FEEDBACK | CONTENTS | phoenixnewtimes.com
