Gov. Jan Brewer said she was still holding off on actually issuing the licenses while legal challenges to Arizona's medical-marijuana law are resolved; however, the state was dropping its federal lawsuit, which sought clarification of the conflict between the state law and federal drug statutes.
The Obama administration maintains that federal laws making it a crime to sell marijuana trump any state laws that legalize it for medicinal purposes. The conflict has led to a high-profile crackdown by the U.S. Department of Justice against pot dispensaries in neighboring California.
The Arizona Republic said Brewer had held up processing license applications since June because she was concerned state clerks could be arrested simply for doing the paperwork. The delay prompted lawsuits seeking to force Brewer to issue licenses under state law.
Brewer indicated she was still awaiting an answer on the liability state workers could face.
"I won't hesitate to halt state involvement in the (medical marijuana act) if I receive indication that state employees face prosecution due to their duties in administering the law," she said in a statement.