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After months of uncertainty and delay, the Governor and state legislative leaders have reached an agreement on a package of bills to legalize the adult use and sale of cannabis, expand the medical marijuana program and reform the expungement process for prior cannabis convictions in the State of New Jersey.

On Monday, March 18, 2019, the Assembly Appropriations Committee and Senate Judiciary Committee will hold hearings on the foregoing bills which, as written, include the following provisions:

  • A flat tax of $42.00 per ounce, regardless of the price of cannabis. As a result, the higher the price per ounce the lower percentage tax rate and vice versa.
  • Allowing personal possession of up to one ounce of cannabis.
  • Formation of a New Jersey Cannabis Regulatory Commission (“CRC”) to establish rules, regulations and procedures for the New Jersey cannabis industry, issue licenses and investigate alleged violations of state laws and regulations. The CRC will also have oversight of the medical marijuana program that is currently under the supervision of the Department of Health. Once the new bill is signed into law, the CRC will have six months to issue new regulations to govern the adult use market in New Jersey.
  • The CRC will be comprised of five members, three appointed by the Governor and the remaining two appointed at the request of the Senate President and Assembly speaker. One commissioner would be a representative of a national social justice commission.
  • A licensed dispensary will be permitted to operate a cannabis consumption lounge subject to the approval of its local municipality.
  • Home delivery will be permitted by approved licensed dispensaries.
  • A fund will be established to offset some of the costs that local governments and State Police will incur in training officers as drug recognition experts who could determine whether a driver was operating a motor vehicle while impaired by administering a series of in field exams.
  • Most importantly, one of the bills includes an expedited process for expungement through the State Superior Court for past cannabis convictions.

Unlike most all of the other states that have legalized cannabis for adult use, home grown cannabis will remain illegal.

If the bills pass both committees, it is anticipated that they will be presented to the Assembly and Senate for vote as early as Monday March 25, but only if passage is assured according to legislative leaders.

On March 5, 2019, Scott Gottleib, the Commissioner of the Food and Drug Administrations (FDA) announced his resignation as of the end of March, 2019. This follows his recent statements as to the effect of the changes in law with respect to hemp under the 2018 Farm Bill (the “Farm Bill”). Under the Farm Bill, hemp, which is now defined as the plant Cannabis sativa L. and all derivatives of the hemp plant, with extremely low concentrations of THC (less than 0.3 percent on a dry weight basis) are no longer subject to the Controlled Substance Act (the “CSA”). In addition, it is now permissible to transport hemp across state lines. Although thought at first by many to allow the sale of cannabidiol (CBD) products across the United States, the Farm Bill preserved the authority of the FDA to regulate products containing CBD under the Food, Drug and Cosmetic Act (the “Act”).  On the same day that the Farm Bill was signed into law, Commissioner Gottleib reiterated that the Act allows the FDA to regulate all CBD products, whether or not the compound is derived from hemp, and that when these products are intended to be used for the diagnosis, cure, mitigation, treatment or prevention of disease, they are considered new drugs and it is a violation of law to market them as such if they have not gone through the FDA drug approval process. He also indicated that it remained unlawful under the Act to introduce into interstate commerce food or dietary supplements containing added THC or CBD.  Given that violations of the Act may result in monetary and criminal penalties, many entrepreneurs looking to enter the CBD market, along with those already in play, are grasping to understand the consequences of marketing and selling hemp derived CBD products nationwide.

Commissioner Gottleib did go on to acknowledge Congress’ clear interest in fostering the development of hemp products and to make CBD available outside of the pharmaceutical industry. Accordingly, he  announced plans to work on new rules to allow companies to produce consumable products containing CBD. The Commissioner stated that the FDA would kick off the rulemaking process in April by doing the following: (1) amassing a working group to examine the issues involved in regulating CBD and (2) holding a public meeting to investigate possible rulemaking that would allow CBD to be lawfully sold in food and supplements through a simpler review process than what comes along with being defined as a “drug” under the Act. The Commissioner also indicated that he was willing to work with Congress on a legislative solution if a rulemaking process was too burdensome for his agency.  The Commissioner’s statements signaled a clear commitment to address CBD regulation and institute a regulatory framework for the sale of hemp-derived CBD throughout the country.

With Commissioner Gottleib’s resignation, it remains to be seen whether his replacement will agree with his sentiment on creating new rules to establish a less burdensome regulatory pathway for CBD products, leaving a growing billion dollar industry with many questions.

After waiting months for word on cannabis legalization talks in New Jersey, budgetary committees from both the state Senate and Assembly approved the New Jersey Marijuana Legalization Act (“Act”), thus, paving the way for the New Jersey Legislature to fully vote on the Act. This marks a historic time in New Jersey for those fighting for the further expansion of medicinal use and legalization of adult-use cannabis in New Jersey as this is the first adult-use legalization bill to make it past introduction in New Jersey. The Legislature is scheduled to be back in session December 17th. This is an exciting time for our existing Clients and friends in the cannabis community as we look forward to the future expansion of the cannabis industry in New Jersey.

In a recent decision, United States v. Gilmore, the U.S. Court of Appeals for the Ninth Circuit reinforced the importance of complying with drug laws for doing business in the Cannabis industry. In Gilmore, hunters provided a tip to local authorities on a cannabis grow site in El Dorado County, California. Upon executing a warrant, the officers seized over 100 cannabis plants and detained three men. One of the men claimed he rented the property with the intent to cultivate medical cannabis legally under California state law. Nevertheless, the authorities obtained an indictment charging the men with manufacturing cannabis plants due to the grow site being located on federal land.

Since 2015, Congress has barred the Department of Justice (DOJ) from using appropriated funds “to prevent [certain States, including California] from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” See Consolidated and Further Continuing Appropriations Act § 538 (“§ 538”). Although one defendant plead guilty, the other two defendants claimed that § 538 prevented the DOJ from prosecuting them since medical cannabis cultivation is legal under California state law. The Ninth Circuit rejected the defendants’ argument on the premise that “nothing in California law purports to authorize the cultivation of marijuana on federal land.”

As a result, the DOJ’s enforcement of federal laws on federal land does not prevent California from otherwise implementing its medical cannabis regime. The Ninth Circuit held that because § 538 does not apply to offenses committed on federal land, state law defenses are irrelevant. Also irrelevant, is whether the defendants knew the grow site was on federal land since the government is not required to prove such knowledge to convict under 21 U.S.C. §§ 841 and 846.

For New Jersey businesses involved or invested in the cannabis industry, Gilmore stands as a reminder that operations must comply with both federal and state law. New Jersey businesses should be concerned with doing their due diligence before utilizing any property on federal land or subject to federal laws. Overlooking to do so may not only be bad for business but could lead to criminal penalties.

Special thanks to Leo D. Bronshteyn, Summer Associate, for his contributions to this article.

Since 5 new medical conditions were added to the list of conditions available for treatment with medical marijuana in the March 2018 Executive Order 6 Report, over 7,000 new patients have been added to the patient pool. Due to the significant expansion of the patient pool in the past few months, the New Jersey Department of Health (DOH) has determined that additional treatment centers are necessary to meet the needs of the current and future patients in the Medical Marijuana Program.

As of today, the New Jersey Department of Health Division of Medicinal Marijuana released a  Request for Applications (RFA) for up to six (6) vertically integrated alternative treatment centers. The applications will be divided between the Northern, Central and Southern regions of New Jersey with up to two alternative treatment centers per region. The DOH stated in the RFA that it anticipates the release of two additional RFAs in the Fall of 2018 and Winter of 2019 for additional cultivator and manufacturer licenses and dispensary licenses, respectively.

In the wake of Governor Phil Murphy’s Executive Order 6 and subsequent issuance by the New Jersey Department of Health (the “Department”) of its report on the expansion of the State’s medical marijuana program, prospective New Jersey patients continue to seek entry into the existing framework. Currently, the State is attempting to serve approximately 22,000 patients via only five operating dispensaries (with a sixth to open in the near future, pending final approval from the Department). In an effort to meet seemingly exponential demand, many patients, lawmakers and medical professionals are focused on expanding access under the existing program – most recently evidenced by the introduction earlier this month of Senate Bill No. 2426 (the “Bill”), a bi-partisan bill sponsored by Senators Joseph Vitale (D-Middlesex), Nicholas Scutari (D-Union) and Declan O’Scanlon (R-Monmouth).

Through a combination of new regulations and amendments to the existing New Jersey Compassionate Use Medical Marijuana Act (the “Act”), the Bill seeks primarily to increase patient access to medical marijuana and to address increasing demand through the licensing of additional cultivation facilities and dispensaries across the State. With a specific eye toward expansion, the Bill proposes to increase the number of alternative treatment centers (“ATCs”) to 40 licensed medical marijuana dispensaries and 12 medical marijuana cultivator-processors, evenly distributed across the State. The Bill would also allow license holders to operate from more than one physical location, thereby increasing the scope of service of these facilities. Licenses would be valid for three years, renewable on a biennial basis, and would be transferrable upon Department approval of the proposed transferee.

For interested applicants, the Bill provides guidance with respect to application criteria and evaluation metrics, based on a proposed 100-point rubric. In addition to any “bonus points” awarded by the Department, the Bill sets forth the following proposed benchmarks:

  • Operating Plan Summary (up to 21 points)
  • Environmental Impact Plan (up to 4 points)
  • Safety and Security Plans and Procedures (up to 7.5 points)
  • Summary of Applicant’s Business Expertise (up to 15 points)
  • Summary of Proposed Location for ATC (up to 15 points)
  • Community Impact and Social responsibility (up to 15 points)
  • Workforce Development and Job Creation Plan (up to 7.5 points)
  • Business and Financial Plan (up to 15 points)

In evaluating an application, the Department shall place emphasis on the experience of the applicant, the controlling owners and entities under common ownership or control with the applicant, and the experience of its officers, directors and full-time employees.

In addition to the modified application and ownership and operational requirements for ATCs described above, the Bill proposes to broaden the scope of the Act by increasing patient eligibility for treatment of any medical condition diagnosed by a physician, rather than a list of enumerated conditions as provided under the Act. Further, the Bill increases the maximum amount of medical marijuana that may be dispensed to a patient in any 30-day period from two ounces to four, and allows for the distribution of edible forms of medical marijuana to qualifying patients who are minors. The Bill also places limitations on application fees and procedural hurdles for both patients and primary caregivers, while also removing registration requirements for treating and/or referring physicians, all facilitating ease of access for qualifying New Jersey patients.

As New Jersey proactively addresses increasing demand, New York appears to be prepared to follow suit. Once stark opponents of legalized cannabis, both Mayor Bill de Blasio and Governor Andrew Cuomo seem to have acquiesced to the idea as an inevitable outcome. In the past month, Mayor de Blasio directed NYPD officers to cease arresting individuals using marijuana in public, while Governor Cuomo ordered an official state-commissioned study on the impact of legalization – all on the heels of a report issued by New York State Comptroller Scott Stringer earlier this month, concluding that legalized marijuana could create a $3.1 billion market in the state. These measures find federal support from U.S. Senators Chuck Schumer and Kirsten Gillibrand, each who continue to vocalize support for legalization.

As state, federal and public support continue to mount, New Jersey appears poised to expand its medical program, trending toward Governor Murphy’s original campaign goal of full scale legalization. With New York potentially close behind, this could be the catalyst for a shift in the cannabis narrative on the East Coast.

 

As the State of New Jersey continues to evaluate the expansion of current legislation related to medicinal use cannabis and the legalization of recreational cannabis, proposed legislation advancing in the New Jersey legislature has set its sights on marijuana’s less psychotropic relative – industrial hemp.

If passed, Assembly Bill No. 1330 (the “Bill”), introduced in February of 2018 and sponsored by Assemblyman Reed Gusciora, would enable licensed businesses to plant, grow, harvest, possess, process, distribute, buy and sell industrial hemp for commercial purposes. The Bill defines industrial hemp as an agricultural product that is part of the plant of any variety of Cannabis sativa L. with a delta-9-tetrahydrocannabinol (“THC”) concentration of 0.3% or less on a dry weight basis. This threshold of THC is intended to ensure that legally harvested industrial hemp maintains no more than a small percentage of THC, the psychoactive, “high-producing” ingredient in marijuana. To ensure compliance, the Bill requires that licensees submit, on an annual basis, documentation confirming that such industrial hemp is of a permissible type and THC concentration.

Pursuant to the Bill, prospective growers and distributors must apply to the Secretary of Agriculture (the “Secretary”) for an industrial hemp license, which must include specific documentation with respect to, and a legal description of, the land to be used for growth and production of the crop. Applicants are also required to submit to fingerprinting and both a nationwide and statewide criminal history and background check by the Department of Law and Public Safety and/or the Federal Bureau of Investigation. All issued licenses will be valid only for the site or sites specified in the license, and for a period of one (1) year from the date of issuance, unless otherwise adjusted by the Department of Agriculture to align with the normal growing season and to facilitate reasonable harvesting, processing and sale or distribution timing.

The Bill also tasks the Secretary, in consultation with the Attorney General, to adopt certain rules and regulations facilitating administration and enforcement. These regulations include (1) the establishment of approved varieties of industrial hemp and methods to distinguish it from other types of marijuana, (2) testing protocol for THC levels, (3) licensing requirements, fees and renewal procedures, and (4) penalties for administration and enforcement. Finally, the Bill requires that licensees notify the Secretary and the Attorney General of all sales or distributions of industrial hemp during the calendar year, and identify by name and address each distributee of industrial hemp for such calendar year.

Beyond the Bill, industrial hemp would be subject to the protections of the Right to Farm Act, and the land used for its cultivation may be eligible for valuation and taxation benefits provided by the New Jersey Farmland Assessment Act of 1964 – an Act permitting land actively devoted to agricultural use to be assessed at its productivity value, which is often less than the property tax assessment value of the property.

The enactment of the Bill is poised to offer a substantial boost to New Jersey’s agricultural industry, introducing what some view as a new “cash crop” to New Jersey’s repertoire and would afford New Jersey farmers the opportunity to diversify their products and compete in a nearly $500 million industry, catalyzing manufacturing and economic opportunity across the State. The Bill now also finds federal legislative support, following introduction of the Hemp Farming Act of 2018 in late April, co-sponsored by Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Charles E. Schumer (D-NY). The federal bill, among other things, would remove industrial hemp from Schedule I of the Controlled Substances Act, and would empower the states to be the primary regulators of the industry.

On March 23, 2018,  in response to Governor Murphy’s Executive Order 6 which directed the New Jersey Department of Health (“Department”) to review New Jersey’s Medical Marijuana Program (the “Medical Marijuana Program” or “Program”), the Department issued  its report  focusing on how to expand the Program’s scope and patient access to medical marijuana (the “Report”).

The Report focused on the following four principal areas:

  • The rules for siting of dispensaries and cultivation facilities and the number of alternative treatment center (“ATC”);
  • The conditions for physicians participating in the Program and prescribing medical marijuana;
  • The number of medical conditions which qualify for the Program; and
  • The maximum monthly product limit, THC dosage limits and the types of medical marijuana products available for patient use.

Certain aspects of these recommendations may be affected by Department regulatory action, while others will require amendment of the existing New Jersey Compassionate Use Medical Marijuana Act (the “Act”).

In order to service the growing population of patients with conditions treatable by medical marijuana, the Department plans to amend the existing regulations to permit ATCs to dispense medical marijuana at satellite locations and permit more than one cultivation site per ATC, subject to Department approval. The Department also plans to create an endorsement system to allow ATCs to engage in some combination of production (including edibles), cultivation, and dispensing designed to increase the supply and availability of medical marijuana.  As stated in the Report, the goals of these amendments are to increase the supply and access to medical marijuana for qualifying patients. The Report also makes the statutory recommendation to amend the Act to permit the existing six (6) licensed ATCs, which are statutorily required to be non-profits, to operate as for-profit companies.

The current regulations require that a physician interested in providing care to patients who qualify for medicinal marijuana to first register with the Department, creating a limited number of doctors who can prescribe and treat qualifying patients. The Report indicates that the Department plans to eliminate the physician registry in Spring of 2018 to ensure that any and all New Jersey doctors meeting the good standing  requirements set forth in N.J.A.C. 8:64-2.5 may prescribe medicinal marijuana for patients meeting Program requirements.

Prior to March 22, 2018, the conditions that qualified for treatment by medicinal marijuana under the  Act  were limited to (i) seizer disorders, intractable skeletal muscular spasticity or glaucoma (provided that  such conditions were resistant to conventional medical therapy), (ii) HIV, acquired immune deficiency syndrome or cancer (provided that  sever or chronic pain, nausea, vomiting, cachexia or wasting syndrome resulted from such condition or treatment thereof), (iii) amyotrophic lateral sclerosis, multiple sclerosis, terminal cancer, muscular dystrophy or inflammatory bowel disease, (iv) a terminal illness (provided that a physician determined a prognosis of less than 12 months of life), or (v) other medical conditions approved by the Department by way regulation. As outlined in the Report, a final agency decision was made to effectuate the addition of the following categories to conditions qualifying for treatment by medical marijuana: chronic pain related to musculoskeletal disorders, migraines, anxiety, chronic pain of visceral origin, and Tourette’s syndrome. The Report also recommends an amendment to the Act permitting medical marijuana to be used as a first-line treatment rather than a last resort for the illnesses described in section (i) above.

Under the current Program, physicians are limited to prescribing two ounces of medicinal marijuana to patients within a 30 day time period. According to the Department’s findings set forth in the Report, physicians should have discretion to authorize more than the Program’s current two ounce limit. As a result, the Department is recommending that the statutory limit be increased to four ounces, which aligns more with our neighboring states such as New York, Pennsylvania and Delaware. The Act presently restricts use of edible marijuana products to qualifying patients who are minors. As stated in the Report, the ingestion of medical marijuana is healthier than smoking, the Report, therefore, also recommends amending the Act to permit the manufacture of edible and topical products and their use by patients.  The Report also provides that the Department will eliminate the regulatory dosage limit of 10% THC limit to allow for more effective treatment of the debilitating medical conditions covered under the Program.

The Report and recommended expansions to New Jersey’s Program  set forth above evidence both the Governor’s and the Department’s goal of growing all aspects of the Program related to the production of and access to medicinal marijuana.

Upon assuming office earlier this year, New Jersey Governor Phil Murphy emphasized his intention to legalize marijuana for adult use throughout the State as a priority item. To that end, the State of New Jersey has already taken visible steps toward legalization, namely through the recent introduction of proposed legislation in both the State Senate and Assembly.

Senate Bill 830 and Assembly Bill 1348 (collectively, the “NJ Bill”) propose  legalizing the possession of small amounts of marijuana for personal use for persons age 21 and over, and set forth a licensing scheme intended to facilitate the manufacturing, production and distribution of marijuana across the State. The NJ Bill would establish the Division of Marijuana Enforcement, a governmental agency vested with broad oversight and implementation authority pertaining to enforcement, licensing and general regulation. The regulations to be promulgated to facilitate implementation of the NJ Bill set forth, among other things, a proposed sales/transfer taxation scheme, in addition to regulations regarding advertising and marketing of marijuana products.

Introduction of the NJ Bill comes almost concurrently with the introduction of similar federal bills, Senate Bill 1689 and House Bill 4815, sponsored notably by Senator Cory Booker of New Jersey and co-sponsored by Senator Kirsten Gillibrand of New York. The push for legalization also comes amidst policy change at the federal level, following U.S. Attorney Jeff Sessions’s decision to overturn the Obama administration’s “Cole Memo” and issue a new memo, once again placing state-compliant marijuana-related businesses at risk of federal prosecution under the Controlled Substances Act.

Despite being a priority item for Governor Murphy, the legalization movement has encountered some skepticism and resistance. According to a survey recently conducted by NJ Cannabis Insider, the NJ Bill would fail in the State Senate if a vote were conducted today – with only 5 of the 40 senators polled committing to an affirmative vote in favor of the proposed legislation. Another 20 members indicated that they would vote against the NJ Bill, while 15 were either undecided or did not respond. Several New Jersey municipalities have also joined in the opposition, preemptively passing measures and/or resolving to oppose marijuana legalization and the institution of cannabis business enterprises within their bounds. Such locations include Middleton Township, Wall Township, Toms River and Seaside Heights.

While the NJ Bill remains pending, Governor Murphy has taken interim steps toward legalization, calling for a 60-day review of the State’s current medical marijuana program, potentially resulting in large-scale reforms to the program aimed at expanding access and loosening restrictions on both prescribers and users. These anticipated reforms, together with the proposed legislation, present a unique opportunity for entrepreneurs and investors to get in on the ground floor of what appears to be a rapidly emerging market sector.