Five Key Cannabis Industry Legal Updates

Five Key Cannabis Industry Legal Updates

The legal landscape for the cannabis industry continues to rapidly evolve. Businesses need to stay on top of the changes and understand how they may impact their operations.

As discussed in greater detail in a prior post, the House Judiciary Committee recently voted to approve the Marijuana Opportunity Reinvestment and Expungement (MORE) Act.  The bill would remove cannabis from the list of federally-controlled substances, allow states to set their own cannabis policy and require federal courts to expunge prior convictions for cannabis offenses. A 5-percent tax on cannabis products would also establish a trust fund for programs designed to help people disproportionately impacted by the war on drugs, including job training and treatment for substance abuse.  If the legislation makes it to the House floor and passes, it will go to the Senate. Senate approval is not assured given GOP control of the chamber, though similar measures are being considered there.

Closer to home, Senate President Stephen Sweeney introduced a resolution proposing a constitutional amendment to legalize adult-use after it became clear that legislation to legalize recreational use still didn’t have the votes. The resolution needs to pass both houses of the state Legislature by three-fifths majorities to make it onto the November 2020 ballot, and there appears to enough bipartisan support in the Legislature to ensure passage.  If approved by voters next November, the amendment would become effective January 1, 2021.

Below are five additional legal developments that should be on the radar of the New Jersey cannabis industry:

(1) NJ Medical Marijuana Program Expansion:  The medical cannabis program continues to expand, albeit slowly.  The six license applicants selected in December 2018 that continue through the application process are involved in litigation brought by rejected applicants who are asserting that improprieties in the State’s scoring methodology and execution invalidate the selection of the six awardees, but the selected applicants are nevertheless moving forward towards operational status.  The State is also still reviewing the approximately 200 license applications submitted in response to this summer’s Request for Applications.  According to Assistant New Jersey Department of Health (NJDOH) Commissioner Jeff Brown, who leads the program, decisions regarding those applications should begin to be made public by the end of the year.  The state will likely issue additional Requests for Applications in early and mid- to late 2020.

(2) USDA Hemp Regulations: The rapid expansion of the legal hemp/CBD market continues, and was recently aided by federal agency action. On October 29, 2019, U.S. Secretary of Agriculture Sonny Perdue announced the establishment of the U.S. Domestic Hemp Production Program.  This program, as required by the 2018 Farm Bill, creates a consistent regulatory framework around hemp production throughout the United States.  An interim final rule formalizing the program became effective upon publication in the Federal Register on October 31.  The interim rule allows hemp to be grown under federally-approved plans and makes hemp producers eligible for a number of agricultural programs. The rule includes provisions for the U.S. Department of Agriculture (USDA) to approve hemp production plans developed by states and Indian tribes, including requirements for maintaining information on the land where hemp is produced, testing, disposal of plants not meeting necessary requirements, and licensing requirements. It also establishes a federal plan for hemp producers in states or territories of Indian tribes that do not have their own approved hemp production plan. Once state and tribal plans are in place, hemp producers will be eligible for a number of USDA programs, including insurance coverage.

(3) FDA Regulation of CBD: Action by the USDA is putting further pressure on the FDA to issue proposed regulations regarding the use of CBD in food and beverages.  In late October, the FDA said it’s continuing “to explore potential pathways for various types of CBD products to be lawfully marketed.” More recently, the agency said it is “working quickly to clarify our regulatory approach for products containing CBD while continuing to monitor the marketplace & protect public health. We’re also creating consumer content to help people understand CBD & potential safety concerns.” The FDA is expected to act on this issue in early 2020.  Until them, the FDA continues to issue warning letters to food and beverage companies using CBD in products sold in interstate commerce where the marketing or labeling of the products incorporates statements that the CBD content results in beneficial health effects. On November 25, the FDA sent a warning letter to 15 companies for illegally selling products containing cannabidiol (CBD) in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). The alleged violations include marketing unapproved new human and animal drugs, selling CBD products as dietary supplements, and adding CBD to human, animal foods.

(4) Employment Litigation: Labor law cases regarding medical cannabis patients are scheduled to proceed before the New Jersey Supreme Court and the District Court of New Jersey (DNJ) in 2020. The outcomes of these matters may shape courts’ consideration of such issues for years to come.

Consistent with several out-of-state decisions, in 2018 the DNJ held in Cotto v. Ardagh Glass Packing that nothing in the NJ Law Against Discrimination (LAD) or the NJ Compassionate Use Medical Marijuana Act (CUMMA) required an employer to waive a drug test for a federally prohibited substance as a condition of employment. Pursuant to Cotto, in 2019, a New Jersey state court dismissed the disability discrimination claims of a funeral home worker who was terminated after his employer learned of his medical marijuana use and inability, therefore, to pass an employer required drug test in Wild v. Carriage Funeral Holdings. However, earlier this year, the Appellate Division reversed the trial court’s decision in Wild and held the employer could be liable for the LAD claim. Wild, 458 N.J. Super. 416 (App. Div. 2019).  The New Jersey Supreme Court has granted a petition for certiorari in Wild on the question of whether “the New Jersey Compassionate Use Medical Marijuana Act—which declares that ‘nothing’ in the Compassionate Use Act ‘require[s]‘ an employer to accommodate a medical marijuana user, N.J.S.A. 24:6I-14—preclude[s] a claim by an employee against an employer based on, among other things, the Law Against Discrimination.” Complicating the matter is the fact that on July 2, 2019, Governor Murphy enacted the Jake Honig Compassionate Use Medical Cannabis Act, N.J.S.A. C24:6I-2, et seq., which amended and revised CUMMA.  Importantly, the “nothing in this act” language, which forms the basis for the cert petition, has been replaced with a new section that provides: “It shall be unlawful to take any adverse employment action against an employee who is a registered qualifying patient based solely on the employee’s status as a registrant with the commission.” In another case, D.J.C. v. Amazon et al, No. 2:19-cv-19985 (Oct. 2019), an NJ man sued Amazon in Middlesex County claiming the company fired him when he failed a drug test despite his status as a medical cannabis patient.  Earlier this month Amazon successfully removed the case to the DNJ, where it will continue.

(5) Mergers & Acquisitions: As the industry matures M&A activity is accelerating nationwide.  Close to home, Acreage Holdings, Inc. recently announced that it had entered into a Reorganization Agreement with Compassionate Care Foundation, Inc., one of NJ’s original vertically integrated medical cannabis Alternative Treatment Centers, by which Acreage acquired 100% of the ATC’s equity.

The attorneys of the Scarinci Hollenbeck Cannabis Law Group will continue to monitor the complicated and constantly evolving legal framework, so please check back regularly for updates.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Federal Marijuana Legalization Bill, MORE Act, Advancing in US House
• Will Cannabis Legalization Be Decided by New Jersey Voters?
• What Cannabis Companies Should Know About the Federal Illegality Defense