Business of Cannabis in New Jersey – 2017 In Review

Business of Cannabis in New Jersey – 2017 In Review

Over the course of the last year, the Scarinci Hollenbeck Cannabis Law Practice Group has provided entities and individuals considering opportunities in the growing cannabis industry with counsel regarding the current and proposed medical and adult-use cannabis laws and legislation and related state and Federal developments. Below is a brief recap of some of the insights we shared in 2017.

Medical Dispensary Licensing in New Jersey: The New Jersey Compassionate Use Medical Marijuana Act (MMA) imposes onerous requirements on alternative treatment centers seeking to dispense medical marijuana. The New Jersey Department of Health requires that entities seeking to obtain a medical marijuana dispensary license in New Jersey have a comprehensive business plan. In addition to traditional financial information, applicants must provide details regarding how they plan to track patient data, maintain security at the dispensary, and address the other unique concerns involved with dispensing marijuana. The specific documents that must be submitted include corporate governance documents, financial statements and tax returns. Applicants must also submit Personal Disclosure Forms, which require the provision of detailed employment, educational, family, and other personal information. Each ATC applicant must also undergo fingerprinting and submit to a criminal history record background check. The requirements apply to all owners, directors, officers, and employees. 

Sixth ATC Granted Cannabis License: This summer, Harmony Foundation received permission from the State to grow medical marijuana, paving the way for it to begin operations as the sixth licensed alternative treatment center in New Jersey. To date, six ATCs have been authorized to move forward in New Jersey and the other five are operational. Additional ATC applications are not being processed at this time. However, the MMA mandates that the Department of Health consider whether additional ATCs are warranted once the first six are operating. If there is a determination to add ATCs, the Department of Health will publicize the expansion and provide the criteria and process for application. 

Expansion of NJ Medical Marijuana Program: The MMA authorizes approved physicians to disburse up to two ounces of medical marijuana to a registered patient during any 30-day period to treat numerous “debilitating medical conditions,” particularly where conventional treatments are ineffective or exacerbate a patient’s suffering. The current list of qualifying conditions include cancer, glaucoma, HIV/AIDS, inflammatory bowel disease, Lou Gehrig’s disease, multiple sclerosis, muscular dystrophy, seizure and/or spasticity disorders, and any terminal illness if a doctor has determined the patient will die within a year. The New Jersey Medicinal Marijuana Review Panel (MMRP) voted this fall to approve several new qualifying conditions, but the Department of Public Health has not yet given final approval.

Employers’ Medical Cannabis Concerns: The conflict between state and federal cannabis law has resulted in significant compliance concerns for employers. In Massachusetts, the state’s highest court recently ruled in favor of an employee terminated for her after-hours use of medical marijuana, which was prescribed by her doctor to help manage her Crohn’s disease. In Barbuto v. Advantage Sales & Marketing, LLC, the Massachusetts Supreme Judicial Court held that “a qualifying patient who has been terminated from her employment because she tested positive for marijuana as a result of her lawful medical use of marijuana has a civil remedy against her employer.” New Jersey courts have yet to address the issue. However, legislation has been introduced (Assembly Bill 2482/Senate Bill 2161) that would establish protection from adverse employment action for authorized medical marijuana patients. To date, the measures have failed to advance out of committee. Because the law in this area continues to evolve, employers should consult with a knowledgeable attorney to avoid unintended liability and keep informed of state and federal law while implementing employment policies.

Proposed Regulatory Framework for Recreational Cannabis: Introduced last June, Senate Bill 3195 would legalize the possession and personal use of small amounts of marijuana for individuals age 21 and over. Individuals would be allowed to possess up to 1 ounce of cannabis, 16 ounces of infused solid products, or 72 ounces in liquid form. The bill also legalizes the manufacture, distribution, and sale of marijuana. A tax will be levied upon marijuana sold or otherwise transferred by a marijuana cultivation facility to a marijuana product manufacturing facility or to a retail marijuana store. The tax rate would start at 7 percent in the first year and increase to 10 percent in the second year; 15 percent in the third; 20 percent in the fourth and 25 percent in the fifth. Sen. Nicholas Scutari has stated that he plans to fine-tune and reintroduce the legislation in the new year.

Local Government Oversight over Cannabis: Local governments retain local oversight over cannabis businesses. Under SB 3195, local governments would be authorized to enact ordinances dictating the time, place, manner and number of marijuana establishment operations within their borders. A local governmental entity may also expressly prohibit the operation of marijuana cultivation facilities, marijuana product manufacturing facilities, marijuana testing facilities, or retail marijuana stores through the enactment of an ordinance. However, the failure to enact an ordinance prohibiting the operation of a marijuana establishment will permit the operation of a marijuana retail establishment within the local governmental entity for five years. At the end of the five-year period, the municipality will again be permitted to prohibit the operation of a marijuana establishment within its boundaries.

Federal Government Less Cannabis Friendly: Despite widespread legalization at the state level, marijuana remains prohibited under federal law. Under President Obama, the U.S. Department of Justice (DOJ) issued guidance known as the “Cole Memorandum” to federal prosecutors stating that the agency would not challenge state laws authorizing small amounts of marijuana so long as states maintained robust controls regarding their respective markets and did not undermine federal enforcement priorities related to cannabis. Attorney General Jeff Sessions has reaffirmed the supremacy of federal drug laws. Sessions also sent letters to the governors of several states that have legalized recreational marijuana, questioning whether they were in compliance with the Cole Memorandum. Sessions also convened a Task Force on Crime Reduction and Public Safety to address marijuana legalization and other issues. The task force, which included federal prosecutors and members of law enforcement, recommended that the federal government continue its “hands off” approach to enforcement. At this point, it is unclear if further action is forthcoming. In many respects, it appears that Sessions is advocating tougher enforcement of the Cole Memo, rather than seeking to replace it. 

Banking Concerns of Cannabis Businesses: Banks and other financial institutions are often reluctant to provide services to businesses in the cannabis industry due to the continued federal illegality of cannabis cultivation, sale, distribution, and possession. As a result, one of the biggest challenges for cannabis-related businesses is securing access to financial institutions. In 2014, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidance entitled Secrecy Act (BSA) Expectations Regarding Cannabis-Related Businesses, which outlines how financial institutions can provide services to cannabis businesses while satisfying their obligations under the BSA. More recently, several bills have been introduced in Congress to further improve access to banking. Pursuant to the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”), which was introduced with the bi-partisan support of 47 members of the House of Representatives, a federal banking regulator may not “prohibit, penalize, or otherwise discourage a depository institution from providing financial services to a cannabis-related legitimate business or to a State or political subdivision of a State that exercises jurisdiction over cannabis-related legitimate businesses.”

Protecting Intellectual Property: It can be challenging to obtain IP protections in the cannabis industry. The U.S. Patent and Trademark Office has refused federal registration of medical marijuana and other cannabis-related trademarks, citing that the drug is illegal under federal law. Cannabis businesses have had better luck obtaining patent protection for medical marijuana technologies, with more than 60 patents issued. So long as marijuana remains a Schedule 1 drug, cannabis businesses should rely, as much as possible, on state IP protections, such as state trademark registrations and state trade secrets acts. They should also safeguard their proprietary information using contractual agreements, such as non-disclosure agreements, employment agreements, and operating agreements.

The recent election victory by Governor-Elect Phil Murphy appears to pave the way for the establishment of a recreational cannabis industry in New Jersey in 2018. As we enter the new year, the Scarinci Hollenbeck Cannabis Law Practice Group will continue to track legal developments impacting the business of cannabis. We encourage entities considering opportunities in the New Jersey cannabis industry to contact Dan McKillop to begin the necessary legal preparations at 201-806-3364.

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.