The New Jersey State Bar Association (NJSBA) submitted its report and recommendations to the Cannabis Regulatory Commission (CRC) last summer on the rules and regulations promulgated by the CRC on the state’s new law that legalized recreational marijuana for adults 21 and over. Many of those recommendations were adopted by the CRC in issuing the regulations. The Bar Report asked NJSBA Cannabis Law Committee Co-Chairs Joshua S. Bauchner, of Ansell Grimm and Aaron, in Woodland Park, and Lisa Gora, of Wilentz, Goldman and Spitzer, in Woodbridge, about some of the legal ramifications concerning the new state law and what follows is a compilation of their responses.
Q. The new law will create some consequential changes to practice areas. What areas are you seeing being affected now and why, and what practice areas can expect to see changes on the horizon?
Cannabis regulation is undeniably a cross-disciplinary field. The NJSBA Cannabis Law Committee has subcommittees focusing on employment law; corporate and real estate transactional law; municipal law; environmental law; and issues affecting women, minorities and disabled veterans. Ninety percent of cannabis business is no different than the widget business. But that 10% makes all the difference. Incorporating the specifics of cannabis regulation into these practice areas is essential to effective client representation.
Q. What are some of its biggest challenges the state faces in regulating the sale of cannabis?
The biggest challenge is the disconnect between state and federal law—the latter of which still considers cannabis a Schedule I controlled narcotic without any medicinal value. As a result, cannabis markets are exclusively governed by each state and prohibited from crossing state lines in every respect. This includes suppliers, but also cannabis transactions and banking. It is difficult, albeit not impossible, to navigate these hurdles while creating a robust marketplace. It is also mind numbing at times. For example, many states include residency requirements for licensed operators, which are now being deemed a violation of federal law. It’s a law school exam question on acid.
Q. The marijuana market is extremely competitive, and large out-of-state corporations with deep pockets have an advantage. What has the CRC done to help level the playing field for local small businesses to compete?
In an effort to level the playing field for local small businesses and to provide an entry point into the cannabis market for New Jersey residents, the CRC has created the “microbusiness” license, which can be obtained by an entity whose ownership is exclusively made up of New Jersey residents. Additionally, the CRC created the “conditional license,” which is a type of license to allow local, non-experienced and not hugely capitalized players to have entry into the cannabis market, and attempts to offer licenses to groups of people who may have relatively lower incomes and cannot immediately demonstrate that they meet all of the conditions of licensure for a full license. Both these license types will be prioritized in the review, scoring and approval process, along with minority and/or women business enterprise applicants.
Q. Racial minorities have been disproportionately arrested and convicted on marijuana charges. What rules are in place or being considered to address social equity in awarding licenses?
The law includes special provisions, or “priority review” for certain types of businesses to promote social equity and diversity. The CRC has made a clear commitment in this regard. For example, priority is given to people who have lived in economically disadvantaged areas of New Jersey or who have past convictions for cannabis offenses, and for minority-owned, woman-owned or disabled veteran-owned businesses.
Q. What are the ways municipalities are addressing whether to allow marijuana businesses within their borders?
Municipalities have adopted a number of approaches to cannabis regulation. Many have used their authority under the Municipal Land Use Law to create zones for specific cannabis license types. Others also have created their own cannabis review advisory boards and issued requests for proposals requiring licensees to apply at the municipal level, as well as the state level. Interestingly, while cannabis regulation is decades old in some states out west, New Jersey, in many respects, has taken a sui generis approach—time will tell if reinventing the proverbial wheel pays (tax) dividends.
Q. What is the timeline for legal sales to begin?
Adult-use sales likely will begin in the first quarter of 2022 by approved alternative treatment centers in New Jersey. But we are not likely to have a robust adult-use market until well into 2023, because the CRC has made a commitment not to deplete the supply of medical cannabis. There still are only 12 licensed operators with over 117,000 registered patients. Cannabis has a 12–18 month grow cycle, and that does not include building out a cultivation facility, which can take 12–18 months.