With yet another RFA deadline behind us and high hopes that those we represented this year will be awarded licenses to bring relief to New Jersey’s growing population of medicinal marijuana patients, I am delighted to be back blogging here.

As the State’s patient base rapidly expands (at the time of this writing, it stands at more than 55,000 individuals), there will undoubtedly be additional licensure opportunities in the coming months to, one day, achieve scale and increase supply from Montague to Cape May. Because of this, it will be critical that aspiring cannabis entrepreneurs continue to advocate for, and participate in, future RFA processes.

However, and understandably, entering the cannabis industry may seem daunting for a number of reasons – and one in particular seems to arise more often than most: banking and capital concerns.

In light of this, when invited to contribute another guest column to Justin Zaremba’s New Jersey Cannabis Insider briefing (thank you, Justin), my colleague, Jenny Chung, and I thought it would be helpful to offer three tips to assuage these concerns:

  • Because of the nature of their business, attorneys can be instrumental in connecting capital sources to promising ventures (in the spirit of full disclosure, I am an attorney). Tap them and their networks.
  • Federally-chartered banks are, indeed, discouraged from engaging the industry – but reprieve may soon be on the way in the form of the Secure and Fair Enforcement Banking Act of 2019.
  • Developing an application, team and business model that appeals to your host municipality and the State at-large is key to sophisticated investors. They will want to be certain that you have done the legwork in assembling an attractive team and gaining local support.

I encourage you to read the full article – where we take a deeper dive into these three points – here, and stay tuned for further updates and additional content from CSG’s Cannabis Law Group.

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Major reforms to New Jersey’s expungement law (especially with respect to marijuana-related convictions) appear to be on the horizon – when and in what form remain in question.

Convictions on minor marijuana related offenses continue to follow thousands of individuals throughout the state, potentially making it difficult for them to obtain jobs, professional licenses and financial aid.  Expungement offers a blank slate – wiping clean an individual’s record for low-level offenses.  Unfortunately, New Jersey’s current system for expungement can be confusing, and it may take years before an offender becomes eligible to have her record expunged.  This issue has particularly come to a head with respect to marijuana related convictions as the state moves closer to potential legalization.  And while the latest effort at legalization failed in the spring, the state Senate and Assembly passed a bill (S-3205/A-4498) intending to make significant changes to New Jersey’s expungement law.  The bill, which passed by large margins in June, would eliminate the waiting period to apply for expungement for individuals with certain marijuana offenses and expand eligibility for other drug related offenses.  The bill also included broader expungement reforms, reducing the general waiting period to five years and eliminating filing fees.

At the end of August, however, Governor Phil Murphy conditionally vetoed the bill and issued recommendations for: (a) automatic expungements for those with clean records for at least ten years and (b) judicial sealing of low-level marijuana offenses.  With respect to marijuana offenses, the Governor’s changes would have courts immediately seal an individual’s record upon the disposition of charges for possession or distribution of a small amount of marijuana or hashish or related drug paraphernalia.  The Governor’s changes also seek to ensure that the sealed marijuana convictions cannot be used for sentencing purposes in other cases.

Following the veto, the state Senate was scheduled to vote last Thursday, September 12, 2019, on the changes Governor Murphy made to the bill.  The vote, however, did not proceed as scheduled.  Later that same day, Senate President Stephen Sweeney, along with Senators Sandra Cunningham and Teresa Ruiz, introduced new legislation incorporating certain of the Governor’s proposals.

With Election Day nearing, there are no Senate voting sessions scheduled until after November 5th.  Despite the fact that both the Legislature and the Governor support changes to the expungement system, those with marijuana convictions will have to wait at least that long for reform.

I had the absolute pleasure of sitting with Rohan Marley, passionate entrepreneur, son of reggae legend Bob Marley and a now-partner with Lightshade – a highly decorated Colorado-based consortium of eight dispensaries recognized by LeafBuyer, Leafly, Business Insider, Westword and Rooster for excellent customer service, products and pricing – to discuss Lightshade’s venture into New Jersey.

Lightshade was supported by CSG’s Cannabis Law Group on its application to operate a medical marijuana dispensary in Montclair as part of the New Jersey Department of Health’s 2019 RFA.

The full interview follows.

Rohan Marley, Lightshade

Lee Vartan: Tell us about Lightshade, and what is your role in the venture?

Rohan Marley: I am very proud to be a part of Lightshade Labs Montclair.  It is a joint venture between one of Colorado’s premier medical and recreational dispensaries, Lightshade Labs, and a number of community and business leaders in New Jersey.  Lightshade Labs Montclair is the ideal marriage of nuts-and-bolts operational experience with an appreciation for the uniqueness of New Jersey and Montclair in particular.  That is what makes our application to the State so compelling.  My primary role is to broadcast our message of bringing high-quality medical marijuana to patients in need in Montclair, Essex County, and beyond.

LV: What brings you to New Jersey? Montclair, specifically?

RM: I have deep ties to, and family in, nearby South Orange. That said, it would give me personal satisfaction to bring much-needed relief to the good people of Essex County – a place where I have deep-seated roots and memories.

Beyond that, the joint venture includes several members with ties to Montclair.  We view Montclair, its vibrant downtown, and proximity to some of New Jersey’s largest population centers as the ideal location for a medical dispensary.  We also believe that Montclair’s existing Alternative Treatment Center (“ATC”) is a benefit rather than detriment to our application.  With the addition of Lightshade Labs Montclair, Montclair will be one of, if not the only municipality in New Jersey with two ATCs, and will be quickly recognized by patients as the town most welcoming to them and their medical needs.

LV: Applicants have touted a range of community reinvestment and social equity programs as part of their local involvement: what are Lightshade’s plans? How did you go about securing community support?

RM: Lightshade’s plans are simple: to hire locally and invest in the community.  I was attracted to Lightshade because we are committed to undoing some of the harms wrought by the unequal enforcement of New Jersey’s drug laws.  Where possible, we plan on hiring individuals with previous records who have rehabilitated themselves.  And our plan is not simply to hire employees; it is to help incubate future cannabis entrepreneurs.  We are already in talks with community leaders and local colleges to host job fairs and initiate other outreach efforts to make it known that Lightshade Labs is focused on giving back to its host community.

LV: One of the catalysts for the expansion of ATCs in New Jersey is the imbalance of patients and supply. How is Lightshade positioned to help resolve this issue?

RM: This is where the nuts-and-bolts expertise of Lightshade Labs is so critical.  If we receive a license from the State of New Jersey, we are fully prepared to call upon Lightshade Labs’ years of experience and quickly open our doors to patients in need.  The State awarded a number of ATC permits last December.  None of those awardees have yet opened their doors.  That will not be the case with us.  We have the support of the Mayor, the Town Council, and the Montclair Business Improvement District.  With their support, and Lightshade Labs’ experience, we are prepared to start dispensing medical marijuana within 3 months after we are awarded a license.

LV: If not selected in this round, what are Lightshade’s future plans in New Jersey?

RM: Right now, our sole focus is to be awarded a license, open our doors, and be recognized as the best dispensary in New Jersey.  If we do that—and I am confident that we will—future expansion will be easy.

LV: Bonus question: Jamaica is known for its world-class beaches, but so is New Jersey. Which is your go-to on the Jersey Shore?

RM: That is no doubt the toughest question.  I have a few favorites, but so as not to completely avoid your question, I would probably go with Pt. Pleasant Beach—can’t beat that boardwalk food, especially the fries.

On June 3, 2019, the New Jersey Department of Health (“DOH”) issued its latest Request for Applications (“RFA”) for applicants to operate up to 108 Alternative Treatment Centers (“ATCs”), commonly known as medical marijuana dispensaries, across the State.

This latest call for applicants differs significantly from the DOH’s July 2018 RFA in two notable ways:

  1. Scale: The June 2019 RFA calls for up to 38 ATCs in the Northern region of the State, up to 38 in the Central region, and up to 32 in the Southern region – as opposed to the July 2018 RFA, which sought two ATCs across each of the State’s regions.

While ambitious, this push aligns with what New Jersey Health Commissioner Dr. Shereef Elnahal has expressed on several occasions: the State’s medical marijuana program is currently suffering with supply issues and, while the six new license awardees that came from the July 2018 RFA process will aid greatly in addressing this shortage once operational, an influx of 108 dispensaries will provide enhanced access and relief to the State’s medical marijuana patients – whose population has grown to more than 47,500 cardholders.

2. Trifurcated Licenses and Varying Cultivation Endorsements: Three types of endorsements will be available for ATCs: cultivation (growing), manufacturing (processing) and dispensary (retail). In total, the Department will seek up to 24 cultivation endorsements, up to 30 manufacturing endorsements, and up to 54 dispensary endorsements. The July 2018 RFA called exclusively for vertically-integrated businesses.

Additionally, the DOH will allow for three types of cultivation endorsements, which vary by grow facility size – 5,000 square feet, 20,000 square feet and 30,000 feet. In doing this, the State hopes to create a more inclusive business environment for participation from small- and medium-sized businesses.

Permit application forms for ATCs will be available here on July 1 and will be due to the DOH on August 15. The award timeline will be contingent on the volume of applications received.

What To Do Now

A major lesson learned from the July 2018 RFA process: there are many dynamic, competitive cannabis businesses seeking to enter the New Jersey marketplace – as evidenced by the 146 applications the DOH received and had to meticulously evaluate in order to award six licenses. One can only imagine how many organizations will throw their hat in the ring this time around.

As I have said before on this blog, there are three key considerations I would provide to aspiring entrants to help stand out from the pack:

  • Now is the time to begin planning for the application process – not July 1. (Kudos to those who have been pounding the pavement and proactively preparing for this moment over the course of the year.)
  • Legal counsel and/or a general consultant will be integral to finding a willing host community, as well as a properly zoned locale.
  • If there are underserved areas in the Northern, Central or Southern regions of New Jersey, applicants should consider locating there first.

The months ahead promise to be exciting, but individuals and businesses interested in entering the marijuana industry cannot afford to be passive. We suggest applicants work closely with their attorneys, accountants and other advisors to complete their applications timely and consistent with New Jersey law.

Stay tuned for more updates from CSG’s Cannabis Law Group.

On May 3, 2019, the United States Patent and Trademark Office (“USPTO”) relaxed its stance on the trademark registrability of certain types of hemp and cannabidiol (“CBD”) related products and services in light of the 2018 Farm Bill. The USPTO previously flatly refused registration for all trademark and service mark applications related to cannabis or CBD on the ground that these applications had no lawful basis and violated the Controlled Substances Act (“CSA”). Due to this change in policy at the USPTO, there is a new opportunity to potentially obtain registrations for certain hemp and CBD related goods and services.

Applications Filed On or After December 20, 2018
For applications that were filed on or after December 20, 2018 that cover goods encompassing CBD, the CSA is no longer a ground of refusal for registration only if (1) the goods are derived from “hemp” and (2) the identification of goods specifies that the goods contain less than 0.3% delta-9 tetrahydrocannabinol (“THC”) by dry weight. Eligible applications filed on or after December 20, 2018 should be amended to specify that the goods contain less than 0.3% THC by dry weight.

The USPTO will continue to issue lawful use refusals in connection with goods covered by the Federal Food, Drug, and Cosmetic Act (“FDCA”). Notably, the use of CBD or hemp-derived products in connection with foods (including beverages and pet treats) or dietary supplements without the approval of the Food and Drug Administration (“FDA”) violates the FDCA and such applications will still be refused.

With respect to services, the USPTO will continue to refuse registration for applications that cover any of the activities prohibited by the CSA, including but not limited to, manufacturing, distributing, dispensing or possessing cannabis that meets the definition of marijuana (cannabis derived from cannabis sativa l. with more than 0.3% THC by dry weight). For services relating to the cultivation of hemp, the USPTO will require the submission of additional information concerning the applicant’s authorization to produce hemp and authorization or licensure by state or local authorities in compliance with a United States Department of Agriculture approved plan.

Applications Filed Before December 20, 2018

The USPTO will continue to issue refusals for unlawful use or lack of bona fide intent to use in lawful commerce under the CSA for applications filed before December 20, 2018. Applicants will have the opportunity to amend the filing date and filing basis of these applications to overcome the CSA-based refusal. Alternatively, applicants can abandon a pending application filed before December 20, 2018, and file a new one, provided it satisfies the USPTO’s new CBD and hemp guidelines.

If you have questions concerning your new or pending applications and what next steps should be taken in light of this new USPTO guidance, please contact your CSG attorney or one of the authors.

On March 28, 2019, the Secure and Fair Enforcement (SAFE) Banking Act cleared a House Financial Services Committee vote 45 to 15, and is now expected to proceed to a full House vote before the end of April 2019. The Act provides federal protection for financial institutions that serve state-sanctioned cannabis and cannabis-ancillary businesses, and allows these businesses to use banking services and products – a significant upgrade to the sector’s current means of cash management.

To date, a majority of banks and credit unions have been unwilling to serve legitimate cannabis operators due to stringent regulatory requirements – such as having to file suspicious activity reports for every transaction involving a marijuana business – that create additional administrative costs ultimately absorbed by the operator and introduce significant risks of running afoul of anti-money laundering laws. As such, banks and credit unions have been unable to provide banking services to an industry with an estimated market value opportunity of about $40-50 billion. The resulting lack of basic banking services – for instance, access to capital and availability of checking and savings accounts – available to compliant cannabis business operators impairs the growth of the industry.

The introduction of the SAFE Banking Act aims to remove this aura of uncertainty and consequently paves the way for new business opportunities in the cannabis sector by:

  • Preventing federal banking regulators from punishing financial institutions that serve compliant cannabis-related businesses.
  • Requiring the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for financial institutions that serve lawful cannabis businesses.

Notably, the Act would also require federal banking regulators to issue an annual report to Congress that contains data on the availability of financial services to minority- and women-owned cannabis businesses, as well as recommendations on how to expand those services.

The Act’s companion bill, SB 1152, has been reintroduced in the Senate and is currently pending a committee hearing.

Perhaps, one day soon, the days of transporting cash in armored trucks will be a distant memory to the cannabis sector.

Legalization of recreational marijuana has proven more difficult for the new administration than expected.  A proposed bill, Senate Bill 2703 – and its companion, Assembly Bill 4497 – which would legalize the possession and personal use of small amounts of marijuana for people at least 21 years old was enthusiastically supported by Governor Phil Murphy and endorsed by leaders of the Democratic-controlled state legislature. The legislation would have made New Jersey only the second state, other than Vermont, to legalize adult-use marijuana entirely through the legislative process.

The proposed legislation called for several types of cannabis establishments, including retailers, wholesale distributors, growers and cultivators, processors, and manufacturers.  The bill also provided for an excise tax of $42 per ounce, and left municipalities the option to levy their own tax rates on marijuana. Adult-use marijuana would have been governed by a five-member Cannabis Regulatory Commission.  Three members would have been appointed by the governor, with the governor’s initial appointments to serve terms of at least four years and not be subject to Senate confirmation.  Two other members would have been appointed by the governor, upon the recommendations of the Speaker and Senate President.  The Commission would have promulgated all regulations governing the state’s industry and would have overseen the applications for licensing of adult-use marijuana businesses, among other things. The proposed bill also set forth an expungement process for convictions of low-level distribution and possession.  Additionally, there were a number of provisions that aimed to ensure broad-based participation in the industry for minority and women-owned business enterprises, low- and middle-income individuals and disadvantaged communities across the state.

Nevertheless, on March 25, 2019, a vote on the proposed bill was cancelled when it became clear that, although it had enough votes to pass in the Assembly, the measure would not have enough votes to pass in the state Senate. Murphy and legislative leaders were reportedly a few votes short in the Senate.  In response, Governor Murphy announced that he is giving the state legislature until “the edge” of May to pass a pair of linked bills—one that would legalize recreational marijuana in New Jersey, and another that would expand the state’s medical marijuana program (the Jake Honig Compassionate Use Medical Marijuana Act). Otherwise, he stated that he will again expand the medicinal marijuana on his own by executive action—a move that could quadruple the size of the state’s current medical marijuana program to serve as many as 200,000 patients.

Governor Murphy has agreed to hold off until May, in part because some lawmakers have expressed concern that they would lose leverage in garnering the required votes to legalize marijuana if medical marijuana would be expanded regardless. Senate President Stephen Sweeney said that if the bill failed to gain support now, the legislation could be reintroduced after the November state legislature elections or in the form of a public referendum.  Murphy, however, remains optimistic that both bills will pass legislatively.

Before the May deadline, the legislation could undergo wholesale changes to gain approval of senators who are on the fence.  In the meantime, the continued expansion of New Jersey’s medicinal marijuana program is quickly approaching, whether through legislation or administrative action.

As we move further along into 2019, the stage is set for what I expect to be a critical year in the trajectory of New Jersey’s cannabis sector. While specifics remain to be seen, there is little doubt that it will continue to flourish – whether through the passage of recreational legislation, a further expansion of ATCs by the Department of Health (“DOH”) or some combination of the two.

In the spirit of New Year’s predictions, I offered my own in a guest column that appeared in last week’s issue of NJ Cannabis Insider. Among them, I predict that:

  • Recreational legislation will pass in 2019, and within the first few months of the year.
  • A new commission will be assembled to regulate recreational licensees; while oversight of the state’s medical program will remain with the DOH.
  • The DOH will soon announce another Request for Applications (“RFA”) for vertically-integrated licenses, and geography will play a critical role for successful applicants.

I encourage you to read the full article for a closer look at the factors I considered in reaching these predictions.

The next few months will see a flurry of activity in New Jersey’s marijuana industry, whether that is medical, recreational, or both.

Please stay tuned for more updates from CSG’s Cannabis Law Group.

The cannabis industry recently survived two lawsuits initiated by private citizens under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The cases took place in the District of Colorado and the District of Massachusetts, and both saw neighbors of legal cannabis businesses attempt to use RICO as a means of disrupting the cannabis industry.

The Colorado lawsuit was brought by plaintiffs Hope and Michael Reilly against cannabis grower Parker Walton. An anti-drug organization called Safe Streets Alliance was also a plaintiff in the case, but was dismissed during the course of the litigation. Plaintiffs claimed that Walton’s grow operation, which abuts their land in Rye, Colorado, diminished the value of their property due to the pungent odor of cannabis emanating from it, along with the loud noise it produced. The jury disagreed, finding that Walton and his business did not cause any of the alleged damages to plaintiffs.

In the Massachusetts lawsuit, plaintiffs also used RICO to claim that a legal marijuana business, Healthy Pharms, damaged the property value of four buildings they owned nearby. Similar to plaintiffs in Colorado, plaintiffs here alleged that the retail sale of marijuana is an odorous and stigmatized activity that reduces property values. And these plaintiffs did not limit their suit to Healthy Pharms, rather, they also sued its officials, real estate company, advisers, insurer, and bank as well. In addition, plaintiffs sued the Massachusetts Department of Public Health, the City of Cambridge, and the Town of Georgetown. However, the Massachusetts plaintiffs have apparently fared no better than their Colorado counterparts. On August 21, 2018, U.S. District Judge Allison D. Burroughs dismissed the claims against the government defendants. Then, on November 9, 2018, a stipulation of voluntary dismissal with prejudice was filed, dismissing all claims in the matter.

While the cannabis businesses targeted by these lawsuits emerged unscathed, these cases nonetheless highlight the obstacles the cannabis industry continues to face, despite the growing acceptance of cannabis across the country, and its notable successes.

Inspired by the NJ Cannabis Insider Q&A with Satya Capital’s Nishant Reddy, I sat with Jason Erkes, Chief Communications Officer with Cresco Labs, for a closer look at the company’s New Jersey plans.

One of the fastest-growing companies in the cannabis space, Cresco was supported by CSG’s Cannabis Law Group on its application to operate a medical marijuana dispensary in Atlantic City as part of the New Jersey Department of Health’s July 2018 RFA.

The full interview follows.

Image result for jason erkes

Jason Erkes, Cresco Labs

Lee Vartan: Tell us about Cresco.

Jason Erkes: Cresco Labs is one of the fastest growing cannabis companies in the country.  We have operations in six states— Illinois, Ohio, Pennsylvania, Nevada, California, and Arizona—and are involved in nearly every aspect of the seed-to-sale process, from cultivation to processing to retailing.  We focus on entering markets with outsized demand potential, significant supply constraints, and high barriers to entry.

Our unparalleled speed-to-market—seven months from license to sale—gives us a distinct competitive advantage as we replicate our model and expand our national footprint.  Cresco’s proven ability to execute is complemented by a well-defined brand strategy that is tailored to all major consumer segments: medicinally focused, everyday cannabis, connoisseur grade, and chef inspired edibles by James Beard Award-winning pastry chef Mindy Segal.

LV: What brings you to New Jersey? Atlantic City, specifically? How did you go about securing the community’s support?

JE: We have been looking to enter the New Jersey market for some time.  With demand greatly outstripping supply and a complex regulatory environment, New Jersey is the precise type of market where Cresco Labs excels.  But we knew that the competition to enter New Jersey would be fierce, so we developed a two-pronged strategy and developed it early: (1) partner with the right local team; and (2) work with that team to tell the Cresco story to build real and deep local support.

We found the ideal local partners in Mike Brestle and Ellie Siegel and they, along with our legal team at Chiesa Shahinian & Giantomasi, helped us share our vision and build local support in Atlantic City.  Our application included letters of support from the State Senator representing Atlantic City, the County Executive, the Mayor, City Council President, community advocacy groups, and the National Action Network.  Those letters were hard won.  We spent weeks meeting with community leaders and introducing them to Cresco and our plans for Atlantic City.  Uniformly they were impressed with our market expertise and our concrete plans to re-invest in the community.

LV: Applicants have touted a range of community reinvestment and social equity programs as part of their local involvement: What are Cresco’s plans?

JE: We said “concrete” plans in response to the last question for a reason.  In every market Cresco operates in, we endeavor to become real partners with the local communities right from the start.  We took the same approach in Atlantic City.  Before any letters of support were received, Cresco organized community forums to discuss our plans for an Alternative Treatment Center in Atlantic City, and we didn’t just talk, we listened.

In response to the forums, we decided to change the proposed site of our ATC from one location in Atlantic City that the community opposed to one that the community supported.  We also built a Social Justice Steering Committee into our application that includes designated local leaders to determine how and where the dollars reinvested by Cresco in Atlantic City will be spent.

LV: One of the catalysts for the expansion of ATCs in New Jersey is the imbalance of patients and supply. How is Cresco positioned to help resolve this issue?

JE: More than anything else, we believe the State Department of Health is looking to dramatically—and quickly—increase the supply of quality medical cannabis to New Jersey’s patients in need.  That is what Cresco is known for in the industry—being able to go from license to market faster than any of our peers.  We are poised to do the same in New Jersey.  If we are awarded a license, we are prepared to begin building our ATC the next day.  There won’t be a need to discuss our plans with local or community leaders.  We have already done so, and won their support.

LV: I am sure there have been major lessons learned along the path toward becoming a bonafide national player in the cannabis industry. What single piece of advice would you give to aspiring operators?

JE: It has been said that all politics is local, well, the same is true in the cannabis industry.  Cresco has never been a cookie-cutter operation.  What worked in Illinois may not work in Pennsylvania or Nevada.  The secret to our success has been spending the time to learn the needs of the local community we are entering and then build a business that recognizes and embraces those needs.  Our goal is always the same: to seamlessly blend into the community, while bringing quality, reliable, and consistent products to provide relief to local patients.

LV: If not selected in this round, what are Cresco’s future plans in New Jersey?

JE: While we know there is no guarantee, we believe that we put forward an incredibly strong application that blends industry expertise with strong New Jersey partners and deep support from the Atlantic City community.  In short, we expect to receive a license from the State.  But if we don’t, we have every intention of re-applying in a future round.  We are committed to being a part of Atlantic City’s resurgence.