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.

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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.

I am pleased to share with our subscribers an NJ Cannabis Insider Q&A featuring Nishant Reddy, co-founder of the California-based boutique investment firm Satya Capital. CSG supported Satya as they partnered with MedMen on a joint application to operate a medicinal marijuana dispensary in Newark, NJ as part of the New Jersey Department of Health’s July 2018 Request for Applications.

In the Q&A, Nishant touches on his deep roots in New Jersey, Satya Capital’s origins, the partnership with MedMen, the joint venture’s plans for community reinvestment and more.

The full Q&A follows.

Nishant Reddy, Satya Capital

New Jersey Cannabis Insider: How does Satya Capital fit into the mix?

Nishant Reddy: I founded Satya Capital as a way to diversify my business and to 100 percent be able to participate in the cannabis industry. I left my career in private equity and investment banking to pursue the cannabis industry early, in like 2013-2014. I started as an interim COO advising a large dispensary group here in California. From that time, I got involved with development of a cultivation in Oregon and realized to really scale the opportunity — to execute on the vision I had and to be able to bring outside capital into the industry in a way that protected my investors but also allowed me to create a business vehicle that would be successful — I had to spin off and have a vehicle 100 percent dedicated to the pursuit of opportunities within the cannabis industry.

So that led me to form Satya Capital. Satya is actually a Sanskrit word that translates to truth and honesty. From what I had learned in the years prior, that was something I felt was really missing within the cannabis industry, both from a sense of the operators in the industry as well as what was being communicated to people who wanted to participate in the industry or invest in the industry. I wanted Satya to really bridge that gap and create an environment that allowed investors to enter the market and get the level of professionalism they were used to getting in their other investment vehicles, whether private equity or hedge funds … whatever it may be. That leads us to where we are today.

NJCI: How did this partnership with MedMen come about?

NR: Satya Capital has been doing work with MedMen for quite some time in California, so when we were coming into New Jersey, we felt very comfortable from our prior working experience with MedMen. We knew they were a market leader in terms of the retail space. We knew they shared a lot of the same fundamentals we did in terms of social justice, passion for the industry and what we wanted to create. It was kind of a no-brainer that our two companies combined brought a tremendous amount of expertise all the way from cultivation, manufacturing, distribution (and) all the way down to building and operating a retail storefront. We just believed it was an absolute no-brainer, and that we would be able to create something really special.

NJCI: Why Newark?

NR: For me, I am a born and raised New Jerseyan. I really only left the East Coast when I decided to pursue the cannabis industry 100 percent, which was a little over five years ago. I was born in Bridgewater, I grew up in Warren. My mom was a dean and pediatrician at UMDNJ her entire career. She only recently retired this past August; she had a 40 year career there. For me, Newark has been a huge part of my personal upbringing and my family for a very long time. And so for me it was very personal.

For Satya Capital, we place a tremendous importance on social justice. For our California businesses, we really believe in local hiring, investment in alternative industry, things like that. So when we were coming to New Jersey, we wanted to be somewhere where we could have the biggest impact, and we thought Newark was place, combined with my personal connection I had to the city.

NJCI: Have you been able to get the support of the community? Newark’s been on the fence with the proposed legislation due to the tax rate issues.

NR: I think from the leaders we’ve spoken to, we have been able to get community support. I think the differentiating factor is Satya Capital is a minority-owned, minority-led business. It’s a little bit of a rarity in the cannabis industry. We take a lot of pride in helping the communities we work with, and we take a lot of pride in giving opportunities to inner cities, minorities, people less fortunate. So from the conversations we’ve been able to have in Newark, I think that community leaders — along with the citizens we meet — realize quickly we are 100 percent sincere. We have a deep connection to their city. We understand their problems. We understand their concerns, and we really, really care.

NJCI: If you’re successful with your application, how are you looking to reinvest in the community?

NR: We have an entire social justice program outlined, including a social justice committee where we would have three local leaders as part of that committee, with an elected board member of Satya Capital, as well as an elected board member of MedMen. We would look to do it as a team and look to the leadership of the community leaders of Newark to give us guidance of where we can re-invest in the community — whether that be public-private funding for entrepreneurship, incubator programs, local hiring programs, supporting schools and vocational programs that can create jobs for Newark residents to support the cannabis industry or work directly within the cannabis industry, creating greenspace. We really believe the social justice committee will act as a conduit to give us the guidance as to where to invest.

After a brief hiatus, we welcome you back to CSG’s CannaBiz Law Blog. The August 31st RFA deadline was challenging, but I am pleased to report that an all hands on deck effort on behalf of our clients made for a successful application process.

With the deadline now behind us, and a fresh perspective on the challenges and opportunities future rounds of cannabis licensing in New Jersey may present, I was invited to author another guest column for NJ.com’s weekly NJ Cannabis Insider report (huge thank you to their editor, Justin Zaremba).

This time around, I thought it would be best to outline practical insights and takeaways gleaned leading up to August 31 since it has already been reported that there will be additional rounds of licensing available in the future — and a vote for recreational legalization may come as soon as this month. Both will undoubtedly present opportunities for those looking to service, operate or invest in the cannabis sector.

So, what should these aspiring entrants keep in mind as new opportunities emerge? The three factors detailed in my guest column include:

  • Now is the time to prepare for the next application round.
  • 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.

I encourage you to read the full article here, and stay tuned for further updates from CSG’s Cannabis Law Group.

On August 10, 2018, the District Court for the District of New Jersey granted an employer’s motion to dismiss a lawsuit for disability discrimination, finding that neither the New Jersey Law Against Discrimination (“NJLAD”) nor the New Jersey Compassionate Use Medical Marijuana Act (“CUMMA”) require an employer to waive a drug test. By way of background, the plaintiff, Daniel Cotto (“Cotto”), a forklift operator, hit his head on a forklift and was subsequently asked by his employer, defendant Ardagh Glass Packing, Inc. (“Ardagh”), to take a drug test as a condition of continued employment. Cotto advised that he would not pass the drug test due to medically-prescribed drugs that he was taking, including medical marijuana. As a result of Cotto’s inability to pass the drug test, Ardagh placed him on indefinite suspension. Cotto sued Ardagh for disability discrimination, arguing that the decriminalization of medical marijuana under CUMMA, together with the protections of the NJLAD, compelled Ardagh to provide an accommodation for him, presumably by waiving the drug test.

In dismissing the Complaint, the Court found that CUMMA does not obligate employers to accommodate the medical use of marijuana in any workplace, and Ardagh was, therefore, within its rights to refuse to waive a drug test for federally-prohibited narcotics. Because the indefinite suspension resulted from the treatment (the medical marijuana use), not the disability itself, it was not discriminatory. While undue prejudice toward treatment for a disability can be deemed discrimination against the disability itself, the Court found that such was not the case where marijuana remains illegal under federal law. The Court found its holding to be consistent with most courts across the country that have concluded that, unless provided for by statute, the decriminalization of medical marijuana does not shield employees from adverse employment actions.

This is the first New Jersey decision on medical marijuana use in the workplace, and, although the decision is narrow, it provides guidance on how New Jersey courts may address medical marijuana in the workplace in the absence of express statutory guidance.

On July 16, 2018, the New Jersey Department of Health’s Division of Medicinal Marijuana (the “DOH”) issued a Request for Applications (“RFA”) for up to six additional Alternative Treatment Centers (“ATCs”), commonly referred to as medical marijuana dispensaries.  The DOH will award two licenses in the northern region of the state, two in the central region, and two in the southern region.  This would double the number of ATCs currently operating in New Jersey.

The six additional ATCs will be vertically integrated (similar to the current ATCs in operation), but will be allowed to operate either as non-profit or for-profit entities.  Applicants are allowed to submit an ATC permit application for more than one region, but must submit a separate application for each region and rank the priority of its applications.

The RFA process is open to all applicants with the exception of entities already holding a permit to dispense medical marijuana (including affiliates) in New Jersey and individuals/entities with a 25% stake or more in any of the currently permitted ATCs (or entities responsible for the management of such ATCs).

Those interested in submitting an application must act immediately as the DOH has set an aggressive timeline for the application process.  Instructions for the submission of applications and all necessary forms will be available on the DOH’s website on August 1, 2018 and all completed applications must be submitted no later than August 31, 2018.  Further, every applicant must attend a mandatory, pre-application conference on August 9, 2018.  The purpose of that conference is to provide a structured and formal opportunity for the DOH to respond to questions regarding the RFA process.  Applicants that fail to attend this conference will not be allowed to submit an application.

Applications will be evaluated on a 1000-point scale pursuant to three criteria, each of which has several measures.  Each applicant will also be required to provide detailed information regarding its organizational and ownership structure.

We suggest applicants work closely with their attorneys, accountants and other advisors to complete their applications timely and consistent with New Jersey law.