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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.

On June 7, 2018, Senators Cory Gardner (R-CO) and Elizabeth Warren (D-MA) introduced the Strengthening the Tenth Amendment Through Entrusting States Act (“the STATES Act” or “the Act”) in the Senate. That same day, Representatives Earl Blumenauer (D-OR) and David Joyce (R-OH) introduced a companion bill in the House of Representatives. Notably, the Act enjoys bipartisan sponsorship in both chambers.

The STATES Act would amend the Controlled Substances Act to exempt from its reach any person acting in compliance with state laws relating to the manufacture, production, possession, distribution, and delivery of marijuana. To alleviate financial concerns regarding marijuana sales, the Act states clearly that conforming transactions do not constitute trafficking and do not generate proceeds from an unlawful transaction. Additionally, the Act retains the prohibition against employing persons under the age of eighteen in any marijuana operation, and prohibits the sale of marijuana to persons under the age of twenty-one.

The day after its introduction, Governor Phil Murphy and eleven other governors from both parties signed a letter to congressional leaders calling for the Act’s passage. In the letter, the governors noted that the current “one-size-fits-all federal prohibition is incongruent with reality” and “impedes states’ ability to be effective laboratories of democracy.” The governors went on to say that “[t]he STATES Act is not about whether marijuana should be legal or illegal; it is about respecting the authority of states to act, lead and respond to the evolving needs and attitudes of their citizens.”

While the likelihood of the passage of the STATES Act in Congress, as well as President Trump’s signing it into law, remains uncertain, the Act nonetheless represents a watershed moment in lawmakers’ changing approach to this issue.

I recently authored a guest column for NJ Cannabis Insider titled, “What’s next for medical marijuana in N.J.” The article outlines several compliance-related takeaways for the thousands of individuals and businesses eager to enter what is expected to become a multi-billion industry in New Jersey – medical (and, ultimately, recreational) marijuana.

There are three key considerations that any aspiring entrant to N.J.’s medical marijuana program should keep top of mind when developing a business plan that appropriately balances access with compliance:

  • Be well capitalized, and provide as much transparency around sources of funds as possible.
  • Because applications will be vetted by law enforcement, remember to provide a physical security plan, a cybersecurity plan, training manuals for employees and a written compliance plan demonstrating that the business will self-monitor. Having a retired law enforcement official as a consultant to the business is an additional, worthwhile consideration.
  • Provide regulators with a credible, written plan for product quality assurance since your business will be providing an ingestible product that is not subject to regulation by the Food and Drug Administration.

The coming months promise to be exciting as the state’s medical marijuana program continues to evolve. Please stay tuned for more updates from CSG’s Cannabis Law Group.

You can read the entire guest column here.

With legalization of recreational cannabis on the horizon for New Jersey, several local governments have responded by preemptively passing ordinances banning or discouraging recreational marijuana sales or cultivation in their jurisdictions, while others have opened their doors. Because New Jersey is a home-rule state, municipalities are free to permit or prohibit the sale, cultivation and/or use of recreational cannabis within their borders. To date, twenty-six municipalities and three counties have staked their position on recreational cannabis.

Seventeen townships, including Berkeley in Ocean County, Old Bridge in Middlesex County and Wall Township in Monmouth County, have either approved a measure that imposes a blanket ban on recreational marijuana businesses or issued a resolution strongly opposing legalization of recreational marijuana. Seven other municipalities have discussed banning recreational marijuana, but have not yet done so. Monmouth, Ocean and Cape May counties have each issued resolutions opposing recreational marijuana legalization. Medical cannabis will still be fully legal for registered patients, however.

Only three of New Jersey’s 565 municipalities – Jersey City, Asbury Park and Atlantic City – have publicly indicated their support for legalizing recreational marijuana.

The U.S. Small Business Administration (“SBA”) published a Policy Notice that went into effect April 3, 2018 clarifying that marijuana businesses, and even some companies that do not actually touch the plant but service those in the cannabis industry, cannot receive federally backed loans.  The SBA rules already preclude lending to businesses directly involved in the cannabis industry, but the new SBA rule precludes lending to any business that is indirectly doing business with a marijuana related entity.

The Policy Notice provides the following definitions for “Direct Marijuana Businesses” and “Indirect Marijuana Businesses,” both of which are ineligible for SBA financial assistance:

  • “Direct Marijuana Business” — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.
  • “Indirect Marijuana Business” — a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana. Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. In addition, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.

The Policy Notice also prohibits lending to certain business involved in the hemp industry, unless the business can show that its products are legal under federal and state law.  The Policy Notice provides the following definition:

  • “Hemp-Related Business” — a business that grows, produces, processes, distributes or sells products purportedly made from “hemp” is ineligible unless the business can demonstrate that its business activities and products are legal under federal and state law. Examples of legal hemp products include paper, clothing and rope.

As part of the same Policy Notice, the SBA also clarified that SBA borrowers cannot rent office space to marijuana related businesses, which now includes both Direct and Indirect Marijuana Businesses.  The Policy Notice reiterated that a borrower cannot lease space to a business that is engaged in any activity that is illegal under federal, state or local law.  Further, lenders were “advised that, during the life of the SBA-guaranteed loan, a borrower may not lease space to the ineligible businesses described above because the collateral could be subject to seizure and because payments on the SBA loan would be derived from illegal activity. If a borrower does lease to an ineligible marijuana-related business, SBA District Counsel should be consulted to determine what action should be taken.”

Senator Cory Gardner, Republican of Colorado, has struck a deal with President Donald Trump to protect Colorado’s legal marijuana industry from federal criminal investigation and prosecution. In a statement issued on Friday, April 13, 2018, Sen. Gardner said, “I received a commitment from the President that the Department of Justice’s rescission of the Cole Memo will not impact Colorado’s legal marijuana industry.” This “commitment,” of course, is not limited to Colorado’s marijuana industry, and would apply with equal force to all states that have legalized marijuana for medical or recreational use.

The “Cole memo” refers to a memorandum written by then Deputy Attorney General James M. Cole on August 29, 2013, entitled “Guidance Regarding Marijuana Enforcement” and sent to all United States Attorneys. That document sets forth the Department of Justice’s priorities regarding marijuana enforcement under the Controlled Substances Act.  The memorandum  explains that where a state’s regulation of its legal marijuana industry is robust, “enforcement of state law by state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activities.” The Cole memo effectively eased the federal enforcement of federal marijuana law in states that legalized it.

But that détente was ended by Attorney General Jeff Sessions, who on January 4, 2018, issued a memorandum rescinding previous guidance on marijuana enforcement, including the Cole memo. This action prompted Sen. Gardner to block the confirmation of certain Justice Department nominations. However, with the agreement reached last week, which was confirmed by White House Press Secretary Sarah Sanders, Sen. Gardner stated that he would lift his remaining holds on those nominees.

This agreement offers hope to the legal marijuana industry across the country for a solution to the problem of divergent federal and state laws.  Indeed, in his statement Sen. Gardner noted that “[m]y colleagues and I are continuing to work diligently on a bipartisan legislative solution that can pass Congress and head to the President’s desk.”

According to a recent poll conducted by Stockton University, New Jersey residents are divided on the idea of legalizing marijuana for recreational use. Of the 728 adults who were interviewed, 49% said they would support the legalization of recreational marijuana in New Jersey, while 44% were opposed to the idea. About 5% of the respondents were unsure.

The poll also revealed that young adults and men more generally support legalization as compared to older adults and women. Roughly 64% of the respondents under the age of 50 support legalization, whereas only 41% of the poll participants over the age of 50 support the move. Similarly, 56% of men are in support, as opposed to only 44% of women.

A majority of those in support of legalizing marijuana for recreational use point to enhanced tax revenue as their main reason for supporting legalization, while opponents fear that legalization will lead to an increase in health problems and addiction.

During his campaign for governor, Governor Murphy promised to legalize the recreational use of marijuana for adults over the age of 21, framing it as a social justice issue as well as a means of increasing the state’s tax revenue. Currently, marijuana is only legal for medical purposes in New Jersey.

Complete poll results can be found here.

Governor Phil Murphy today announced a massive expansion of New Jersey’s medical marijuana program, also known as the New Jersey Compassionate Use Medical Marijuana Act, N.J.S.A. 24:6I-1 et seq. Effective immediately, doctors can now prescribe medical marijuana to patients suffering from five additional categories of debilitating conditions, namely anxiety, migraines, Tourette’s syndrome, chronic pain related to musculoskeletal disorders and chronic visceral pain.

Further, in an effort to increase accessibility and affordability, the biennial registration fee for patients will be slashed from $200 to $100 with a special rate of $20 available for veterans, seniors and indigent patients receiving government assistance. Other notable changes to the program include the ability for the state’s five – soon to be six – alternative treatment centers (ATCs) to maintain more than one cultivation site and dispense medical marijuana at satellite locations within the state, the eradication of the one-caregiver-per-patient rule and the elimination of the requirement that doctors prescribing medical marijuana appear on a public registry. Under the new regulatory regime, any New Jersey physician in good standing who has completed an active controlled dangerous substances registration with the State Division of Consumer Affairs can become certified to prescribe medical marijuana to qualifying patients.

The Governor touted these measures as necessary to eliminate barriers to access for patients who suffer from illnesses that can be treated with medical marijuana. This announcement comes as Governor Murphy continues his push to legalize recreational marijuana in New Jersey.

My colleague, Frank Giantomasi, and I published an op-ed in ROI-NJ titled, “Preparing for legalized marijuana in N.J.: A primer.” In the article, we cover everything from the key bills entering the legislative process to law enforcement’s sentiment toward the burgeoning industry and steps that entrepreneurs should take to enhance their chances of successfully operating a cannabis business or ancillary support service.

The months and years ahead promise to be exciting and potentially very lucrative for individuals and businesses interested in entering the marijuana industry. However, they cannot afford to be passive.

Based on my time overseeing the licensing and regulation of alternative treatment centers – which support the medical marijuana program – aspiring entrants should already be considering corporate form, preparing for thorough background checks and developing impregnable compliance plans and well-thought-out business models. Entrants should also be prepared to navigate a potentially hostile local zoning environment, at least in some counties and municipalities.

In short, entrants need to be well-prepared in order capitalize on the opportunities presented by the Governor and his plans to legalize recreational marijuana in New Jersey.

To read the full op-ed, please visit ROI-NJ’s website.

In his inaugural address, New Jersey’s newly-installed governor, Phil Murphy, reaffirmed his campaign promise to legalize marijuana in the state. Governor Murphy’s position is no surprise. The governor’s campaign included marijuana legalization as part of its criminal justice platform, promising to “[l]egalize marijuana so police can focus resources on violent crimes.”

Using the refrain “a stronger and fairer New Jersey,” Governor Murphy continued to situate his call for marijuana legalization within the framework of criminal justice reform. The governor stated, “A stronger and fairer New Jersey embraces comprehensive criminal justice reform – including a process to legalize marijuana.” Given that State Senator Nicholas P. Scutari (D – LD 22) has already introduced his bill to legalize marijuana in the Senate, all indications are that the push to legalize marijuana in New Jersey has begun in earnest. People and businesses interested in this emerging industry and its prospects should consult with an attorney to be certain they are up-to-date on the progress of this historic change in the law.