New Jersey’s Cannabis Industry Is Growing: Where Does It Grow from Here?

On September 14, 2016, New Jersey Governor Chris Christie signed into law Assembly Bill No. 457, expanding the New Jersey Compassionate Use Medical Marijuana Act (NJCUMMA) by adding post-traumatic stress disorder to the discrete list of statutorily defined illnesses qualifying for treatment with medicinal marijuana.

In addition, as of July 5, 2016, the New Jersey Department of Health (DOH) began accepting petitions requesting approval of additional medical conditions qualifying for medicinal marijuana treatment. To date, at least 45 separate petitions have been submitted to the DOH for consideration for a variety of conditions, including chronic pain, lupus, fibromyalgia, chronic migraines, neuropathic pain and arthritis, among many others.

Assuming that New Jersey follows the lead of other states and eventually expands the qualifying illness categories, this could dramatically increase the number of qualified applicants for medicinal marijuana registration, on top of the already likely substantial increase due to the approval of PTSD. This is a necessary step forward in the state because New Jersey’s medicinal marijuana program services a far lower proportion of the population than many other states which have already approved medicinal marijuana.

With over 9,000 patients within the state already registered to obtain medical marijuana, and more and more registering every year, it is abundantly clear that the current five (soon to be six) Alternative Treatment Centers (ATCs) will be insufficient to meet the growing demand. Although statistics for 2016 are not currently available, in 2015 alone the five currently active ATCs—two of which did not commence operations until near the end of 2015—serviced 6,675 customers, processed 34,449 transaction and produced over 1,229 pounds of medicinal marijuana.

With approximately 3,000 more medical marijuana patient ID cards issued through September 2016, it is clear that demand for medicinal marijuana could soon outstrip the current ATC’s output.

The concern over insufficient ATCs is exacerbated by the high cost of medicinal marijuana in New Jersey compared to many other states. Fortunately, the cost of medicinal marijuana recently has decreased as a result of new competition from two new ATC facilities. Reasonably, the decision to issue additional licenses to promote competition will further reduce the cost of medical marijuana, benefitting those low-income individuals in need of appropriate medical treatment (to date, nearly half of all medical marijuana program participants qualify for low-income registration).

Rigorous Application Process

The DOH was authorized to accept applications for a minimum of six ATCs, with two each to operate in north, central and south New Jersey. Notably, the first six permits for ATCs were awarded to non-profit entities, with permits following the first six to be issued to non-profit or for-profit entities.

Soon after passage, the DOH quickly determined that only six ATCs, the statutory minimum, would initially be authorized pending an examination into the operations of the initial six ATCs. The NJCUMMA permits ATCs to operate as both cultivation facilities and dispensaries under one permit. Moreover, upon the presentation of further proofs and completed applications, ATCs may also house manufacturing facilities for products such as syrups and lozenges.

However, with all this in mind, it does not appear that any new ATC facilities will be approved imminently, at least until all six initial ATCs are up and running.

Applications for permitting are a two-step process. First, those seeking an ATC permit must submit an application seeking authority to apply for a permit to operate. Upon the granting of the application, the prospective ATC must then complete the application for actual permitting. Notably, applications for authority to apply for a permit only may be submitted following solicitation from the DOH for such applications.

Although the DOH is not currently soliciting applications for authority to apply for a permits, those seeking to open ATCs under the inevitable next wave of applications would do well to position themselves now to have a compelling permitting application in order to increase their chances under what is sure to be a competitive and selective application process.

To date, the Department of Health has identified the following criteria which would be evaluated in any initial application:

• Mandatory organization information, which should include all corporate formation documents, articles of incorporation, charter, bylaws, certificates of good standing and any and all other governing documentation, such as operating agreements;
• Documented involvement of a New Jersey acute general hospital in the ATC’s organization;
• Demonstrated ability to meet the “overall health needs” of qualifying patients;
• Demonstrated ability to protect the safety of the public;
• Community support and participation; and
• Ability to provide appropriate research data.

Considering the criteria which will be examined by the DOH, it is critical that prospective applicants enter the process with (i) a well-established corporate structure populated by individuals capable of passing a criminal background check with fingerprinting, (ii) the appropriate medical partnerships, (iii) a detailed business plan which adequately addresses all phases of production from cultivation to dispensing, with an emphasis on establishing appropriate security procedures meeting DOH guidelines and (iv) representations that the municipality where the operations are located will be amendable to housing an ATC facility.

It is also critical for all prospective applicants to ensure they possess the necessary capital reserves, keeping in mind that the fee for ATC permit authority applications alone is $20,000 ($18,000 of which is only payable if the application is granted), with the expectation that an appropriate build out in advance of commencing operations will be a capital intensive endeavor.

Once an ATC’s initial application for authority to apply for a permit is approved, the applicant will then need to undergo the rigorous permitting process, which investigates the financial and personal backgrounds of principals associated with the ATC. Although the DOH is tasked with regulating the medical marijuana industry, the DOH has partnered with the Department of Law and Public Safety (DLPS) to conduct the necessary criminal and financial background checks—including providing “legal expertise” regarding the principals’ backgrounds and the proposed ATC business structures.

In order to navigate the current permitting procedures in place in New Jersey, applicants for ATCs must provide a bevy of information to the DOH, including:

• All corporate formation documents;
• Criminal background check for all “applicants” which include any owner, director, officer or employee of the ATC;
• Fingerprinting for all applicants;
• The name, addresses and dates of birth for all employees, principal officers, directors, owners and board members of the ATC;
• A list of all persons or business entities who either (1) have direct or indirect authority over the management or policies of the ATC or (2) have five percent or greater ownership interest in the ATC, whether direct or indirect, and whether that interest is in the profits, land or building of the ATC and the identity of any principals of a business entity with such an interest;
• A list of all creditors with a security or ownership interest in the premises;
• The by-laws of the ATC and a list of the members of the ATC’s medical advisory board;
• Evidence of compliance with inspection and auditing for the ATC;
• The physical address of the proposed ATC;
• Written verification of approval from the appropriate governing body of the municipality where the ATC will be located; and
• Evidence of compliance with all municipal zoning laws and associated regulations.

If a successful applicant is able to meet the above criteria to the satisfaction of the DOH, then they will receive the final permit allowing for operations to commence within the state.

All ATCs are required to keep and maintain an “operations manual” detailing with specificity the procedures for all facets of the business including cultivation, dispensing, record keeping and employee policies and safety procedures, in addition to other applicable requirements of the DOH. Moreover, the successful applicant will then need to conform their ready to operate business to achieve compliance with a slew of regulations detailing the specific ways in which medical marijuana can be cultivated and dispensed by the ATC.

Additionally, once an ATC is in operation, it is subject to extremely strict monitoring procedures by the DOH, which include, but are not limited to:

• Maintaining written documentation of each delivery of marijuana to registered patients, including the date and the amount dispensed;
• Ensuring adequate 24 hour security for the facility;
• Providing security for all delivery methods to qualifying patients;
• Meeting all reporting requirements for the DOH, including furnishing the statistical information concerning: (i)  number of registered qualified patients and registered primary caregivers, (ii) the qualifying condition for each patient, (iii) patient demographic data, (iv) program costs (v) and a summary of patient surveys and evaluation of services;
• Maintaining detailed administrative records covering a variety of facets of the operation;
• Reporting certain enumerated events to the DOH immediately upon their occurrence;
• Conducting adequate employee training; and
• Maintaining specific employee records.

The DOH monitoring procedures are an ongoing and collaborative process permitting the DOH to conduct on-site inspections of ATCs, monitor the ATC locations remotely in real-time via video link and remotely access the ATC inventory management systems. All in all, these provisions mean that New Jersey’s medical marijuana system is an exceptionally highly regulated industry requiring careful and sustained compliance procedures to ensure qualification and continued operations under New Jersey law.

As is apparent, any applicant seeking to enter the cannabis space in New Jersey should be well-prepared to demonstrate to the Department of Health that, not only can they meet all of the permitting criteria, but that their eventual functioning ATC has a plan in place for strict compliance with the exacting operational standards for ATCs.  Of course, competent legal counsel will be necessary in order to ensure compliance with all applicable laws and regulations.

Joshua S. Bauchner, Esq. and Anthony J. D’Artiglio, Esq. are attorneys with the law firm of Ansell Grimm & Aaron, PC and members of the Cannabis Law Practice Group.  @THCCounselors

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by Joshua S. Bauchner, Esq. & Anthony J. D'Artiglio, Esq. at High Times