Cannabis Insights

On the heels of the victory of the recreational marijuana referendum at the polls, the New Jersey Senate and Assembly moved swiftly to introduce proposed legislation regulating the use, licensing and taxation of marijuana.    As of this writing the Legislature was close to sealing a deal and a vote could come as early as December 18, 2020.   Despite the fact that marijuana use in the workplace has significant consequences for employers, especially those with high populations of safety sensitive workers, the most recent version of the bill is long on employee protections and short on protections for employers.

Preserved Employer Rights.  Similar to the earlier Jake Honig Compassionate Use Medical Cannabis Act affording workplace protections to medical marijuana users, the proposed legislation provides that nothing in the Act shall be deemed to:

  1. Restrict or preempt an employer’s right or obligation (as required for federal contractors) to maintain a drug- and alcohol-free workplace;

On December 17, 2020, the New Jersey legislature passed the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (the “Act”), providing the framework for legal adult recreational cannabis use in New Jersey.  The Act lays out the ground rules for licensing arrangements for the cultivation, packaging, distribution, advertising, and retail sale of recreational cannabis to persons 21 years old or older.  Governor Murphy signed the legislation into law on February 22, 2021.

It is important to note that the passage of the Act does not immediately make “street pot” legal—instead, it provides the roadmap for businesses to become licensed so that they may take part in the future legal adult recreational cannabis market in New Jersey.  Cannabis, however, will no longer be a Schedule 1 controlled dangerous drug under New Jersey law (although it remains so at the Federal level).

Although the Act is over 200 pages long, it still requires that the New Jersey Cannabis Regulatory Commission (“CRC”) develop regulations to flesh out the details of how these arrangements will all be put into practice.  For example, there are currently no application forms to apply for any license to operate in the cannabis market in New Jersey.  These forms, their instructions, and a host of other details all need to be developed before any business can apply for one of the required licenses.  The CRC has been given 180 days to develop these enabling regulations and forms.  That said, individuals and businesses interested in entering into this market will want to keep apprised of the details of these ongoing regulatory developments so that they can position themselves to have already put arrangements in place which will allow them to immediately move forward with the application process as soon as it becomes available.

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With more than 750,000 acres in farmland, hemp has long been viewed as a viable crop for the Garden State as it would allow farmers to diversify their products and earn additional profits.

In the wake of the 2014 Farm Bill, New Jersey passed its Industrial Hemp Pilot Program, whereby certain individuals partnered with educational institutions to cultivate, process, research, test, and market safe and effective industrial hemp. The passage of the 2018 Farm Bill removed hemp from the Controlled Substances Act and it is now regulated as an agricultural commodity by the United States Department of Agriculture (USDOA).

Upon the passage of this bill, lawmakers sought to repeal the New Jersey Industrial Pilot Program and replace it with the New Jersey Hemp Farming Act, which would establish a program for cultivation, processing, transport, and sale of hemp to be administered by the New Jersey Department of Agriculture (NJDOA).

A5322, known as the “New Jersey Hemp Farming Act” finally became law on Friday August 9, 2019. The New Jersey Hemp Farming Act (“NJHFA”) establishes a program for the cultivation, handling, processing, transport, and sale of hemp and hemp products in the State in accordance with federal law. The bill also repeals New Jersey’s hemp pilot program, and replaces it with a permanent program, administered by the New Jersey Department of Agriculture that complies with federal law.

Just like the 2018 Farm Bill, NJHFA defines “hemp” the plant Cannabis sativa L., any part of the plant, and all derivatives thereof with a delta-9 tetrahydrocannabinol (“THC”) concentration of not more than 0.3 percent, consistent with federal law. In other words, if the hemp has more than .3 percent THC, it will no longer be legal on a state or federal level.

Because hemp is a viable agricultural crop and the state wants to promote the cultivation and processing of hemp, the New Jersey now allows famers and businesses to cultivate (plant, grow, or harvest), handle (possessing or storing – exclusive of finished hemp products), process (convert hemp into a marketable form) and sell hemp products for commercial purposes. Farmers and businesses looking to cultivate, handle, process and sell hemp products for commercial purposes must submit an application to the New Jersey Department of Agriculture (“NJDOA”). The application must contain GPS coordinates of the hemp farm, written consent from the cultivator allowing law enforcement and other officials to enter the property at will, a criminal background check of the applicant, and a non-refundable application fee. Other information may be required by the NJDOA as they implement this application process.

Industrial hemp has a long and rich history throughout the world. This is largely because hemp is dynamic and can evolve into products such as clothing, animal feed, building materials, bio plastics, biofuels, paper, fiber and food. Hemp seeds, or grains, are smooth and about one-eighth to one-fourth of an inch long. Hemp seeds can also be used to make a variety of products for industrial and cosmetic use. Of particular interest in New Jersey are the agricultural benefits associated with the hemp plant. Hemp has been known to kill weeds, thereby negating the need for herbicides on crops. Hemp also can absorb metals in the soil thereby acting as a natural filter, mitigating sediment runoff, through which eroded soils carry nutrient pollution into water resources.

Given its multipurpose capabilities, it is no surprise that Congress passed the Agriculture Improvement Act of 2018 (“2018 Farm Bill” or “Farm Bill”). Section 297A of the Farm Bill defines hemp as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” The Farm Bill effectively decriminalizes hemp by removing it from the Controlled Substances Act. The Farm Bill also expands the commercial cultivation of hemp beyond the limited state-approved pilot programs, legalizes hemp production in US territories and on Indian tribal land and authorizes the coverage of hemp as a commodity under crop insurance.

Because hemp is no longer viewed as a controlled substance, the Drug Enforcement Agency has been removed from oversight and replaced with United States Department of Agriculture (“USDA”). As such, the USDA exercises primary regulatory authority over hemp production. According to the New Jersey Department of Agriculture (“NJDOA”), the USDA intends to issue regulations in the fall of 2019 for states that wish to submit hemp production plans. These regulations will address requirements for testing the THC levels of hemp and address disposal of hemp plants and products produced that contain more than .3% THC.

Spring 2019 has been a busy season for New Jersey’s Cannabis Industry. On May 23, 2019 the New Jersey Assembly approved proposed revisions to the Jake Honig Compassionate Use Medical Marijuana Act that would effectively expand the state’s existing Medicinal Marijuana Program. The following week the Senate passed the bill 33-4.

May 31, 2019 saw the Food and Drug Administration (“FDA”) hold its first public hearing to assess the safety of CBD products. In opening remarks, Acting Commissioner of the FDA, Ned Sharpless, acknowledged that hemp derived CBD in food products is unchartered territory for the Agency. As such, in order to carefully evaluate potential pathways for CBD products, the FDA has formed an internal working group to address concerns such as how much CBD is safe for daily consumption, CBD’s combined effect if used both topically and orally and potential dangers to children should they consume a CBD edible.

On June 3, 2019, the New Jersey Department of Health announced that it is seeking new applicants to operate up to 108 additional Alternative Treatment Centers (“ATC”): Up to 38 in the northern region of the state, up to 38 in the central region, and up to 32 in the southern region. Three types of endorsements will be available for ATCs: cultivation, manufacturing and dispensary. In total, the Department will seek up to 24 cultivation endorsements, up to 30 manufacturing endorsements, and up to 54 dispensary endorsements. Permit application forms for ATCs will be available on July 1. Applications are due August 15.

Despite the rapid growth of the cannabis industry, banks have been reluctant to provide financial services to cannabis-related businesses. Banks and other financial institutions fear that providing financial services to those in the cannabis industry could violate federal criminal laws and financial regulations such as “The Bank Secrecy Act” (“BSA”) and the “Money Laundering Control Act” codified under both sections 1956 and 1957 of title 18, of the United States Code.

In an attempt to create protections for banks that wish to provide financial services to cannabis-related legitimate businesses and service providers, the House Financial Services Committee voted on March 28, 2019 in favor of H.R. 1595, commonly known as the “Secure and Fair Enforcement Banking Act of 2019” or “SAFE Banking Act”. The revised version of the bill will now advance to the full House of Representatives for a vote.

The SAFE Banking Act would provide a “safe harbor” for banks that provide financial services to legitimate cannabis-related businesses, specifically: (1) prohibiting federal banking regulators from terminating or limiting deposit insurance of the bank; (2) prohibiting or discouraging banks from providing financial services to such a business; (3) recommending, incentivizing, or encouraging a bank to not offer financial services to such a business; or (4) taking adverse or corrective supervisory action on a loan made to a person solely because the person owns such a business or owns real estate or equipment leased or sold to such a business.

UPDATE: “The much-anticipated vote, tentatively scheduled for Monday afternoon in both the General Assembly and the state Senate, was called off when it became clear there were not enough votes in the Senate to pass it.”  Read full coverage at ROI-NJ.com

Governor Phil Murphy, Senate President Steve Sweeney, Assembly Speaker Craig Coughlin, Senator Scutari, and Assemblywoman Quijano announced last week that they have reached an agreement concerning the legislation to legalize adult-use marijuana in New Jersey.

While the proposed legislation will likely be released in the coming days, this is what we know so far based on pending Senate Bill S2703.

Marijuana comes from plants that have hundreds of chemicals known as cannabinoids. The two most notable cannabinoids are the psychoactive Tetrahydrocannabinol (“THC”) and the non-psychoactive Cannabidiol (“CBD”). Hemp, while also derived from the cannabis family, has virtually no THC present thereby causing no psychoactive effect.

The Controlled Substances Act (“CSA”) is the statute under federal law regulating drug policies in the United States. It regulates everything from the manufacturing, possession, use and distribution of certain substances. Under the CSA, Marijuana is considered a Schedule I controlled substance while CBD is considered a Schedule V controlled substance, the least restrictive under the Act. Hemp is no longer treated as a controlled substance pursuant to the Agricultural Improvement Act of 2018 (“Farm Bill”).

Given the extremely small level of THC present in CBD, many people have been asking: is CBD legal in New Jersey? While this is arguably unchartered territory for New Jersey, both the New Jersey State Assembly Bill 1330 and Farm Bill offer some guidance.

On November 26, 2018 a Joint Committee of New Jersey lawmakers advanced a bill that would legalize recreational marijuana use in the state. Although the bill had widespread support, including from Gov. Murphy, disagreements among Senate Democrats over the percentage of state taxes on marijuana stymied the vote on the bill that was expected in mid-December. Predictions that the bill will be re-introduced and voted upon early this year may be overly optimistic given other pressing issues pending in Trenton. If the bill is ultimately passed, New Jersey will join 10 other states that have legalized recreational marijuana.

When reintroduced, it is not expected that there will be any changes to the bill’s provisions addressing marijuana in the workplace. A single paragraph of the prior version of the sweeping legislation specifically addresses recreational use and the workplace, and simply provides that nothing in the bill requires an employer

to require an employer to permit or accommodate the use, consumption, possession, transfer, display, transportation, sale, or growing of marijuana items in the workplace or to affect the ability of employers to have policies prohibiting marijuana use or intoxication by employees during work hours. No employer shall refuse to hire or employ any person or shall discharge from employment or take any adverse action against any employee with respect to compensation, terms, conditions, or other privileges of employment because that person does or does not smoke or use marijuana items, unless the employer has a rational basis for doing so which is reasonably related to the employment, including the responsibilities of the employee or prospective employee.

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