CSG Law Alert: Think Green V: Cannabis Siting and the Ghosts of Historic Uses
Recently, the Cannabis Regulatory Commission (“CRC”) announced that it would begin accepting applications for Class 1 (cultivator), Class 2 (manufacturer), and Test Laboratory licenses under the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act on December 15, 2021. Class 5 (retailer) license applications will be accepted beginning March 15, 2022. Although the details of the applications are not yet fully known, CRC’s Notice of Acceptance (“NOA”) sets forth the broad application requirements and scoring criteria for applications, and one thing is clear: full annual license applicants need to secure their proposed locations in order to submit a compliant proposal. Although many municipalities have opted into the cannabis program, they have also enacted restrictive zoning ordinances pertaining to adult-use siting. This means market entrants will want to be particularly careful about how they select the future home of their new business.
Many municipalities are restricting cannabis businesses to historically industrial, manufacturing, and commercial districts. The historical use of a property matters when an applicant chooses a proposed location. Under New Jersey’s Spill Compensation and Control Act (“Spill Act”), liability for the cleanup of historic discharges on a site is broadly applied to any person who is “in any way responsible” for the contamination. Therefore, Spill Act liability can reach a current landowner who – though not the actual cause of the discharge – failed to perform sufficient due diligence to detect potential preexisting contamination on the property prior to their purchase of the site. That said, Spill Act carves out a narrow “innocent purchaser” defense, whereby a prospective owner of property containing historical contamination can demonstrate that they performed sufficient pre-acquisition due diligence to detect potential environmental liabilities and, subsequent to that due diligence, still did not know of (and did not have reason to know of) the contamination. Additionally, the Spill Act’s federal counterpart, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), has a similarly broad reach regarding historic contamination. Like the Spill Act, CERCLA also provides a carve-out for careful purchasers, called the “innocent landowner defense.” However, what constitutes sufficient due diligence under CERCLA and the Spill Act are not exactly the same and, accordingly, an abundance of caution and meticulous environmental due diligence is advisable. Certainly, a purchaser must conduct “all appropriate inquiry” into the potential environmental liability associated with the target property and, at a minimum, that means performance of a Preliminary Assessment (for purposes of the Spill Act) and a Phase I Environmental Site Assessment (for purposes of CERCLA).
With the rolling application window rapidly approaching, there is no time to waste for potential applicants. Indeed, even applicants for conditional permits – which do not require immediate submission of proof of site control – will want to get started right away on securing a site for their new venture. But proceed with caution, because unknown environmental liabilities now can lead to massive financial liabilities (and years-long litigations) later.