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NJ Cannabis Insider: Predictions for New Jersey's Cannabis Industry in 2019

January 24, 2019

Following the award of six new, provisional Alternative Treatment Center (“ATC”) licenses by the Department of Health in December, and the coming and going of the New Year without passage of recreational legislation, there continues to be much uncertainty in New Jersey’s nascent marijuana industry. When will recreational legislation pass? What form will it take? And will the Department of Health open a new round of ATC licenses in the New Year or wait for the (presumed) passage of recreational legislation?

The short answer to these questions is that no one knows. But in the tradition of New Year’s prognostications, I offer some attempted answers in this article. Whether the specific answers are right or wrong, there is little question that New Jersey’s marijuana industry will grow in 2019, whether due to passage of recreational legislation, a further expansion of ATCs by the Department of Health, or some combination of the two.

As has been widely reported, recreational legislation is inching toward passage. Significant questions nonetheless remain to be resolved. Among other things, the Governor and Legislature have not yet agreed on: (1) the regulatory body for the industry—will it be a to-be-created commission or an existing state department or departments; (2) the number of marijuana licenses to be awarded and criteria for award—will specifics be included in the legislation or left to the regulatory body; and (3) the tax rate—the Governor wanting a higher rate, the Legislature a lower rate.

Let me start with a noncontroversial prediction: recreational legislation will pass in 2019, and in the first few months of the year. The form is harder. My best guess is that a commission will be used to regulate recreational licensees and, although this is not how the current proposed legislation reads, regulation of the medical licensees will remain with the Department of Health. This seems likely for several reasons. First, for approaching a decade, the Department has built both a regulatory infrastructure and expertise regulating ATCs, and has done so successfully. Second, while there may not be a difference in the cultivation and manufacture of medical and recreational marijuana, there is a difference in perception. Medical marijuana is generally accepted and support is fairly widespread; support for recreational is somewhat split. Asserting moral equivalence of the two by placing them under a single regulatory body will be met with pushback from legislators, local leaders, and even some advocates. Finally, creating and staffing a new commission and giving it responsibility for developing New Jersey’s recreational marijuana industry will be challenge enough without also giving that commission oversight of the medical industry.

With medical marijuana likely to be carved out from the recreational legislation—and, perhaps, to ensure that it is—I predict that the Department of Health will soon open another round of ATC licenses. The Department had previously said any new licenses would be for cultivation and manufacture only, but I think it is more likely that the Department announces another vertically-integrated round. With just six operational ATCs and six more to-be-operational in the next year, New Jersey could use both additional supply and retailers. More importantly, with the delay in the recreational legislation, the best hope of making good on the Governor’s campaign promises (and to stay ahead of New York) is to increase the number of vertically-integrated licenses. After all, ATCs could be permitted to expand into recreational sales with the addition of just a few words into any legislation—essentially allowing New Jersey to have a recreational supply as soon as any recreational legislation is passed.

The next few months will see a flurry of activity in New Jersey’s marijuana industry, whether that is medical, recreational, or both. For individuals and businesses looking to become licensed, now is the time to prepare. New Jersey’s map is fairly well-defined. There is no licensed ATC in either of New Jersey’s two largest cities. While a provisional license was awarded to Paterson, there is no licensee in New Jersey’s most populous county. And while Department of Health numbers show thousands of medical marijuana patients in Monmouth and Ocean Counties, neither has an ATC. Whatever happens in 2019, geography may be destiny.

Lee Vartan is a member with Chiesa Shahinian & Giantomasi and co-chair of the firm’s Cannabis Practice. Mr. Vartan is a former First Assistant Attorney General in New Jersey where he helped to author the medical marijuana regulations and vet applicants for licensure.

This article was originally published in NJ Cannabis Insider's January 24, 2019 issue, which can be found here.