Personal use and cultivation

Possession and consumption

What rules and restrictions govern the personal possession and consumption of cannabis in your jurisdiction?

Adult use is not permitted in New Jersey. Possession of fewer than 50 grams (g) of marijuana is a disorderly persons offense, carrying maximum penalties of up to six months in prison and $1,000 in fines (N.J.S.A. 2C:35-10(a)(4)). Possession of 50g or more of marijuana is a fourth-degree crime, carrying penalties of up to 18 months in prison and $25,000 in fines (N.J.S.A. 2C:35-10(a)(3)). A drug conviction carries a motor vehicle license suspension of six months to two years (N.J.S.A. 2C:35-16). 

In July 2018, in light of the state’s ongoing consideration of legalization of cannabis for adult use, the New Jersey attorney general imposed a moratorium on prosecutions for marijuana possession. In August 2018 the attorney general directed prosecutors to resume marijuana-related prosecutions but to exercise prosecutorial discretion to achieve just results.

Under New Jersey’s Medicinal Marijuana Program, patients may purchase up to a maximum of 2 ounces (oz) in a 30-day period, as recommended by a physician. 

Cultivation

What rules and restrictions govern cultivation of cannabis for personal use?

Cultivation of cannabis for personal use is not permitted in New Jersey, as adult use is not legal within the state. Cultivation of 1oz to fewer than 5 pounds (lb) (fewer than 10 plants) is a third-degree crime, carrying three to five years’ imprisonment and a maximum fine of $25,000. Cultivation of 5lb to fewer than 25lb (10 to fewer than 50 plants) is a second-degree crime, carrying five to 10 years’ imprisonment and a maximum fine of $150,000. Cultivation of 25lb or more (50 or more plants) is a first-degree crime, carrying 10 to 20 years’ imprisonment and a maximum fine of $300,000 (N.J.S.A. 2C:35-5; and N.J.S.A. 2C:43-6).

Under New Jersey’s Medicinal Marijuana Program, patients are not authorized to engage in personal cultivation.

Use in and outside the workplace

What statutory and case law (if any) governs employers’ ability to restrict cannabis use both in and outside the workplace? Can cannabis use (even medical use) serve as legal grounds for termination?

New Jersey employers are permitted to enforce “zero tolerance” policies. 

Inside the workplaceThe New Jersey Compassionate Use Medical Marijuana Act specifically provides that “[n]othing in this act shall be construed to require… an employer to accommodate the medical use of marijuana in any workplace” (N.J.S.A. 24:6I-14).

Outside the workplaceIn Cotto v. Ardagh Glass Packing (CV-18-1037 (D.N.J. August 10, 2018), the District Court of New Jersey held that neither the New Jersey Law Against Discrimination nor the New Jersey Compassionate Use Medical Marijuana Act requires an employer to accommodate an employee’s use of cannabis outside the workplace. The plaintiff, who was prescribed medicinal cannabis, argued that his employer was obliged to provide a reasonable accommodation for his disability (i.e., to accommodate his disability by waiving a requirement he pass a drug test before returning to work following an accident). The District Court of New Jersey disagreed, ruling that nothing in the Law Against Discrimination or the act that requires an employer to accommodate an employee’s use of a federally illegal substance (including medical cannabis) by waiving its requirement that the employee complete a drug test.  

Commercial cultivation, retail and marketing

Business licensing requirements

What licensing requirements apply to businesses seeking to cultivate, distribute, produce and sell cannabis products in your jurisdiction? What procedures, timeframes and fees apply in this regard, and on what grounds can a licence be revoked?

Adult use is not legal in New Jersey. Pursuant to New Jersey's Medicinal Marijuana Program, alternative treatment centers (ATCs) are authorized to grow and provide registered qualifying patients with medicinal cannabis and related paraphernalia. There are currently six ATCs in New Jersey (information about them can be found at the Department of Health’s (DOH) website.

In July 2018 the DOH sought applications for six new ATCs. The DOH originally indicated that it would announce the successful applicants on November 1, but in mid-October it announced that it needed additional time to review the 146 applications it received from 103 organizations. 

At this time, the DOH is not accepting applications for new ATCs. However, the DOH has indicated that additional opportunities to apply to build cultivating, manufacturing and dispensing sites will be available in the future. If additional ATCs are needed, the DOH will publish the criteria and process to submit applications pursuant to the procedures set forth in the regulations.

An applicant for an ATC permit is required to submit the proscribed application forms and applicable filing fees, as well as all other required documentation. The filing fee for each application is $20,000, of which $18,000 is refundable if the application is unsuccessful. In addition to the application, applicants are required to submit information regarding the proposed ATCs’ employees, principal officers, directors, owners, and board members, as well as evidence of the willingness of such individuals to comply with criminal background checks. They must also submit information regarding the proposed location of the ATC, written verification of approval by the local governing body of such location, and evidence of compliance with local codes and ordinances.

Prior to the issuance of any permit to an ATC, every principal officer, owner, director and board member of the ATC must execute a certification stating that he or she submits to the jurisdiction of the courts of New Jersey and agrees to comply with all the requirements of the laws of New Jersey pertaining to the Medicinal Marijuana Program. Failure to establish or maintain compliance with this requirement will result in the denial, suspension, or revocation of any permit issued to an ATC. Once approved, an ATC may be subject to an onsite assessment by the DOH to ensure compliance with the New Jersey Compassionate Use Medical Marijuana Act. Once issued, each ATC permit is valid for one year.

Within 60 days prior to the expiration of an ATC permit, an ATC seeking to renew the permit must submit a renewal application together with all required documentation. The annual fee for the review of a permit renewal application is $20,000. An ATC must update and ensure the correctness of all information submitted in previous applications. Any failure to provide correct and current information may be grounds for the denial of the application for renewal. The DOH may deny the application for renewal of the permit if the applicant is non-compliant with applicable local rules, ordinances, and/or zoning requirements or if the DOH determines that the facility is in violation of the act or regulations.

Are any businesses specifically prohibited from selling cannabis products?

The first six ATCs were required to be non-profit entities, but both for-profit and non-profit entities were permitted to apply for the six new ATC permits that were announced in the DOH's July 2018 request for applications.

Zoning and real estate considerations

Are there any zoning restrictions on where businesses can cultivate, produce and sell cannabis products?

Since New Jersey is a "home rule" state according to its Constitution, municipalities have tremendous power to regulate such businesses, and one of the most powerful tools to do so is local zoning laws. In fact, many municipalities have already adopted ordinances prohibiting cannabis businesses from operating within their borders altogether, while some have proposed ordinances in anticipation of the state's passage of adult use legislation. Other municipalities have passed ordinances that prohibit adult use operations but allow for ATCs within their borders. There are many municipalities throughout the state with no zoning ordinances addressing medicinal cannabis, which leaves those interested in opening a licensed ATC with no guidance. Finally, some municipalities are taking a nuanced approach by permitting the cultivation, manufacture, and distribution activities only in industrial zoning districts with specific conditions while imposing other restrictions. 

Are there any other notable real estate issues pertinent to cannabis businesses, including with regard to landlord/tenant relationships and real estate market activity?

Due to the steady growth in "legal" sales of cannabis and related products in the United States (legal at least within the framework of multiple states for now), there are many growth opportunities for owners and developers of real estate, including increased market demand for a variety of real estate repurposed for use in the cannabis industry including, retail, industrial, and farm properties. 

Real estate located in industrial areas may be particularly well suited for the processing of cannabis, as it allows owners and developers of such properties to take advantage of existing vacancies and under-utilized space. Retail properties in subprime retail areas hold the potential to increase in value by offering a location in a perimeter or less dense retail zone. Under-utilized farmland can also be marketed for large-scale cultivation of cannabis and related products.  

With regard to landlord and tenant relationships, commercial leases should be tailored to address the specific issues that arise when space is leased to a tenant in the cannabis business. As it can be very expensive to retrofit a space for cannabis cultivation and processing, careful consideration should be given to the financing of such improvements. Some of the more significant items involved in retrofitting or constructing a new space for a cannabis business include sophisticated climate control systems, an electrical infrastructure able to handle the high intensity electrical usage, and the implementation of appropriate security measures and systems. 

Regardless of whether the landlord or tenant finances the improvements, the term of the lease should be long enough to allow for at least a partial amortization of the cost of the improvements. As cannabis remains illegal at federal level, parties to a lease must be creative about how the improvements are financed. Banks may refuse to provide financing given their obligation to adhere to federal regulations and level of comfort regarding credit risk. Some options include owner financing or third-party private lenders and investors. In some instances, local banks may be less risk adverse and, as such, a good alternative to conventional financing from a national banking institution. In addition to the issue of how to finance the tenant improvements, there is the issue of what impact a cannabis business will have on existing owner financing, whether or not secured by the leased premises.

Consideration should be given to structuring the rent obligations under a lease so that the base rent and additional rent obligations are specifically delineated. An owner should also consider requiring a significant security deposit to secure a tenant's obligations under the lease, as well as protect against any other losses arising out of the inherent risks associated with entering into a lease transaction with a cannabis business.

Just as it can cost millions to retrofit certain cannabis operations, it can also be very costly to remove tenant improvements and restore the premises to their original condition at the end of the lease term. The tenant improvements may be so unique to the cannabis business that instead of creating value for the landlord, as with certain other types of tenant improvement, they can create increased demobilization costs for the landlord if not properly imposed on the tenant as a tenant responsibility. From the tenant's perspective, negotiating less than a complete restoration obligation should be among the material issues that it addresses with the owner prior to entering into the lease.

The use clause in the lease should be specific to the tenant's operations. Given the variety of activities and products that can be produced by cannabis businesses and the different safety risks that may be created, it is important, particularly for the owner, to be very specific regarding what types of product may be produced in the leased premises and what types of processing method may be used. Certain types of production method may increase the risk of fire or other casualty event. Further, it is prudent to include a disclaimer for the owner's benefit regarding the legality of the tenant's proposed use. The lease should specifically provide that no representations are being made as to the tenant's ability to operate in the space for the tenant's intended purpose. Another consideration applicable to a use clause is the need to redefine what “noxious use” is. Special attention should be paid to multi-tenant premises where a cannabis business may trigger a violation by landlord under another tenant lease. A specific-use clause may also be advantageous to the tenant.

Given the uncertainty of the legality of cannabis business, it is advisable for landlord, tenant or both parties to include a right to terminate the lease in the event the operations on the premises are required to be shut down.

Whether the leased premises and the building in which the leased premises are located (and the activities conducted thereon) are insurable should be explored before finalizing the lease transaction. Even if the tenant can obtain the necessary insurance coverage called for under the lease, the owner's existing policies, as well as policies maintained by other tenants in multi-tenant facilities, may be void when a lease that violates federal law is entered into.

Product restrictions and specifications

Are any cannabis products and accessories prohibited from sale? Do any product specifications apply?

Adult use of cannabis remains illegal in New Jersey; therefore, possession of such products can lead to criminal penalties. With respect to the Medicinal Marijuana Program, cannabis in an edible form (i.e., tablets, capsules, drops, or syrups) is available only to qualifying patients under the age of 18. The maximum tetrahydrocannabinol content of any product sold pursuant to New Jersey's medical cannabis program cannot exceed 10%. Patients participating in the program may possess paraphernalia but only for the purpose of consuming medicinal cannabis.

Packaging and labelling

What packaging and labelling requirements apply to the sale and distribution of cannabis products and accessories?

Under New Jersey's Medicinal Marijuana Program, an ATC must establish and implement policies that require it to maintain information about the different potencies, effects, and forms for each usable cannabis package that the ATC prepares to dispense to registered qualifying patients and their caregivers. ATCs are required to process cannabis in a safe and sanitary manner. At an ATC, medicinal cannabis must be packaged in a secure area connected to the production area. 

Each package of medicinal cannabis must be in a closed container that holds no more than 0.5 ounces. The package must be sealed so that it cannot be opened, and the contents consumed without the seal being broken.

The ATC must put a legible, firmly affixed label on each package of medicinal cannabis that it prepares to dispense. The label must contain the following information:

  • the name and address of the ATC that produced the medicinal cannabis;
  • the quantity of the medicinal cannabis contained within the package;
  • the date that the ATC packaged the content;
  • a sequential serial number, lot number, and bar code to identify the lot associated with manufacturing and processing;
  • the cannabinoid profile of the medicinal cannabis contained within the package;
  • whether the medicinal cannabis is of the low, medium or high strength strain;
  • a statement that the product is for medical use by a qualifying patient and not for resale;
  • a list of any other ingredients besides medicinal cannabis contained within the package;
  • the date of dispensing to the qualifying patient or primary caregiver; and
  • the qualifying patient’s name and registry identification card number.

The DOH recommends that patients should always maintain medicinal cannabis in its original labeled packaging. Further, the DOH recommends that patients should keep medicinal cannabis at their residence and only transport it when absolutely necessary. Patients are encouraged to use medicinal cannabis only in their residence.

Advertising and marketing

What rules and restrictions govern the advertising and marketing of cannabis products and accessories (including online)?

The Medicinal Marijuana Program's rules require ATCs to restrict signage to black text on a white background on external signage, labeling, and brochures for the ATC. ATC signage cannot be illuminated at any time. ATCs must not display on the exterior of the facility advertisements for medicinal cannabis or a brand name except for purposes of identifying the building by the permitted name.

For several years, ATCs were prohibited from advertising the price of cannabis, except that an ATC could provide a catalogue of the prices and strains of medicinal cannabis available to registered qualifying patients. However, in October 2018 the DOH began to allow ATCs to publicly list medical cannabis prices on their websites and social media accounts. It is up to each ATC to decide what price information, if any, to post.

Cannabis and paraphernalia cannot be displayed or be clearly visible to a person from the exterior of an ATC, and ATCs cannot produce any items for sale or promotional gifts (e.g., t-shirts or novelty items) bearing a symbol or references to cannabis. However, that prohibition does not apply to paraphernalia sold to registered qualifying patients or their primary caregivers.

Branding

What rules and restrictions govern the branding and trademarking of cannabis products and accessories? Are there any other special branding considerations for cannabis businesses?

A federal law, the Controlled Substances Act, prohibits, among other things, manufacturing, distributing, dispensing, or possessing certain controlled substances, including cannabis and cannabis-based preparations (21 U.S.C. §§812, 841(a)(1), 844(a)). In addition, the act makes it unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia (i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under [the act]” (21 U.S.C. §863).

To qualify for federal trademark or service mark registration, the use of the mark in commerce must be lawful (15 U.S.C. §§1051, 1127). Because cannabis is prohibited by the act, any trademark used in connection with cannabis or products containing cannabis is not in lawful use in commerce and federal trademark protection is not an option for such products. 

As a result, entities that sell cannabis or products containing cannabis in states where the sale of those products is legal have turned to state protection of their trademarks. While the requirements vary from state to state, in general, a trademark must be in use within the state in connection with the sale of the product before an application may be filed. As a result, in many cases, no application can be filed until the sale of cannabis or products containing cannabis is legal within a state. In addition to having usage of the trademark, some states (e.g., Massachusetts) require the trademark owner to demonstrate that that they have secured a license to sell cannabis from the appropriate government entity (e.g., the Massachusetts Department of Health for medical cannabis or the Cannabis Control Commission for adult use cannabis). 

Additionally, there may be advertising and promotion restrictions placed on how those cannabis trademarks can be used. For example, some states prohibit the promotion of cannabis to individuals under a certain age or in a manner that is false, misleading or deceptive, or that is likely to create an erroneous impression about its characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks. 

Another option would be to secure a federal trademark registration for ancillary products or services that do not violate the act. For example, if both food products containing cannabis and similar food products without cannabis are sold, it may be possible to secure a federal trademark registration for those cannabis-free products that would afford some protection that could be relied on to enforce the trademark.

An alternative to trademark protection would be to secure copyright protection for cannabis “works of authorship”, such as the graphic elements of logos and packaging that meet the copyright requirements of originality, the minimal degree of “creativity, and are “fixed” in a tangible form that is sufficiently permanent to be reproduced. While the issue of whether a cannabis copyright is enforceable is somewhat speculative as no federal district court has rendered a decision in a cannabis copyright lawsuit, because those courts have traditionally enforced other copyrighted illegal works it is likely that cannabis copyrights could also be enforced.