BLUNT LEGAL TALK: Will New York and New Jersey Legalize Adult Use Cannabis?

David Feldman -

Short answer: yes. Or let’s say, highly likely yes. And sooner than you might think. As the third (NY) and eleventh (NJ) largest states, and a combined population of over 28 million people, inquiring minds want to know where these two Northeast neighbors are headed in terms of legalization of full adult use cannabis. As a proud New Yorker, I am certainly extremely interested in what is happening in the Empire State. But it appears the Garden State (particularly apt nickname in this circumstance) is going to beat us to the recreational legalization finish line.What factors are driving the bus towards allowing all adults access to legal cannabis? Mostly, politics. To some extent, economics (which drives politics). To some extent, social justice for those disproportionately disadvantaged by the War on Drugs. But yes, mostly politics. Let’s take a look at where we stand today in each state and what’s coming.

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New Jersey

New Jersey legalized medical marijuana in 2010 with the Compassionate Use Medical Marijuana Act, signed by then-Gov. Jon Corzine on his last day in office. Currently only five nonprofit “alternative treatment centers” (ATCs) can grow and sell medical cannabis. The bill initially had a relatively small number of conditions qualifying a patient to receive cannabis. But in 2016 Republican Gov. Chris Christie agreed to add PTSD to the list, mostly as a nod to veterans. In March 2018, five new categories were added, including chronic pain, migraine and anxiety. But we are getting a little ahead.New Governor Phil Murphy of NJ campaigned in part on his plan to fully legalize adult use of cannabis as soon as possible, as well as dramatically expanding the medical cannabis program. On January 23, 2018, less than a month after coming into office, he started with the medical side. He issued an Executive Order which ordered the Health Department to conduct a 60-day review of “all aspects” of the state’s medical cannabis program, “with a focus on ways to expand access to marijuana for medical purposes.”In late March 2018, the Governor ordered some additional changes to the medical program. These include allowing existing ATCs to open more locations and letting any doctor prescribe cannabis, not just those who go through special registration. There is also now pending in the NJ Legislature a bill that would permit many more grow, processing and dispensary facilities. Most believe this bill is going to pass and be signed into law in the near future.But what about adult use? There was initial optimism that the Governor would urge the legislature to move within his first six months in office. But prognosticators now are speaking about a period somewhere in the next 6-18 months where Murphy-supported adult use legislation would be championed. There are over a dozen adult use bills that have been introduced to the NJ Assembly, and so far none of these bills has appeared on the floor of either chamber.It is clear that New Jersey wants to beat New York to the legalization table. Of course, as we will note below, New York’s leaders are not excited about the prospect of folks heading out of New York to buy legal cannabis in (and pay sales tax to) New Jersey then stay, spend their money there, and so on. Some have estimated as much as $300 million in tax revenue annually once their medical and adult use programs are in full swing. There’s your politics part. Oh, and many thousands of new jobs will get created. Others are saying this could be a linchpin to the re-emergence of downtrodden Atlantic City. And while passage of adult use legislation is not being predicted with certainty, most believe it will indeed pass and of course be signed by Murphy. So what about New York?

New York

Dear readers, it has not been easy for us. NY was one of the first to make cannabis totally illegal in 1927. In 1939, then-Mayor Fiorello LaGuardia launched a commission which concluded that cannabis is not dangerous or a gateway drug. This led to a sharp rebuke from the infamous Harry Anslinger, the head of the Federal Bureau of Narcotics.It did not end there. As part of the War on Drugs, in 1973, the so-called Rockefeller Drug Laws were passed by then-Gov. Nelson Rockefeller. These laws imposed a minimum 15 years to life in prison for selling two ounces of cannabis or possessing four ounces. Feeling your social justice part? The fact that thousands of mostly African Americans and Hispanics then were jailed for very long periods, for possession of small amounts of cannabis, was staggering. In 1977 some relief came when possession of 25 grams (about .88 ounces) of cannabis was decriminalized in NY. But you could still be arrested for “possession in public view.”Following New Jersey’s legalization of medical cannabis, New York waited about four years, but in July 2014, the Compassionate Care Act was passed, bringing about the ability to grow and sell medical cannabis. In 2015, five “registered organizations” (ROs) were granted vertically integrated licenses to grow, process and sell medical cannabis. Each had the right to open four dispensaries throughout the state. In May 2017 five more licenses were granted. The program has been slow to develop, with about a dozen dispensaries now open. The initially small number of eligible conditions under the program was later expanded to include PTSD and chronic pain. That said, it remains one of the most restrictive medical cannabis programs in the country.Making matters more complex, a few months before the issuance of the second five licenses, four of the first five licensees sued the state to try to prevent it from licensing these additional ROs. The judge then added the proposed second five ROs as parties to the lawsuit. The judge allowed the licenses to be issued while the case was pending. In December 2017, the New York court dismissed the case in its entirety, saying the state was within its statutory rights to issue the additional licenses. Those second five have now been moving forward with their business plans and operations.New York Governor Andrew Cuomo took a further step toward supporting the cannabis industry in July 2017 when he signed a bill which categorized industrial hemp as an agricultural commodity. As a result, hemp is protected in NY the same as any other crop. They also announced a multi-million dollar research grant program and have now issued dozens of research licenses, which particularly benefit struggling upstate farmers. When the bill passed, Cuomo said, “We believe that hemp production has tremendous economic advantages for whatever state is the first to really grow that market. We want New York to be the first to grow that market.” As an aside, recently US Senate Majority Leader Mitch McConnell (R-KY) introduced a bill to fully legalize industrial hemp nationwide.With regard to full adult use legalization in New York, most assumed it would never happen under Cuomo. In February 2017 he stated he was opposed to legalization and declared cannabis a “gateway drug.” Well, what a difference a year, a political campaign and peer pressure from your neighbors can bring. In January 2018, he appointed a task force to examine what impact full adult use legalization could have on New York State, and many believe this will lead to his eventual support of adult use legalization. So what caused this full about-face? Let’s examine.First, there is the obvious fact that Massachusetts already has legalized adult use and, as noted above, New Jersey seems very likely to get that done soon. Second, well, Mr. C is running for reelection this year. Some also feel he may run for President in 2020, so his reelection as Governor is central to launching that effort. His problems: TV’s Sex and the City star Cynthia Nixon and one Joel Giambra.Nixon is challenging Cuomo in the September primary for the Democratic nomination for Governor. She has been hammering the Guv on legalizing cannabis as one of her main issues. She points to an expected hundreds of millions in state revenue, as well as the need to stop jailing people of color for, as she put it, “something that white people do with impunity.”Giambra is Cuomo’s Republican opponent. He has proposed legalizing cannabis and using the money to fix the state’s transportation system. He said if NY doesn’t legalize, thanks to its neighbors doing so, the state will “miss out on billions in revenue.”What is not clear is the potential timeframe for adult use approval in New York. It is very likely that New Jersey will get the job done first. The rest is speculation at this point.So yes, Virginia, it does appear that both New York and New Jersey are headed for full adult use legalization of cannabis. That is, unless Congress beats them both to it!–

David N. Feldman is an attorney specializing in small company finance and the author of several books including the award-winning Reverse Mergers: And Other Alternatives to Traditional IPOs and The Entrepreneur’s Growth Startup Handbook: 7 Secrets to Venture Funding, as well as co-author of PIPES: A Guide to Private Investments in Public Equity. A partner at Duane Morris LLP, he writes a column, “The Uncut Entrepreneur,” for Smart CEO magazine. His blog bluntlegaltalk.com has been recognized by LexisNexis as a Top 25 corporate law blog, and his videos appear on his YouTube channel The Entrepreneur’s Advocate. For more information, follow him on Facebook, Twitter, and LinkedIn.