Paul P. Josephson – Cannabis Industry

January 16, 2026January 16, 2026 by Jim Hearon

New Jersey Joins in Closing Hemp Loophole –New Legislation Regulates Hemp-Derived Products

On January 12, 2026, Governor Phil Murphy signed Senate Bill 4509 into law, ushering in a sweeping reform of New Jersey’s hemp laws and establishing a regulatory framework for intoxicating hemp products (“IHPS”) that have proliferated across the Garden State. The bill’s sponsors aimed to close a long-standing loophole created by the 2018 federal Farm Bill, which permitted IHPs to be sold widely with no oversight. The enactment of SB 4509 represents the latest and most consequential chapter in New Jersey’s multi-year effort to regulate these products.

Two years ago, New Jersey attempted to regulate IHPs but its efforts were unsuccessful. In September 2024, New Jersey enacted legislation prohibiting the sale of IHPs to minors and imposing new restrictions on their distribution. Just days before the law was scheduled to take effect, a federal judge issued a permanent injunction blocking most of its substantive provisions. In Loki Brands LLC v. Platkin, the District Court of New Jersey held that the law’s definition of “intoxicating hemp products” expressly discriminated against out-of-state hemp by prohibiting its sale in New Jersey. The court concluded that the law violated the Dormant Commerce Clause by penalizing out-of-state producers and manufacturers. It further held that the statute conflicted with—and was, therefore, preempted by—the 2018 Farm Bill because it effectively transformed federally legal hemp into a controlled substance simply by virtue of being shipped through New Jersey.

The federal landscape concerning hemp has dramatically shifted since Loki was decided. As part of the 2025 federal spending bill, Congress overhauled federal hemp standards by including a provision banning the sale of any hemp-derived THC product containing more than 0.3% total THC—not just delta-9 THC as permitted under the 2018 Farm Bill—on a dry weight basis. Congress also narrowed the definition of legal hemp to exclude products containing cannabinoids that “were synthesized or manufactured outside the plant” and prohibited consumer products containing more than 0.4 milligrams of total THC per container. Taken together, these changes render virtually all existing IHPs unlawful under federal law. The new federal prohibition is set to go into effect on November 13, 2026.

New Jersey’s newly enacted law is calibrated to align with these updated federal standards. Under SB 4509, hemp may not contain more than 0.3% total THC, including delta-8, delta-10, THCA, and similar cannabinoids, and IHPs may not contain more than 0.4 milligrams of THC per container. Products that exceed these thresholds are deemed cannabis and fall under the jurisdiction of the New Jersey Cannabis Regulatory Commission (“CRC”). As a result, the sale of such products will require a state-issued cannabis license and compliance with the same regulatory requirements imposed on licensed cannabis businesses operating in New Jersey.

While the law took effect on January 13, 2026, its implementation will be a phased approach. To allow the CRC time to develop its regulatory scheme, and to mitigate the economic impact on existing IHP retailers, the statute provides a grace period through April 13, 2026, during which time current sellers must liquidate their inventory. The law does, however, carve out a narrow exception for intoxicating hemp beverages, which may continue to be sold at licensed liquor stores until November 13, 2026 when the federal prohibition goes into effect. At that point, any beverage exceeding the new THC limits will be regulated as cannabis.

With the passage of SB 4509, New Jersey has signaled an end to the sale of unregulated IHPs. By harmonizing New Jersey law with federal hemp rules and addressing the constitutional defects identified in Loki, the Legislature has likely crafted a framework designed to withstand legal scrutiny while prioritizing consumer safety and regulatory clarity.

December 18, 2025December 18, 2025 by Jim Hearon

Trumps Signs Executive Order to Reschedule Cannabis: A Dramatic Shift in Federal Cannabis Policy

On December 18, 2025, President Trump signed an Executive Order to expedite the administrative process of rescheduling cannabis, marking one of the most dramatic shifts in federal cannabis policy in the past few decades.

Under current federal law, cannabis is classified as a Schedule I controlled substance—the most restrictive category of drugs. Schedule I controlled substances are defined as having no accepted medical use and a high potential for abuse. Schedule I substances include inherently dangerous drugs, such as heroin and LSD.

The Executive Order directs the Attorney General to expedite rescheduling cannabis from Schedule I to Schedule III. Schedule III controlled substances are defined as having a lower potential for abuse and currently accepted medical uses, including substances such as ketamine and Tylenol with codeine.

The rescheduling process is handled through the Drug Enforcement Agency (“DEA”) and the Department of Health and Human Services (“HHS”). In 2022, at the direction of President Biden, DEA and HHS commenced the rescheduling process. Both HHS and the Department of Justice issued recommendations to reschedule cannabis, but the process eventually stalled, and there has been no movement on rescheduling since January 2025 until today.

Rescheduling cannabis to Schedule III will not only allow for medical research into cannabis, one of President Trump’s main selling points in issuing the Executive Order, but may also provide long awaited relief to cannabis operators, owners, investors, and other industry participants.

One of the most prominent and immediate benefits of rescheduling will be the removal of cannabis from the clutches of Section 280E of the Internal Revenue Code. Section 280E disallows standard business deductions for businesses engaged in the trafficking of Schedule I or II controlled substances. Once cannabis is rescheduled, cannabis operators will likely decrease their current tax liabilities and improve their financial viability.

What rescheduling will NOT do is open up the door for interstate commerce and may not immediately increase the number of federally chartered banks open to banking in the industry as many are still waiting for passage of the SAFER Banking Act or similar legislation. FinCEN guidance is not impacted by the Executive Order, which means that onerous reporting and other obligations for banks will remain in place. As such, any impact to banking will likely be minimal, as banks’ compliance obligations will remain the same until such time that the SAFER Banking Act or similar legislation is passed by Congress.

The Executive Order also seeks to expand research and access to CBD products. This comes on the heels of the funding bill passed to end the government shutdown, which included a controversial provision to close the loophole created by the 2018 Farm Bill and reclassify low-THC hemp products as controlled substances. The ban on low-THC hemp products goes into effect in November 2026.

While not full federal legalization, today’s Executive Order could mark the beginning of the end in draconian federal cannabis policy. The rescheduling process will take some time, and the Executive Order could still be challenged by Congress and stake holders in the cannabis industry, but operators should remain cautiously optimistic.

August 2, 2024February 25, 2025 by Jim Hearon

Federal Court Affirms Crackdown on Intoxicating Substances Synthesized from Hemp

In the absence of federal enforcement action, state legislatures have stepped into the breach, enacting laws regulating products containing intoxicating substances that are chemically synthesized versions of chemicals in hemp. Those substances are referred to here as hemp-synthesized intoxicants or HSIs. Challenges to state authority to regulate HSI are being filed. In a recent decision that may foreshadow what is to come, a federal court declined to enjoin Wyoming’s hemp law.

As we have previously reported, the passage of the Agriculture Improvement Act, commonly referred to as the 2018 Farm Bill, opened the floodgates to unregulated intoxicating hemp products across the country. Though the 2018 Farm Bill authorized the U.S. Food and Drug Administration to regulate hemp-derived products intended for human consumption, the FDA has yet to promulgate rules for such products or HSIs. In the absence of federal regulations, states have begun to enact their own rules.

In Green Room LLC, et al. v. State of Wyoming, et al., a group of HSI wholesalers, retailers, and manufacturers filed a federal suit challenging amendments to Wyoming’s hemp laws and requesting a preliminary injunction. In pertinent part, the amendments expanded the definition of THC to include any psychoactive structural, optical, or geometric isomers of THC, encompassing both CBD and the popular Delta-8 THC. Because cannabis remains illegal in Wyoming, the amendments effectively prohibited the possession, sale, transport, and production of intoxicating substances synthesized from hemp. The plaintiffs argued, in part, that the amendments were unconstitutional because they were preempted by the 2018 Farm Bill, which they claim legalized all hemp substances, including intoxicating substances synthesized from hemp, for intrastate and interstate purposes.

On July 19, 2024, the federal court denied plaintiffs’ request to enjoin enforcement of the new law, finding that they do not have a substantial likelihood of success on the merits.

Specifically, the court found that the 2018 Farm Bill does not prevent states from regulating HSIs. The court found the 2018 Farm Bill did not confer any right on plaintiffs to manufacture or sell intoxicating products resulting from hemp, but merely redefined the term hemp. Most important, it held the 2018 Farm Bill contains an express “no preemption” clause permitting states to regulate hemp more stringently than federal law. The no preemption clause expressly permits a state to enact laws regulating intoxicating substances synthesized from hemp in a manner “more stringent” than the 2018 Farm Bill. The court further concluded that Wyoming’s amendments do not violate the dormant commerce clause, do not amount to a regulatory taking, and are not unconstitutionally vague or overbroad.

Green Room is not the first challenge to state restrictions on HSIs. In Bio Gen LLC et al. v. Sanders et al., the State of Arkansas appealed a trial court decision enjoining Arkansas regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC. In Northern Virginia Hemp and Agriculture LLC, et al. v. Commonwealth of Virginia, et al., the plaintiffs, an HSI product manufacturer/distributor and consumer, appealed a trial court decision that denied their motion to enjoin the State of Virginia from enforcing Virginia regulations that restrict the manufacture and distribution of products that contain synthetic cannabinoids that could be intoxicating, such as Delta-8 THC.

Those pending appeals present the possibility of a federal circuit split on the question whether the 2018 Farm Bill legalized intoxicating substances that could be derived from hemp. On behalf of the American Trade Association for Cannabis & Hemp, Duane Morris filed an amicus brief in each case that asserts that the 2018 Farm Bill did not legalize hemp-synthesized intoxicants, and it reserved for states the right to regulate such substances in the interest of public safety.

As more states roll out new restrictions on intoxicating hemp products and operators, we expect to see more challenges. Though not a final ruling on the merits of the suit, the court’s decision suggests these plaintiffs and others challenging state intoxicating hemp laws have an uphill battle ahead.

July 18, 2024 by Paul P. Josephson

11th Hour Amendment Guts Garden State Attempt to Regulate Intoxicating Hemp Products; Will Gov Veto or Sign?

The passage of the 2018 Farm Bill has led to the proliferation of unregulated hemp-synthesized intoxicants (“HSIs”) flooding the market nationwide. Gas stations, convenience stores, and other retailers are widely selling these unregulated and untaxed products.

The boom in HSIs, particularly Delta-8 THC, is a direct result of an entirely unregulated market with virtually no federal oversight aside from occasional FDA warning letters when products resemble candy and snacks favored by children. Most recently, one troubling report suggests testing labs are finding that the processes for converting CBD extracted from legal hemp into intoxicating Delta-8 and Delta-9 products create a soup of mysterious compounds whose effects and dangers are presently unknown.

In response, many state legislatures are considering bills to ban or regulate intoxicating hemp products.

Senate Bill 3235 was introduced in May 2024 with the intent to grant the New Jersey Cannabis Regulatory Commission (“CRC”) broad authority to regulate the production and sale of intoxicating hemp products in New Jersey, to limit sales of intoxicating hemp products to licensed cannabis retailers and sales of intoxicating hemp beverages to certain liquor licensees approved by the CRC, and to allow municipalities to impose the same 2% tax on retail sales they apply to regulated cannabis. On June 28, 2024, the New Jersey Legislature quickly approved it and a crush of other legislation on the eve of the state’s budget deadline.

In the original draft of the bill, intoxicating hemp product meant any product “cultivated, derived, or manufactured from hemp . . . that is sold in this State that has a concentration of total THC greater than .5 milligrams per serving or 2.5 milligrams per package.” This broad definition encompassed all intoxicating hemp products sold in New Jersey, regardless of the state of origin,

But after being passed out of committee and ready for a full Senate vote, the bill was sent back to committee and amended to limit its reach to only intoxicating hemp products “cultivated, derived, or manufactured in this State[.]” By limiting the bill’s reach to only the small universe of hemp products cultivated, derived, or manufactured in New Jersey, intoxicating hemp products originating or imported from other states will remain on the market and not subject to the bill’s restrictions or any current or future regulation.

This language was likely added to address interstate commerce concerns. But the Dormant Commerce Clause of the U.S. Constitution does not prohibit states from regulating out of state companies that sell hemp products into their state; it only prohibits discriminatory treatment of out of state operators compared to in state businesses. As long as they are subject to the same rules, the state may regulate the sale and taxation of out of state products like any other industry.

The IHP bill is currently on Governor Murphy’s desk awaiting action: sign, veto or conditionally veto. If he takes no action by mid-August, it becomes law.

Industry, social equity and union advocates alike are urging a conditional veto sending S3235 back to the Legislature to restore the bill’s reach to include all intoxicating hemp products sold in the state. Others object to liquor licensees jumping to the front of the line and being allowed to sell intoxicating hemp beverages just as social equity cannabis retailers are finally opening their doors after years of effort and expense. Unions organizing the cannabis industry that have fought hard to create good jobs in a viable industry likewise seem irked by this end run around union mandates that is likely to cost members their jobs.

The last minute amendment appears to undermine the express purpose of the bill. If enacted in current form, it will likely result in New Jersey companies exclusively purchasing and selling intoxicating hemp products produced out of state to avoid the time and expense of licensure, CRC approval, and taxation.

A well-intentioned law quickly passed to address a growing problem, the cannabis and hemp industries anxiously await Governor Murphy’s action.

June 26, 2024 by Paul P. Josephson

Cases We’re Watching: Constitutionality of State Restrictions on Cannabis Advertising

By Paul Josephson and James Hearon

State cannabis advertising bans are getting their day in court, albeit before the federal Fifth Circuit, a court that has been increasingly hostile to regulation.

In February 2022, Mississippi enacted the Medical Cannabis Act, legalizing medical marijuana within the state. The Act granted the Mississippi Department of Health (“MDOH”) authority to establish and promulgate rules and regulations governing the advertising of medical cannabis.

The Act made clear that any proposed rules or regulations could not prohibit a cannabis operation from engaging in certain types of marketing and advertising, including displaying appropriate signage on the licensed premises, listing in business directories and other publications, or displaying logos or other branding materials. In promulgating its proposed regulations, MDOH prohibited licensees from advertising or marketing in any form of media (i.e., broadcast, electronic, print, etc.)

In November 2023, Tru Source Medical Cannabis, LLC challenged MDOH’s advertising restriction as a violation of the First Amendment. In January 2024, the Northern District of Mississippi federal court upheld the advertising ban and dismissed the lawsuit, entitled Cocroft, et al. v. Graham, et al., in its entirety. The district court relied extensively on the Montana Supreme Court’s analysis in Montana Cannabis Industry Association v. State of Montana, 368 P.3d 1131 (Mont. 2016), rejecting a similar challenge to cannabis ad regulations. The district court agreed that “an activity that is not permitted by federal law—even if permitted by state law—is not a ‘lawful activity’” and, thus, does not qualify for commercial speech protection. Tru Source appealed this ruling to the Fifth Circuit.

We are closely watching the Fifth Circuit’s decision to see whether antipathy for cannabis or regulatory overreach will prevail. The circuit, which embraces Texas, Louisiana and Mississippi, has been making headlines lately for rulings hemming in the authority of federal agencies. In recent cases, the Fifth Circuit rejected FDA rules permitting use of the abortion-inducing drug mifepristone (just overturned by the Supreme Court late last week), tossed out the SEC’s system for adjudicating enforcement cases, and declared the Consumer Financial Protection Bureau’s funding mechanism unconstitutional (also reversed by the Supreme Court). The Fifth Circuit has been in the legal spotlight, and its rulings have been keeping the Supreme Court busy.

The Fifth Circuit’s decision is also likely to implicate a much broader and unsettled legal question; that is, whether constitutional protections apply to state-legal, but federally prohibited, conduct. In 2022 and 2023, we saw a number of constitutional challenges to residency requirements in state cannabis regulations alleging that such requirements discriminate against out-of-state operators and violate the Dormant Commerce Clause.

Several courts, including the First Circuit and the Eastern District of Michigan, have held that discriminatory residency requirements likely violate the Dormant Commerce Clause. Other federal courts, such as the Western District of Washington and the District of Maryland, have found that, because cannabis is federally illegal, the Dormant Commerce Clause likely does not apply—the same rationale relied on by the district court in Cocroft.

The Fifth Circuit’s recent history as a venue where regulators have fared poorly suggests Mississippi’s outright ban on commercial speech by state-legal businesses will get a hard look. Briefing will be complete shortly, and we would expect oral argument and a decision before year end.

May 9, 2024 by Paul P. Josephson

Steady Hands at the Tiller – New NJCRC Executive Director Appointed

New Jersey Governor Murphy announced yesterday that current NJCRC Executive Director Jeff Brown is returning to the New Jersey Department of Health to take on the role of Deputy Commissioner for Healthcare Systems, effective May 20, 2024.

Current NJCRC Deputy Executive Director and former General Counsel Christopher Riggs will assume the role of acting Executive Director upon Brown’s departure.

Brown has served as the Executive Director since the formation of the NJCRC in April 2021, and before that as Assistant Commissioner for the Division of Medicinal Marijuana at the New Jersey Department of Health since 2018.

Despite the inevitable friction and challenges associated with this nascent field and reporting to a board of very active, full time commissioners, Brown has proven a steady hand at the tiller both at NJDOH and at NJCRC. Throughout his tenure in both agencies, Brown has been instrumental in the development and implementation of New Jersey’s medical and recreational laws and rules. He led the reinvention of New Jersey’s moribund-by-design medical marijuana program, and then stood up the NJCRC as a new agency to regulate both adult-use and medicinal cannabis. Under Brown’s leadership, New Jersey’s cannabis market has grown each year with 2024 cannabis sales expected to top $1 billion.

Though Brown will be a hard act to follow, Acting Executive Director Riggs is expected to be another steady hand at the tiller leading regulation of the market. Well-equipped to assume the role of Executive Director, Riggs has worked for the NJCRC since its inception. He initially served as the NJCRC’s first chief counsel and led the drafting and promulgation of the laws and rules that govern the industry. Before that, he was a Deputy Attorney General in the Office of the Attorney General and was assistant chief of the section representing the Department of Health and Human Services.

Well regarded among attorneys and industry veterans alike, it is expected Riggs and the NJCRC will now focus on streamlining and rationalizing regulatory processes to improve oversight and reduce bureaucratic delay and red tape. Riggs has also indicated he intends to prioritize clinical registrant applications and social equity certification process at the NJCRC.

We wish both well in their new roles.

June 28, 2023June 28, 2023 by Paul P. Josephson

Expanded Equity Funding for NJ Licensees Heads to Governor’s Desk

A sea change in the funding of New Jersey cannabis businesses has been approved by New Jersey’s Legislature and is pending on Governor Murphy’s desk awaiting his signature. Duane Morris attorneys assisted in the conception and drafting of this legislation.

That legislation, A4151, will allow far greater levels of investment in minority, women and disabled veteran owned adult use cannabis businesses by those best positioned to invest in them on equitable terms – current licensees and cannabis funds. The bill will increase the equity stake a licensee or investment fund may have in these diversely owned businesses from 5% to 35%, and allow them to invest in up to 7 diversely owned licensees. This will also allow capital stacks to rely more heavily towards equity, reducing the debt component at high interest rates that burn cash flow new operators need to get their businesses on solid footing. To date, these terms have only been available to New Jersey small universe of diversely owned medical cannabis licensees.

The bill protects against predatory conduct by preventing investors from acquiring a majority interest in the diversely owned business, even in cases of default. In the event of default, majority ownership by diverse interests must be maintained. Terms must be commercially reasonable as determined by the Cannabis Regulatory Commission.

Context: Hundreds of New Jersey conditional licensees are struggling to raise the $250,000 to $1 million initial investment they need to fund even a simple dispensary given high real estate, labor, tax and compliance costs in New Jersey. Without funding, they simply cannot complete the steps needed to convert to annual licensure (i.e., secure real estate and municipal approval and complete their operational plans and SOPs) and open for business.

Without funding, many of those conditional licensees will be forced to abandon their efforts and in many cases wipe out their personal investments to date, which often are funded out of 401(k) and other savings accounts.

Diversely owned cannabis businesses and equity investors alike interested in learning more about this opprtunity should contact Paul Josephson, Tracy Gallegos, or Michael Schwamm.

November 4, 2022November 7, 2022 by Duane Morris

Paul Josephson Named to Insider NJ’s Insider 100: Cannabis Power List 2022

“Paul Josephson has been one of New Jersey’s top pot lawyers for a very long time. The longtime policy and regulatory counsel for New Jersey Cannabis Industry Association, Mr. Josephson leads the Cannabis Industry Group at Duane Morris, an international law firm with strong roots in New Jersey…”

Read the full article on InsiderNJ.com:

October 17, 2022 by Paul P. Josephson

Biden Statement on Cannabis Scheduling: Be Careful What You Wish For …

On October 6, 2022, President Biden issued perhaps the
biggest shift in federal policy on cannabis since enactment of
the Controlled Substances Act, issuing a Statement on Marijuana Reform that:
– Pardons all prior federal offenses of simple possession or use of
marijuana;
– Urges all Governors to pardon all prior state offenses of simple
possession or use of marijuana; and
– Requests that the Secretary of Health and Human Services and the
Attorney General initiate an administrative review of marijuana’s
scheduling under the CSA.

This unexpected but welcome shift in Administration policy led to the usual bump in prices of publicly-traded cannabis companies, as investors seized on any legalization news as good news.

But this may well be one of those be careful what you wish for moments.

Many commenters presume this move presages the federal legalization of cannabis. But astute observers understand that the devil is in the details when it comes to so-called federal legalization – and that there are many shades of legalization with very different outcomes for the current industry, legacy operators, and the various noncannabis industries waiting for a break in federal policy that will allow them to enter the cannabis space.

Notably, President Biden did not instruct his agencies to deschedule or even to reschedule cannabis. Instead, he “ask[ed]” HHS and DOJ “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”

The President noted that “… even as federal and state regulation of marijuana changes, important limitations on trafficking, marketing, and under-age sales should stay in place.” Reading the statement closely, it would seem that descheduling is an unlikely result, unless done in tandem with federal legislation creating a federal regulatory regime or authorizing states to regulate the business.

And rescheduling is not necessarily good news for the industry, either. Rescheduling could result in FDA regulation of products that would all but require cannabis companies to operate like pharmaceutical companies.

If cannabis is descheduled or rescheduled, existing state regulatory schemes that feature or include local protectionist measures would likely fall as substantial burden on interstate commerce. The only sure way to preserve existing state-based markets will be an act of Congress authorizing the states to continue to discriminate in favor of local operators and local cultivation.

The big questions following this Statement:
– Will DEA/DOJ/HHS drag their feet yet again?
– Will marijuana be declassified altogether?
– Will it be re-classified as a Schedule II, III, IV, or V controlled substance?
– Will it remain a Schedule I controlled substance?

Any of these outcomes are possible. And where you stand on this review very much depends on where you sit.

March 12, 2021 by Paul P. Josephson

More to Clean Up? NJ Adult Use Law Prohibition on Incentives May Make It Even Harder to Plant Your Garden

New Jersey’s landmark adult use statute, signed by Governor Phillip D. Murphy on February 22, 2021, has already set off a land grab. Prospective applicants searching for viable properties are discovering that viable real estate is hard to come by. New Jersey’s warehouse/industrial market remains red hot notwithstanding the pandemic thanks to ecommerce, making it hard to find attractive properties suitable for cultivation facilities. Institutional ownership and financing of these properties prevail in the market, making it harder still to find landlords or lenders willing to deal with cannabis tenants.

New Jersey’s famously difficult and time consuming land use process makes siting almost any business in its 560+ towns a considerable challenge. A dispensary will almost assuredly attract even more than the usual number of objectors. Though 2/3ds of New Jersey voters approved legalizing cannabis, there remains a distinct view that dispensaries should be located in some other town, not in my backyard. It remains to be seen whether the up to 2% municipal tax on retail sales will soften these views.

Add another challenge to this list: Section 37 of the adult use law prohibits any entity issued any cannabis license from receiving any state or local economic incentive. In addition, the issuance of any cannabis license to a “person or entity that has been awarded” a state or local economic incentive “shall invalidate the right of the person or entity to benefit from the economic incentive as of the date of issuance of the license.”

What is a state or local incentive? For these purposes, any “financial incentive” awarded by the state, county or local government or any of their authorities “for the purpose of stimulating economic development or redevelopment in New Jersey, including, but not limited to, a bond, grant, loan, loan guarantee, matching fund, tax credit, or other tax expenditure.”

That appears to mean a cannabis company cannot take advantage of any incentive or financing from the Economic Development Authority, for example to rehabilitate a closed or contaminated property or to develop innovative technologies. Cannabis companies may not be eligible for a clean energy grant or loan for sustainable energy, or, it seems, even a routine local tax abatement.

This provision has its genesis in the desire to ensure that those granted the privilege of a valuable cannabis franchise not take advantage of New Jersey’s Farmland Tax Assessment program, by which property owners who operate farms receive generous allowances from New Jersey’s typically sky high local property taxes. The Farmland Credit is intended to encourage the preservation of farms and open space, especially in the face of suburban development.

But recent well-publicized concerns that state economic incentives had been improperly issued by state agencies or abused by recipients appears to have expanded this notion. The intent seems to be to prevent incentives, which are intended to spur economic development that wouldn’t otherwise occur “but for” the state or local incentive, from being directed toward cannabis licensees, who arguably are highly incented to build without the need for public largesse.

While this proposition is plausible enough on its face, we question whether cannabis companies should be treated differently from any other business operating in a high cost state like New Jersey. If New Jersey wants to leverage its pharma strength and attract the capital investment in cannabis technology and cannabis therapies it needs to be a national leader in cannabis, this provision will most assuredly inhibit the establishment of these high value businesses in the state.

But the biggest problem for cannabis companies hunting for property arises from Section 37’s draconian consequences for property owners who rent to cannabis companies:

- “a property owner, developer, or operator of a project to be used, in whole or in part, by or to benefit” a cannabis license “shall not be eligible for a State or local economic incentive during the period of time that the economic incentive is in effect.”
- the issuance of a cannabis license “at a location that is the subject of a State or local economic incentive shall invalidate the right of a property owner, developer, or operator to benefit from the economic incentive as of the date of issuance of the license.”

If siting a cannabis business will invalidate any economic incentive on which a developer relied, property hounds will find those properties to be off the table.

It seems likely this well-intentioned portion of the legislation will:

- raise the retail price of cannabis,
- discourage cannabis cultivators from adopting sustainable, low carbon energy solutions, and
- worst of all, inhibit siting facilities in urban and urban-adjacent towns, where redevelopment zones and tax abatements are prolific.

The provision effectively prohibits landlords who have received any form of state or local incentive from leasing any portion of their property to cannabis businesses, at the risk of losing the entire incentive on which their project was financed. This will limit the number of available properties for growing and selling cannabis. In turn, this will drive up the rents and selling prices of the few remaining properties. Inevitably, increased property costs will be reflected in higher cannabis pricing that will be borne by patients and adult use consumers alike. If incentives remained intact despite a cannabis tenant, input costs and retail prices will be lower.

On its face, it seems that clean energy and angel investor incentives all other businesses enjoy may also be off the table for cannabis businesses. This would fly in the face of the need and desire of the power-hungry cultivation segment of the cannabis industry to adopt sustainable and low-carbon energy practices. We remain hopeful a favorable interpretation or creative lawyering can solve this problem.

But worst of all, this provision will make it especially difficult to locate cannabis businesses in urban redevelopment areas like Jersey City, Newark, Camden and elsewhere, where local payments in lieu of tax arrangements are typically required to spur small and large projects, whether mixed use, retail, office, or industrial. In most cases, the most profitable urban retail locations will be in redeveloped areas benefitted by incentives. The most available urban cultivation sites will be contaminated properties requiring significant investment to rehabilitate and bring back on the tax rolls.

Given the need to ensure that communities ravished by the war on drugs share in the upside of a legal cannabis market, we are hopeful that legislators will revisit this provision. We need to reconsider and recalibrate this language to ensure we do not discourage cannabis businesses in urban areas or inhibit the adoption of clean energy strategies that will reduce carbon emissions that disproportionately affect urban areas.

New Jersey’s lawmakers have historically been open to clean up measures to fix the unintended consequences of well intentioned legislation. Here’s hoping they do.

In the meanwhile, if you are hunting for New Jersey property, be sure to inquire early on about the existence of incentives that may take that shiny new warehouse off your list.