Cannabis business has become a billion-dollar industry in the wake of countless scientific studies that prove the use of regulated cannabis provides significant health benefits to various medical patients. Add abundant tax revenues and the increasing health risks associated with the long-term use of prescription pain pills and other pharmaceutical drugs, and the cannabis business is set to become one of our country’s most profitable industries. Currently, medical cannabis is legal in twenty-five states while recreational cannabis is legal in four states and the District of Columbia. Eight more states are voting on the issue of legalized recreational cannabis on November 8, 2016. It is simply a matter of time before all fifty states and the federal government recognize cannabis as a legal drug fit for consumption by all.
Most states implement medical cannabis programs experimentally, paving the road for legislation into the realm of recreational cannabis. The initial stages of legalization often comprise boards of experts and government officials whom periodically evaluate the progress and success of their respective state’s medical cannabis program. Some key evaluations by state boards include the efficiency of obtaining patient licenses, the effectiveness of dispensary application procedures, and the need and accessibility of dispensaries in proportion to the state’s number of medical cannabis patients. These boards represent a segment of the legal grey area that exists regarding states’ medical cannabis programs. Because most (if not all) cannabis programs begin with an experimental phase, the laws regulating these programs change rapidly. Because these laws are so volatile, and because each state’s cannabis laws are so different from the next state’s laws, it is important for cannabis business owners to remain flexible and knowledgeable regarding compliance with their state’s cannabis laws.
Two states that have passed laws to regulate the use of medical cannabis are New Jersey and Pennsylvania. New Jersey passed the “New Jersey Compassionate Use Medical Marijuana Act” on January 18, 2010. Pennsylvania passed the “Medical Marijuana Act” on May 17, 2016. While both states have some similarities regarding the use of medical cannabis, the laws governing each state’s program are markedly different.
New Jersey rolled out its legislation for cannabis business owners with a limit of six licenses for medical cannabis alternative treatment centers (ATCs) – two locations in North Jersey, two locations in Central Jersey, and two locations in South Jersey. Pennsylvania, on the other hand, unveiled its legislation for cannabis business owners limiting its issuance of licenses to twenty-five growers/processors and fifty dispensaries. 35 Pa. Stat. Ann. § 10231.616. Pennsylvania dispensaries must obtain their cannabis from state certified growers/processors, and may not grow their own cannabis on site. Only five growers/processors may also receive permits as dispensaries, allowing those growers/dispensaries to grow and sell cannabis on site. While Pennsylvania makes a distinction between growers/processors and dispensaries, New Jersey makes no such distinction. New Jersey ATCs are allowed to grow and sell their own cannabis on site, combining growers/processors and dispensaries into one category.
Currently, New Jersey ATCs must be nonprofit organizations. However, the nonprofit ATCs need not and cannot be tax-exempt organizations under Internal Revenue Code Section 501(c)(3), due to the fact that the IRS is a federal organization and federal law recognizes cannabis as an illegal drug. Charitable nonprofit organizations under Section 501(c)(3) of the Internal Revenue Code must not be organized to further illegal activities under federal law, causing cannabis businesses to be excluded from 501(c)(3) tax-exempt status. Unlike New Jersey, Pennsylvania does not require growers or dispensaries to be nonprofit organizations. Pennsylvania also implements a 5% state sales tax on cannabis that is sold from growers/processors to dispensaries. The 5% tax is mandatory and cannot be passed on to the purchasing dispensaries. No such tax exists in New Jersey because New Jersey’s legal model incorporates growers and dispensaries into one category, the ATC. To be a grower/processor in Pennsylvania, business owners must have $2 million in capital, $500,000 of which must be on deposit with a financial institution. A $10,000 nonrefundable application fee is also required, along with an initial $200,000 permit fee, which is refundable should the permit be denied. To be a dispensary in Pennsylvania, business owners must have $150,000 in capital, all of which must be on deposit with a financial institution. A $5,000 nonrefundable application fee is also required, along with an initial $30,000 permit fee, which is refundable should the permit be denied. New Jersey makes no mention of capital or application fees in the law. However, New Jersey allows for “a reasonable fee for the issuance of a permit.” N.J. Stat. Ann. § 24:6I-7.
New Jersey medical cannabis patients may legally consume cannabis “in dried form, oral lozenges, topical formulations, or edible form, or any other form as authorized by the commissioner. Edible form shall include tablets, capsules, drops, or syrups and any other form as authorized by the commissioner. Edible forms shall be available only to qualifying patients who are minors.” N.J. Stat. Ann. § 24:6I-7. Pennsylvania medical cannabis patients may legally consume cannabis “in the following forms: pill, oil, topical forms (including gels, creams or ointments), a form medically appropriate for administration by vaporization or nebulization . . . tincture, or liquid. Medical cannabis may not be dispensed to a patient or a caregiver in dry leaf or plant form,” a major distinction from New Jersey law. 35 Pa. Stat. Ann. § 10231.303. Unlike New Jersey, where edibles are only available to qualifying minors, edibles may be consumed by all patients in Pennsylvania.
The New Jersey Compassionate Use Medical Cannabis Act has been effective for more than six years. New Jersey’s cannabis program and its laws are overdue for analysis and amendments. It is only a matter of time before New Jersey expands its cannabis program, opening its doors for more dispensaries and legislation. On the other hand, Pennsylvania’s Medical Cannabis Act has been effective for less than three months. Pennsylvania’s cannabis program and its laws are in the initial stages of implementation. Applications for growers and dispensaries are currently being submitted for review by the state board. Because Pennsylvania’s program is so much more regulated and detailed than New Jersey’s program, it is likely to have more legal issues in the initial stages than New Jersey’s program because New Jersey’s laws allow for more room and flexibility regarding experimentation. Because Pennsylvania’s laws are so explicit, Pennsylvania may soon need amendments to allow its growers and dispensaries to operate more efficiently. No matter the state you choose to operate your medical cannabis business, it is imperative to be well informed of the law as cannabis laws are rapidly changing. Business owners must be cautious and thorough regarding compliance with state medical cannabis laws. The assistance of a competent medical cannabis attorney is strongly suggested.
An initial look at the legal landscape of state medical cannabis programs offers little insight into predictability. Each state’s laws are so different from the next state’s laws, revealing a grey area of the law that is likely to become cloudier before it becomes clear. Cannabis business owners and entrepreneurs should expect the unexpected when venturing into this lucrative yet volatile legal landscape.