Harvesting new business Evolution of NJ cannabis market presents big opportunities for local firms

Martin Daks//November 12, 2018

As support for legalization of recreational marijuana use gains steam, lawyers are gearing up for a bumper crop of business. A recent Rutgers-Eagleton poll shows 58 percent of state residents favor the legalization of adult use, and legislation is expected to be introduced before the end of the year. Meanwhile, the state has expanded its medical cannabis program and will soon be awarding licenses for six new alternative treatment centers.

The North American cannabis market alone is worth anywhere from $10 billion to $50 billion, according to some estimates, prompting an increasing number of law firms to gear up to practice in this new, developing space.

“One of the most important issues is to be cognizant of the business and industry nuances and to ensure that the skills of your law firm match up,” according to Patrick Harrity, an associate at McCarter & English LLP who helped form a cannabis practice at a previous firm and is leading the effort there, too. “Setting up a cannabis group is a multidisciplinary approach. You start by identifying the firm’s talent resources and expertise and see if you’ve got what it takes or if you need to recruit outside talent, too.”

At McCarter & English, the cannabis practice draws on a variety of practices, including one that focuses on emerging growth companies.

It takes all kinds

David Sorin is a CPA and an office managing partner at McCarter & English. He’s known as a tech guy and co-chairs the law firm’s venture capital and emerging growth companies practice. So why is he getting involved in the cannabis arena?

“It’s an emerging market, and everything I do is in emerging markets,” said Sorin, who previously worked as a corporate finance attorney on Wall Street, where he represented venture capital and other money sources in emerging markets.

“When I started working in New Jersey in the early 1990s, life sciences, biotech and pharma were the growth areas,” he said. “By the mid-90s, it was medical devices, computers and cable, followed by mobile telecommunications. Each time I applied my emerging market skill sets and leveraged my existing understanding, took advantage of our firm’s learning and training resources, and applied them to each new market.”

Harrity represents clients who are involved in various stages of the cannabis industry and has counseled them about applying for a medicinal alternative treatment center license. He’s also represented license recipients and counseled them on issues that include acquiring private funding to support the expansion of their businesses, sales of retail licenses and a variety of regulatory and federal issues.

“There are so many regulatory and other concerns — including the fact that marijuana is illegal under federal law, although some states have legalized aspects of its use — that we end up serving as a kind of business advisor, in addition to counseling clients on legal issues,” he added. “I’m speaking with some West Coast clients almost every day.”

ln a developing market like this, locating legal guidance could be a stumbling block, but Harrity said there are some authoritative sources. “One resource is West Coast states that have some experience with legalization,” he said. “There are also many industry conferences, and I’m on a New Jersey State Bar Association special committee that’s studying cannabis issues.”

Developing the practice didn’t involve a huge capital investment, “since we already have deeply experienced people in a variety of areas,” he added. “Cannabis has already generated an immense amount of inquiries from existing and potential clients.”

Participation in the medical marijuana market raises important legal questions and regulatory considerations for businesses and individuals alike, according to Michael Schaff, a Wilentz, Goldman & Spitzer PA shareholder and co-chair of the law firm’s cannabis team.

“New Jersey is ahead of some states that don’t even have medical cannabis, but we’re behind states like Colorado and Washington,” he said. “There’s a lot of buzz about legislation in New Jersey, but it will probably take some time for the Legislature to actually pass anything. Recreational legalization isn’t just around the corner here.”

When it came to establishing the firm’s cannabis practice, “we were able to draw on about eight years’ experience, thanks to New Jersey’s Compassionate Use Medical Marijuana Act,” according to Shareholder and Cannabis Practice Co-Chair Angelo Cifaldi, who is also a pharmacist and an adjunct associate professor of pharmacy law and bioethics at Rutgers College of Pharmacy.

“In creating a new practice like this, a firm starts with the practice background it already has and then adds state bar association and other resources,” added Schaff. “You also have to understand how existing law in New Jersey and elsewhere will impact this new area. I’m trained as a transactional lawyer, so this just another industry we need to learn about.”

Smoking out the issues

Full legalization of marijuana may not be around the corner, but New Jersey lawyers and others who want a piece of the market should start taking planning now, according to Lee Vartan, a member of Chiesa Shahinian & Giantomasi PC and leader of the firm’s cannabis law practice.

“People ask me about the right timing for the business, and I’ve told them that with the introduction of Senate Bill 2703, they need to think now rather than waiting for full legalization to kick in,” Vartan said, referring to the New Jersey Marijuana Legalization Act, which would legalize possession and personal use of marijuana for persons 21 and over and create a Division of Marijuana Enforcement and licensing structure.

“Even if the state legalizes it, there will always be a ‘home rule’ component, so anyone considering establishing an alternative treatment center or other outlet will have to find a town that allows growth, cultivation or distribution within its borders, so there could be zoning issues,” he added. “In the latest round of state licensing, we represented five parties across the state that hope to operate vertically integrated facilities.”

Vartan previously served as a federal prosecutor in Newark, counsel to the governor — where he helped to write and vet the CUMMA regulations — and served in the attorney general’s office prior to joining CSG.

To create the cannabis practice, CSG “brought together various specialties within the firm, including lawyers who focus on litigation, regulatory issues, procurement, real estate, intellectual property, government affairs and others,” as well as lobbyists, Vartan said. “There may be unique IP challenges, since marijuana is still illegal under federal law. We’re also careful to explain that even if marijuana is legal under state law, federal authorities could investigate or potentially seize [a company’s] operations and prosecute them. We don’t think that’s likely, though.”

Initially, there was a lot of back-and-forth over the issue of opening a cannabis practice, he noted. “Lawyers tend to be risk-averse, so there was a lot of discussion. Plus we have people who grew up during the ‘war on drugs’ and ‘Just Say No’ eras, so there were ethical questions too. But in the end we agreed this a new, expanding area where a lot of people will need guidance.”

As with other law firms, Norris McLaughlin & Marcus PA drew on internal resources to develop a cannabis practice so the startup costs were manageable, according to Keya Denner, member of the firm and chair of its cannabis law group. “But there is an investment in researching the developing law, and for the most part that’s not billable at this point,” he said. “Still, it’s important to get in on the ground floor of a development like this.”

“I haven’t read this much since law school,” he continued. “It’s evolving every week, so you have to read everything, from legalization developments to investing. I share an average of five to 10 articles each week with our team.”

There are issues in every state looking to legalize marijuana, but Denner thinks the spotlight will be on New Jersey.

“As a densely populated state, we could be a trailblazer,” he said. “How will legalization of adult recreational use affect our traffic safety, given our jammed roads? We have talented lawyers involved already, and many more will be pouring into this new area.”