Watch, but don’t wait (video)

For would-be cannabis entrepreneurs, the legal terrain is always shifting

Gabrielle Saulsbery//May 28, 2019

Watch, but don’t wait (video)

For would-be cannabis entrepreneurs, the legal terrain is always shifting

Gabrielle Saulsbery//May 28, 2019

It’s been a busy couple of weeks for cannabis-related news, though perhaps not how industry folks and politicians favoring adult use would have expected.

With the recent derailment of adult-use cannabis legislation has come a strengthened focus on medical expansion and expungement and changes are moving through the legislature. Separately, the Department of Health released new rules on medical cannabis last week.

At a May 21 NJBIZ panel discussion on the cannabis business, cannabis law head at Archer & Greiner PC and industry lobbyist Bill Caruso suggested people focus on the new DOH regulations as a guide before turning to the new legislation.

“[Senate Bill 10 and Assembly Bill 10] passed out of committee Monday, and there were significant changes made. You should familiarize yourself with those changes, much different than what was on the board in March,” Caruso said. “But they have not been vetted yet, through the public or Legislature – I’m not saying there’s anything scary or ugly, it just changed.”

The new medical cannabis rules eliminate the vertical integration requirement, remove the requirement for added “debilitating medical conditions” to be referred to the Medicinal Marijuana Review Panel, emphasize the advisory role of the MMRP as a guide to the State Health Commissioner, and remove the psychiatric evaluation requirement for the certification of minors as patients.

The elimination of the vertical integration requirement for alternative treatment centers paves the way for the creation of a separate permitting system for cultivation, manufacturing and dispensing cannabis. Not only will this move increase the available supply of medical cannabis to patients, it allows for specialization in the market, and reduces the outlays needed to enter the industry.

“This is designed to open up the market to people who can’t do everything. They don’t have $20 million for a vertically integrated operation, but they do have some of these resources,” said Dan McKillop, head of the cannabis law practice at Scarinci Hollenbeck. “[To clients interested in adult-use licenses] we’re saying, ‘We know you were excited to get into adult-use. That’s going to have to be tabled, but the point is, you’re going to be able to apply when all the dust settles for the same kind of licenses on the medical side.’”

In the forthcoming Request for Applications, Caruso said he expects “double-digit” numbers to be available, up to 30. And, he said, if someone is interested in getting into the business, “you’d be a fool not to apply [when the RFA is released] waiting for what happens sorting through the political mess.”

Caruso and McKillop were joined on the panel in Somerset by Curaleaf Vice President of Capital Projects George Schidlovsky and HillviewMed Chief Executive Officer Ken VandeVrede. New Jersey CannaBusiness Association President Scott Rudder moderated the panel, which also delved into federal measures related to cannabis, the cost of medicine, cannabis as a ballot issue and cannabidiol products.

Federal first

At the federal level, lawmakers are reviewing Strengthening the Tenth Amendment Through Entrusting States (STATES) Act and the Secure and Fair Enforcement (SAFE) Banking Act. The STATES Act would protect states’ rights to enact cannabis laws by amending the Controlled Substances Act to exempt state-legal cannabis activities. The SAFE Act, introduced by New Jersey Democratic U.S. Sen. Bob Menendez, would allow legal cannabis businesses to bank in federal financial institutions without the risk of having their account shut down and their business interrupted.

When these issues are resolved on a federal level, according to McKillop, New Jersey will see a boon in the cannabis industry, including by ancillary businesses like HVAC.

“Once the federal issue is resolved, the industry just absolutely explodes because everyone sees it for what it is. It’s a business,” McKillop said. “The economics has to come along, the insurance has to come along, the banking has to come along. Once that hurdle is overcome by way of federal action, it’ll be an entirely enormous new ballgame.”

Cannabis costs

The measures will also affect the cost of cannabis, VandeVrede said. When cannabis businesses can obtain financing at a reasonable rate, the cost of production goes down and therefore so does the cost to the patient.

“What everyone’s failing to realize, is that cannabis just like hemp, is going to be a commodity,” said VandeVrede, a third-generation farmer. “Whether it’s five or 10 years, cannabinoids are going to be a commodity. It’s going to be the low-cost producer in the future, so if you don’t write your business plan to be a low-cost producer, you’re pretty much going to write yourself out of the market.”

Schidlovsky pointed out that cannabis currently rings in at $4,500 per pound. Cannabis is the least expensive medicine in the world, he said, but because medical cannabis patients can’t currently use insurance to access their medicine, cost has been a bar of entry for some.

“What they don’t realize is the insurance companies are getting billed by the manufacturers huge, huge mark-ups [on traditional medication] and because those products are FDA cleared, there’s a recuperation of all the costs of medical research,” Schidlovsky said.

For now, Curaleaf offers discounts for minors, veterans and people on Social Security Disability.

Medical cannabis has garnered some surprising allies in the insurance arena, Caruso said. Particularly in the workers comp arena, he said, “folks are going ‘Wait a minute. This is cheaper, [has] better outcomes, and you don’t have employees that get addicted to a painkiller. Can we learn more about this?’

“Where the insurance industry is now is you have insurance lobbyists in Washington lobbying for medical cannabis,” he added. “You have insurance companies trying to figure out innovative ways where they can pay a patient and reimburse for cannabis rather than the cannabis company. We’re having the conversation at the state level where states might involve themselves in some type of fund that would look like a public insurance subsidy for medical cannabis.”

Non-medical cannabis patients have also sought the benefits of cannabinoids, particularly cannabidiol, or CBD, which comes from cannabis and its “boring cousin” hemp.

But panelists also warned the audience to be aware their CBD product’s origins.

“Hemp is a phenomenal plant, and one of the things it does, it cleans up soil. So what some of these countries are doing is putting a bunch of hemp down on brownfield areas and toxic areas, they’re cleaning up the area, then they’re converting it into CBD and selling it to us at the gas station,” said Rudder. “Be very, very cautious of what you’re purchasing.”

CBD is a trendy food additive right now, but it’s still illegal, McKillop noted, because it’s classified by the FDA as a drug to treat childhood epilepsy. But because the FDA knows it’s happening, he said, they’re trying to “work their way through it.”

For CBD product purveyors, VandeVrede recommends only purchasing CBD from hemp grown on U.S. soil, a program primed for expansion when the USDA hemp regulations under the 2018 Farm Bill are released this fall.

“Chain of custody of the product from seed all the way through is extremely critical,” he said. “I would definitely not take any hemp from out of the country. You don’t know what China is doing, you don’t know what kind of pesticides they’re putting on the product.”

VandeVrede said he expects CBD to become more widely used in the pharmaceutical industry in the future, and for the CBD market to outpace the THC market.

Prospects for 2020

So—about the adult-use cannabis ballot question that might come up during the November 2020 election—is that a good idea, or a bad idea?

The panel’s lawyers panned the idea.

McKillop said putting it on the ballot in 2020 postpones the whole industry for a minimum of two years.

It leaves many of the issues surrounding legalization now, such as social justice and racial equity issues up in the air, Caruso noted.

“What would happen here is a constitutional amendment, and when you amend the constitution, you have to be very specific and very general. It would be taxed and regulated for adults 21 and older, and all the other details are left up to later,” he said. “Even if it passes, we’re right back to where we are now carving up the exact same stuff.”