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How legal marijuana in N.J. will disrupt Pa.'s medical program: A Q&A with Duane Morris lawyers

New Jersey is almost certain to legalize marijuana for adult recreational use within a year, and that's sure to have major repercussions on Pennsylvania's nascent medical cannabis industry. The Inquirer spoke with two lawyers with an inside track on what to expect in 2018.

A marijuana plant.
A marijuana plant.Read moreDreamstime/TNS

New Jersey is almost certain to legalize marijuana for adult recreational use within a year, and that's sure to have major repercussions on Pennsylvania's nascent medical cannabis industry.

Gov.-elect Phil Murphy ran on a platform calling for full legalization of all forms of marijuana for anyone over 21. Industry analysts say the Garden State cannabis market could be worth $1 billion a year and generate an annual $300 million for the state's tax coffers.

"It could be massive," said Chris Walsh, editor of Marijuana Business Daily, addressing the MJBizCon cannabis convention, which drew 18,000 people this month in Las Vegas.

Bills are pending in both houses of the Legislature, and though a few lawmakers have expressed reservations, State Senate President Stephen Sweeney (D; Gloucester) also considers legalization "a priority."

Pennsylvania's medical marijuana program, set to launch in the first quarter of 2018 and offering only oil-based products, may find itself outmaneuvered. Already, some entrepreneurs envision the equivalent of "Total Weed" shops just across the bridges. If Jersey marijuana is less expensive, legal for all adults, and sold in forms not available in Pennsylvania (buds and edibles, primarily), expected profits for the Keystone State's growers and dispensers could take a serious hit, especially in the southeastern part of the state. That could prompt legislators in Harrisburg to consider full legalization sooner than later.

The Inquirer spoke with two Duane Morris LLP lawyers who represent marijuana clients on both sides of the river. Seth A. Goldberg, based in Philadelphia, heads the firm's cannabis practice. Paul P. Josephson, based in Cherry Hill, served as counsel to Murphy's gubernatorial campaign and is an adviser to the New Jersey Cannabis Industry Association. The questions and answers have been edited for concision.

How soon will we see New Jersey move to legalize cannabis for all adults?

Josephson:  It's likely we'll see legislative action by June. In the interim, I wouldn't be surprised if there was another call for license applications and the governor or Legislature looks to broaden the number of qualifying medical conditions.

What will it look like if New Jersey approves full recreational use?

Josephson: I would expect that Gov.-elect Murphy will appoint a commission or panel to provide guidance. The legislation that is out there right now doesn't define the number of licenses. It creates a new Division of Marijuana Enforcement inside the Attorney General's Office, similar to the Division of Gaming Enforcement. The legislation leaves it to the director and AG to determine the number of licenses on a town-by-town basis.

Will towns be able to opt out and declare themselves “dry”?

Josephson: Yes. Currently, they would have one year to opt out of the system. Every five years they could reconsider whether they want to allow cannabis-related operations.

What will legalized recreational use in Jersey do to the Pennsylvania medical marijuana program?

Goldberg: It's not unreasonable to imagine people going to New Jersey to buy cannabis and, as a result, the Pennsylvania program would not be as profitable as originally anticipated. The assumption seems to be that Pennsylvania is not likely to become a recreational-use state any time soon. If and when New Jersey goes rec, the loss of revenue to New Jersey would seem to be a reason for the Pennsylvania legislature to consider going recreational.

Josephson: To the extent New Jersey is projecting that 10 percent of marijuana revenues might come from Pennsylvanians, I think it's obvious the N.J. program could have a negative impact on Pennsylvania revenues.

Goldberg: Delaware is also considering going recreational. … Given that there appears to be only one dispensary that will open in Philadelphia, it seems reasonable to expect people will consider going to South Jersey and Delaware for recreational cannabis.

How are your clients on both sides of the river viewing the new markets?

Josephson: The currently licensed medicinal dispensaries in New Jersey are obviously looking to much better days ahead after limping along for the last several years. There's a lot of interest from within the state and nationally, especially given that it's pretty rare to get legalization without a referendum. We now have a governor who has signed on full bore. I can guarantee that it will be a rigorous regulatory process, but we'll have an environment that welcomes this industry. People are very bullish on New Jersey.

Goldberg: People in Pennsylvania are also considering setting up in New Jersey, though it's unlikely they will stop pursuing their operations in Pennsylvania until more is known about the program in New Jersey.

Will we see the big Western and Midwestern marijuana operators dominate the New Jersey market? Will there be room for mom-and-pop shops?

Goldberg: In Colorado and other states we've seen, there are challenges to operating a single dispensary. The costs are high, and you got a tax deduction problem. [Income is federally taxed at 40 percent, and the costs of doing business cannot be written off.]

Josephson: What you will see is some effort to ensure a diversity of licensees and an effort to ensure diversity in operation size and ownership. I'm confident that minority ownership will be favored in the process. … There will be a role for the mom-and-pop operations, especially in the smaller towns and suburbs. A license will be granted by the state, but you'll need local land-use approval, and mom-and-pops are a much more comfortable fit for municipalities than a large franchise model. Who do you prefer? A local restaurateur or a McDonald's?


Marijuana grows in a warehouse facility at Garden State Dispensary in Woodbridge.

Because the federal government considers marijuana an illegal drug, banks are reluctant to handle the huge amounts of cash generated by them. Can N.J. do something to remedy that?

Josephson: That remains to be seen. Gov.-elect Murphy wants to create a public bank, an idea which had nothing to do with cannabis. The only other state with a publicly owned bank is North Dakota. Murphy has spoken about a public bank that holds on to state cash and would be in a position to provide student loans and make small-business loans. Whether that entity could be structured to accept cannabis-related deposits, you'd have to think it was on the table if there's a way to make it happen.

Pennsylvania’s medical marijuana law allows for special Clinical Registrants permits, which will create lucrative opportunities for a grower to pair with an academic health system to create opportunities for research. … Could the change in New Jersey law, and a proliferation of cannabis businesses across the river, make those permits moot?

Josephson: Ultimately, the most revenue is in recreational use, but the untapped revenue is in clinical research. … The biggest potential is in development of other beneficial uses for cannabis beyond recreational use. That's where the long-term positive opportunities are, and both states are in position to be leaders in this area where other states aren't. If we get to the point where the federal government relaxes its position, Pharma is going be really interested in this space.