Following a recent Appellate Division decision, NJ can now resume the process to approve up to 24 additional licenses for new medical cannabis dispensaries…
New Jersey’s process for approving new medical cannabis dispensaries (also known as alternative treatment centers or ATCs) has been on hold for more than a year. Following a recent Appellate Division decision, the state can now resume the process to approve up to 24 additional licenses. Given that medical cannabis dispensaries will likely be the first to sell recreational legal cannabis, the court ruling is good news for New Jersey’s medical and recreational cannabis industry.
Lawsuits Challenging ATC License Application Process
New Jersey’s Medicinal Marijuana Program (MMP) has struggled to reach its full potential. To date, New Jersey has issued only 12 vertically integrated medical marijuana licenses. Just 10 are currently operational, leading to significant supply shortages. In 2019, the New Jersey Department of Health requested applications for 24 new licenses, including 4 vertically integrated, 5 stand-alone cultivation facilities, and 15 dispensaries. It received a total of 196 applications before the application round closed in August of 2019.
The application review process came to a halt when several applicants filed suit after receiving a preliminary denial from the NJDOH. The NJDOH rejected applications submitted electronically by several applicants because it could not open the attached files. The NJDOH also rejected applications from several others because they were not timely submitted. Additionally, the NJDOH rejected the applications of five others because they were found to be unresponsive on one or more criteria set forth in the Request for Applications (2019 RFA).
The ATC applicants’ suits alleged that the NJDOH made numerous errors in its initial screening of entities to operate ATCs to grow, process, and dispense medical marijuana. Among other arguments, the applicants argued that the NJDOH’s decision to disqualify them was arbitrary, capricious, and unreasonable because of file corruption problems with required documents. According to the applicants, the agency’s systems were to blame for corrupting the files rather than their own user error.
The Appellate Division granted the applicants a stay that suspended the NJDOH’s review of the other applications received in response to the 2019 RFA while the lawsuits worked their way through the legal system. Accordingly, the NJDOH has not yet evaluated any of the applications that were deemed eligible for scoring.
Court Gives Green Light to Consider 2019 RFA Applications
With the exception of the claims raised by one applicant, the Appellate Division sided with the NJDOH.
The Appellate Division rejected arguments that the NJDOJ acted arbitrarily, capriciously, or unreasonably in failing to excuse appellants’ inability to timely file complete and uncorrupted applications. In support, it highlighted that the RFA repeatedly stated that submission deadlines were “absolute” and that failure to submit a complete application by the relevant deadline would result in disqualification. The court further noted that a webinar and FAQ document provided by the NJDOH regarding the RFA submission process also advised that applicants took on full responsibility for submitting timely applications.
“Tellingly, the Department responded to a question about how applicants could ‘gain confidence’ that an application had been received ‘in its entirety as originally sent,’ by repeating that applicants ‘assume sole responsibility for the complete effort involved in the application submission,’ thereby conveying that any difficulties with electronic submission would not excuse lateness or incompleteness,” the Appellate Division wrote.
The Appellate Division found that the application of one applicant, ZY Labs LLC, should not have been disqualified and may proceed to the scoring phase of the NJDOH review process. According to the court, proof of community approval alone, without proof of governing municipal body approval, was sufficient to avoid disqualification.
Additional Lawsuit Challenging Scoring Criteria
The NJDOH’s 2018 RFA also faced legal challenges, which the Appellate Division decided in November. While the ATC applicants in the suits challenging the 2019 RFA raised issues with the NJDOH’s compliance review of Part A of the application, the ATC applicants challenging the 2018 RFA contested the manner in which the NJDOH scored certain applications as to the Part B criteria.
The Appellate Division agreed that the scoring system employed by the NJDOH produced “arbitrary results,” which it failed to explain. “[W]e have considerable concerns about the Department’s processes and the results produced that – without further agency proceedings and explanation – would leave us to conclude that the decisions in question are arbitrary, capricious and unreasonable,” the court wrote. The Appellate Division did not order the NJDOH to approve the challenged applications, but rather remanded them back to the agency. At this point, it is unclear what changes the NJDOH may make to the application scoring procedures to address the court’s concerns.
Lessons for Prospective Cannabis Licensees
Applying to become an ATC or a recreational cannabis licensee is not an easy process. As highlighted by the Appellate Division’s recent decision, it is imperative to understand and comply with all of the regulatory requirements, which may be set forth in statutes, regulations, agency guidance, and even FAQs. Because failing to do so may doom your application, wasting both time and money, we encourage all businesses to work with an experienced cannabis attorney who can help you navigate the system.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:
Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.
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