New Jersey is an emerging cannabis marketplace with a litigation problem. Litigation is not uncommon for competitive application rounds, and unfortunately, New Jersey’s 2019 request for applications (the “2019 RFA”) for twenty-four (24) medical alternative treatment centers (“ATCs”) (inclusive of four (4) vertically integrated permits, five (5) cultivation permits, and fifteen (15) dispensary permits) has been held up for close to a year due to a challenge by a few disqualified entities that subsequently obtained a stay of the process from the Superior Court of New Jersey, Appellate Division (“Appellate Division”). So what happened, what is happening, when will license awards be announced, and what do we anticipate will come next?
As you may be aware, the 2019 RFA was announced in July 2019, with applications to be submitted by no later than August 22, 2019. Applications for licensure in New Jersey are roughly broken down into two segments: (1) Part A, consisting of mandatory objective information such as evidence of corporate structure and governance, financing, site control, community support, local approval, and other similar disclosures; and (2) Part B, consisting of substantive information as to why the applicant believes that awarding it a permit to operate in New Jersey would be in the best interests of the medical cannabis program. All of the RFAs issued by the New Jersey Department of Health (“DOH”) make clear that the failure to provide mandatory information requested under Part A constitutes a disqualifying event, thereby resulting in a denial of the entity’s application.
Following the close of the 2019 RFA, a total of one hundred ninety-six (196) applications were submitted. Following an initial review of these applicants’ Part A, fifty-one (51) applicants were disqualified, most for failure to submit the materials required by Part A (with others having failed to submit the mandatory application fee, and/or having submitted their application after the deadline). Approximately nine (9) of those entities who were disqualified filed a challenge to the disqualification, alleging that they had in fact submitted the materials required by Part A, and arguing that a technical glitch on the part of the DOH’s server resulted in these materials being omitted.
These nine (9) entities also made a motion to stay the DOH from undertaking any additional review of the remaining applications and from making any award announcements prior to the Appellate Division rendering a final decision. The Appellate Division granted the stay request, thereby barring the DOH from undertaking any further review of the remaining one hundred forty-five (145) applications. At this point in the proceedings, the appeal is fully briefed, and simply awaits the scheduling of oral argument, which is anticipated to occur over the coming weeks. Once oral argument is held, there is no set time-frame under which the Appellate Division must issue a decision.
The impact and outcome of this appeal will have a significant impact on the industry, one way or the other. At its most basic level, once the appeal is over, the DOH can get back to work. For instance, though the patient population has continued to grow in conformity with the DOH’s internal projections (the DOH anticipated 98,000 enrolled patients by January 2021, with the patient population currently sitting at approximately 92,000 patients), the number of licenses has obviously failed to keep pace in light of the Appellate stay. Though the DOH projected a need for at least 35 dispensaries and 22 cultivation facilities by this point in time, those numbers linger at 12 dispensaries, and less than 12 operational cultivation facilities.
Thus, no matter how the Appellate Division rules, the critical impact will be that the stay is lifted, the 2019 RFA winners ultimately announced, and the likelihood of additional forthcoming RFAs to scale up with the corresponding patient demand. Regardless of the outcome of the pending adult-use referendum (which polling strongly suggests is likely to pass), 2021 promises to be a busy year for medical cannabis in the State of New Jersey.
For further information, please feel free to contact Michael C. McQueeny, Erica Rice, Jesse Alderman, Kevin Conroy, or any of Foley Hoag’s experienced cannabis attorneys.