The Stay is Lifted – NJ Medical Cannabis Expands

“The stay previously entered by this court is hereby vacated.”

As many are well-aware, the cannabis industry has been plagued by litigation, and New Jersey’s recent experience is no different. Indeed, New Jersey has taken great strides to expand its medical marketplace, with the patient population recently eclipsing 100,000 total patients. Moreover, the New Jersey Department of Health, Medical Marijuana Program (“DOH”) was on pace towards expanding access and production to meet this patient demand, until several litigants preliminarily disqualified from the 2019 Request for Application Round (the “2019 RFA”) filed suit and ultimately obtained a stay that stopped the DOH from reviewing, scoring, and, in turn, expanding the number of licenses available in New Jersey. However, in a decision issued today, the Appellate Division finally concluded that the DOH, and in turn, the entrepreneurs striving to break into the industry, may finally get back to work.

The 2019 RFA opened in July of 2019, whereby the DOH solicited twenty-four (24) total licenses to operate in New Jersey’s Medical Marijuana Program, inclusive of four (4) vertically integrated permits, five (5) cultivation permits, and fifteen (15) dispensary permits. The application round closed in August of 2019, with 196 total applications submitted, and award announcements anticipated by the end of 2019. However, that round came to a screeching halt in December of 2019, when several disqualified applicants filed a challenge before the Superior Court of New Jersey, Appellate Division (“Appellate Division), and petitioned for and obtained a stay from the Appellate Division that barred the DOH from undertaking any additional work on the 2019 RFA, stopping them from reviewing, scoring, and most importantly, announcing award winners of the 150+/- entities whose applications remained in limbo.

By way of brief background, New Jersey Requests for Applications for cannabis licensure include two overarching sections, broken down as Part A and Part B. Think of Part B as the skills competition, whereby each applicant can write a 100-page narrative demonstrating their recognition, understanding, and compliance with controlling statutory and regulatory controls of the cannabis marketplace, and presenting information identifying why it is best equipped to operate and scale to meet the demands of the New Jersey marketplace. Part B is then scored by an application review committee comprised of members of the DOH, Department of Agriculture, and Department of Treasury. Part A, in contrast, is a Pass/Fail section, i.e., either you submit the mandatory required information as to who the company is, who its members are, how it is financed, where it will be located, how the property is zoned, etc., or you’re disqualified. As it related to the 2019 RFA, the DOH disqualified several of the 2019 litigants by virtue of failing to submit various Part A documents. Several of these litigants, in turn, alleged that the required documents had been submitted, but were subject to file corruption as a result of the DOH’s system. The DOH, however, ran a review of these systems and ultimately concluded that the files must have been corrupted prior to submission, and affirmed the disqualification of these entities.

Today the Appellate Division’s decision agreed with the DOH’s process and ultimate conclusions. In particular, the Appellate Division noted the guidance issued to applicants in several different mediums, including by reference to application specific FAQs, which identified that “[a]pplicants assume sole responsibility for the complete effort involved in the application submission.” Moreover, at argument the panel had noted the incongruity of the underlying argument that the DOH’s system was to blame, i.e., if the DOH’s system was so ineffective, why were 150+/- applicants able to successfully submit compliant Part A documentation?

The litigants separately argued that the DOH should have afforded them a hearing-style process to vet the methods by which the DOH assessed these alleged technical problems. However, the panel rejected that conclusion, stating that “[t]he Administrative Procedure Act . . . does not create a substantive right to an administrative hearing,” noting that here, the DOH “was merely determining whether appellants’ submitted the information required by Part A,” and by submitting corrupted files, the submission was non-compliant. The Appellate Division also distinguished the 2019 RFA litigation with the 2018 RFA litigation, which noted alleged inconsistencies in scoring, and remanded the proceedings back to the DOH to afford more fact-finding. For instance, the panel ruled that the 2018 RFA litigation “dealt only with the manner in which the [DOH] scored certain applications as to the Part B criteria,” whereas this litigation assessed mere technical compliance with Part A. (Emphasis added.)

What this opinion by the Appellate Division demonstrates is the importance of understanding not only the statutes and regulations governing the DOH, but more so, every single piece of regulatory guidance issued by the DOH. For instance, throughout the decision the Appellate Division noted not only the application itself, but the myriad of application related materials, i.e., the RFA, webinars, FAQs, etc. True, the DOH is obligated to comply with controlling statutes and regulations, but the Appellate Division plainly reinforced its deference to the manner in which those rules and regulations are interpreted, understood, and communicated by the DOH. In short, applicants must leave no stone unturned when attempting to divine and understand what the DOH is asking for in any individual application, and, endeavor to strictly comply with this larger universe of guidance materials or risk disqualification and the premature end of their hard fought – and often expensive – efforts.

But more importantly, what this decision means is that the population of 100,000 patients who have been painfully waiting for increased capacity and access to the medical program, and the 150+ applicants who have poured their blood, sweat, tears, and nest-eggs into these applications, will finally receive the expansion of the program that everyone has tirelessly worked towards.

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