General Business

3 Legal Challenges of Recreational Cannabis

Adult-use cannabis is legal in New Jersey, but there are issues that employers, both in the industry and outside of it, should consider.

From July 2022 to September 2022, New Jersey recreational cannabis sales totaled $116.5 million. This marks a 46% increase from the $79.7 million in revenue generated from April 21 – when the adult-use marketplace opened – through June, according to the New Jersey Cannabis Regulatory Commission (CRC).

The figure increases to $177.7 million when you factor in medicinal sales from that same time period.

There are now 20 dispensaries in New Jersey selling recreational cannabis, and another 10 that sell medicinal cannabis to registered patients only.

According to CRC Executive Director Jeff Brown, New Jersey is only seeing the beginning of what is possible for cannabis.

“We have now awarded 36 annual licenses for recreational cannabis businesses to New Jersey entrepreneurs, including 15 for dispensaries. Those businesses alone will be a significant growth of the market. With more locations and greater competition, we expect the customer base to grow and prices to come down,” Brown says.

Overall, cannabis in New Jersey is expected to grow into a more than $2 billion a year industry by 2026.

While widespread cannabis use and acceptance appear to be on the rise based on current sales numbers and future projections, there are still a number of legal challenges that employers, both in the industry and outside of it, should consider.

Policing Cannabis in the Workplace

This past September, the CRC issued interim guidance on the workplace drug testing provisions of the state’s recreational cannabis law meant to act as a placeholder until regulations on the standards for Workplace Impairment Recognition Expert (WIRE) certification are published.

The New Jersey statute legalizing cannabis provides that a WIRE should be utilized by employers to determine if an employee is impaired, but the certification procedures and standards for a WIRE have not yet been issued (at press time).

“Striking a balance between workplace safety and work performance and adult employees’ right to privacy and to consume cannabis during their off hours is possible,” the CRC’s Brown says. “We have been doing that with alcohol without thought.”

However, because cannabinoid metabolites can show up on a urine test weeks after consumption (and long after the effects of the consumed cannabis wear off), the guidance iterates that employees cannot be acted against solely due to the presence of cannabis in their body, but that employers do have the right to drug test on reasonable suspicion of impairment.

“The September 2022 guidance states that employers may designate an interim staff member to assist with making determinations of suspected cannabis use during the employee’s prescribed work hours,” explains Tracy A. Armstrong, shareholder and co-chair of the Employment Law team at Woodbridge-based Wilentz, Goldman & Spitzer, P.A. “[The guidance says] this employee should be sufficiently trained to determine impairment and qualified to complete a Reasonable Suspicion Observation Report – though the guidance does not define ‘sufficiently trained and qualified.’ An employer may also hire a third-party contractor to make such a determination.”

A Reasonable Suspicion Observation Report sample is available for download on the state’s website, and enables employers to document the behavior, physical signs, and evidence that support that an employee is under the influence during work hours. (See sidebar.)

Employers may also use a cognitive impairment test, a scientifically valid, objective, consistently repeatable, standardized automated test of an employee’s impairment, and/or an ocular scan, as physical signs or evidence to establish reasonable suspicion of cannabis use or impairment at work.

“Employers need to be very careful and should not terminate an employee (or an applicant) solely for having cannabinoid metabolites in their fluid,” Armstrong says. “If you believe they are impaired and the employer is going to terminate the employee, make sure you document the reasons you believe they are impaired.”

She notes that employers should also be cognizant of other issues, such as disability laws, which may also protect a medical cannabis user. “When it comes to cannabis, don’t treat protected classes differently unless there is a legitimate business reason to do so,” she says.

Consumption Lounge Liability

In December, the CRC approved a proposed framework that would allow medical dispensaries and recreational use retailers to operate consumption lounges, which would allow customers to consume cannabis onsite in a lounge-type setting.

While official rules for consumption lounges are not yet published at press time, there are some liability concerns to consider for operators.

“You can analyze liability issues from the viewpoint of a bar or restaurant that serves alcohol or allows you to bring your own,” says Michael F. Schaff, co-chair of the Corporate, Health, and Cannabis Law practice groups at Wilentz, Goldman & Spitzer, P.A.

He points to dram shop laws, which establish the liability of establishments arising out of the sale of alcohol to visibly intoxicated persons or minors who subsequently cause death or injury to third parties as a result of alcohol-related car crashes and other accidents.

“I can’t tell you that is what is going to happen, but that is the most analogous situation,” Schaff says.

Cannabis Banking

While cannabis continues to become legalized on the state level, it is still federally illegal.

“The banking system is regulated by federal law, and since federal law still classifies marijuana as a Schedule 1 drug and considers marijuana businesses illegal, banks that provide financial services to cannabis businesses risk charges of aiding and abetting a federal crime or even money laundering if they choose to do business with marijuana-related ventures,” Schaff says.

The SAFE Banking Act would provide protections for financial institutions that work with state-legal marijuana businesses, but at press time, that legislation has yet to make it past the Senate.

“Without the SAFE Banking Act, not only would cannabis businesses have very limited access to funding/capital to help operate their businesses, but they would also have very limited access to legal, accounting and other professionals that would not be willing to take the risk under federal law associated with engaging in such a practice,” Schaff explains. “The impact will vary from bank to bank depending on their comfort with the extent and protection of the SAFE Banking Act.”

Schaff points out that there is a potential “loophole” that a small number of banks have chosen to use, but it requires the banks to file “suspicious activity” reports for every transaction made by marijuana-related businesses.

“Most financial institutions have decided that the risk and hassle are not worth it, and they are ‘just saying no’ to the marijuana industry,” he says.

Fortunately for employers, many of the legal issues that remain questions today, including the three mentioned above, appear poised to receive some semblance of clarity in the near future. But for now, it is a waiting game, so businesses should tread carefully.

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