As the New Jersey legislature hammers out the details of what seems to be an inevitable legalization of marijuana, law firms are gearing up for the legal services that marijuana growers and sellers will need as they ramp up their operations. The demand is thought to be so great that Stark & Stark in Princeton has set up its own group of lawyers specializing in cannabis-related issues.
Leading the group is Gene Markin, a shareholder at the firm whose previous work in corporate formation, transactions, and contracts gave him a foundation of experience for the new realm of legal recreational marijuana.
Markin expects that individual businesses will need representation involving disputes over regulations, licensing, and with municipalities over zoning ordinances and other matters that most businesses tend to get involved in lawsuits over. In addition, there are numerous issues unique to the cannabis business.
The first issue any dispensary will face will be where to locate. Markin says it’s important to know which towns are friendly to cannabis and which aren’t. Although marijuana will be legal statewide, individual townships could still ban its sale. They could also negotiate agreements with cannabis sellers for additional payments needed in order to operate.
“The name of the game is government affairs,” Markin says. Businesses will have to know the political landscape of each municipality and find out who the real decision makers are, whether it is a mayor, a powerful council member, a city planner, or even a police chief. “If the township is not in favor, it’s a dead end,” Markin says. “And a township that has open arms but doesn’t have a suitable property is also a dead end.”
Suitable property includes the normal criteria for setting up a business, in addition to considering whatever regulations will exist concerning how far the dispensary has to be from a school zone, a park, or a church. The landlord of the property also has to be friendly to the idea of setting up a marijuana dispensary on the property.
Another wrinkle is that dispensaries will most likely be required to sell marijuana grown at their own grow operations. These will most likely require large warehouses with sewer, water, and power for a hydroponic operation, most likely an unmarked building out in an industrial zone somewhere that will provoke less scrutiny than a dispensary with a big marijuana leaf sign. “The optics of that are going to be different,” Markin says.
Some townships have already passed ordinances signaling their attitude towards cannabis, but Markin says it’s not a simple matter of using Google to find out where to set up shop. There is no substitute for footwork and going to meetings and meeting the players.
One proposed part of the law is that dispensaries would not be eligible for subsidies and tax cuts from special economic zones and other incentives. This would mean that dispensary owners might have to make extra payments to landlords to make up for the lost subsidies.
Markin points out that a dispensary could be a big economic driver for a retail district, drawing customers to a destination who might be in the market for food or entertainment. “You can really build a small marketplace community around a dispensary,” he said. “People purchase the product, and they want something to eat or to purchase alcohol. It builds a stream of commerce around it.”
In addition to local issues, there is a shadow looming over the entire cannabis industry, which is that it is still illegal at the federal level even though some states have legalized it. Technically the federal government could prosecute anyone dealing in marijuana. Markin doesn’t see much threat of criminal prosecution, however, as Jeff Sessions, the previous attorney general, left enforcement up to district attorneys, and no one has been prosecuted. “The reason is, it would be a waste of resources for them,” Markin says. “I think the overall understanding is that as long as a business is fully compliant with state law, the risk of any kind of federal prosecution is very minimal.”
The federal law does have one major effect, however, which is to make it difficult for marijuana businesses to do their banking. This has resulted in existing businesses in states such as Colorado, where recreational marijuana is legal, using cash-only transactions. Markin notes that some community or state-chartered banks are showing a willingness to do business with cannabis operations, but that this service comes at a premium price. Other dispensaries have chosen to use workarounds, such as using third-party companies as middle men. That is, customers will buy not the actual product, but a “gift card” from a third party, which reimburses the cannabis dispensary. These businesses also take a hefty cut.
Perhaps of even greater concern to business owners is the issue of what will happen if and when the federal government repeals its marijuana ban. This will open the door to interstate and even international marijuana sales. Suddenly the tiny grow houses will be competing with vendors who can provide superior product at a lower price. “I think that will depress the values of licenses,” Markin says. “I think it’s going to reorganize the industry in a significant way.” Imagine a cannabis marketplace where Amazon sells it and ships it out.
Markin recommends that anyone interested in starting a dispensary cut their teeth first growing hemp. Hemp is the same species of plant as marijuana, but is a strain with fewer psychoactive properties, whose fibers have industrial uses. Markin says it’s much easier to obtain a license to buy hemp. He advises growing hemp for two years and gaining experience with how it’s grown before applying for a cannabis license. Hemp growers will have a leg up on getting their applications approved, he said.
Markin was born in Russia and moved to the United States when he was five. His father was an architect but did graphic design work once he moved to the states because his license didn’t transfer. His mother was a dental hygienist. He earned a bachelor’s at Wharton and a law degree from Drexel, graduating in 2010. He has worked at Stark & Stark since then.