Appellate court rejects preemption challenge to NJ's cannabis law (2024)

A New Jersey appeals court determined that the state’s recreational cannabis law is not preempted by federal marijuana laws and that both can coexist. In a May 1 opinion, a three-judge panel affirmed a lower court ruling against a group of Highland Park residents who believe the borough violated federal law by allowing the sale of adult-use marijuana because the substance remains federally illegal.

The appellate panel – which comprised Judges Jack Sabatino, Mark Chase and Robert Vinci – held that the federal Controlled Substances Act does not preempt New Jersey’s Cannabis Regulatory, Enforcement Assistance and Marketplace Modernization Act.

Additionally, the court affirmed a prior ruling that Highland Park’s cannabis ordinances are authorized by CREAMMA and therefore are not preempted by the CSA. “It is not impossible for New Jerseyans to comply with the CSA after the enactment of CREAMMA. CREAMMA does not require any person to possess, purchase, or use marijuana. The statute does not require any business to sell marijuana, or any municipality to adopt, as here, an ordinance to allow marijuana dispensaries within its borders. The residents and marijuana businesses of this state act at the risk that their activities might be prosecuted by federal authorities,” the panel wrote.

New Jersey’s law would also not get in the way if federal officials decided they wanted to pursue cases more aggressively for violating federal cannabis laws and both codes can exist simultaneously, the panel said.

The judges also found that plaintiffs provided no evidence that CREAMMA has proved an impediment to federal enforcement. And the opinion cited the federal government’s shifting tone on cannabis, which has included advising local officials to deprioritize prosecution of “marijuana activities” that are legal under state law. Since 2014, Congress has approved a budget amendment that prohibits the Department of Justice from using its funds to prevent states from implementing medicinal cannabis laws.

New Jersey’s decision is similar to other state court rulings in recent years, the judges said.

Those cases include a 2020 ruling by the Oklahoma Supreme Court that the state’s proposed constitutional amendment allowing, regulating and taxing the use of recreational marijuana would not be preempted by the CSA.

Elsewhere, in 2021, the Supreme Court of New Hampshire ruled that its state laws concerning reimbursem*nt of the cost of medical marijuana did not conflict with the CSA. And in 2024, a New York state court rejected a challenge to its state cannabis statute regulating marijuana dispensaries and on-site consumption businesses.

Return to sender

The court also revived state law claims brought by the plaintiffs challenging the municipality’s cannabis ordinances, giving them another chance to express their objections.

The ruling comes about six months after Middlesex County Superior Court Judge Bina Desai dismissed the lawsuit for failing to state a claim on which relief can be granted. Heard March 18, the appeal was opposed by the New Jersey Attorney General’s Office, which said the plaintiffs lack standing to challenge CREAMMA.

The appellate panel rejected Desai’s findings that the complaint was time-barred because it was filed more than 45 days after Highland Park adopted the first of two cannabis ordinances.

Since the complaint is a challenge to the laws on their face – not an “as-applied” challenge – the judges said plaintiffs could revisit their claims in trial court if they can show that the ordinances’ enactment has led to nuisance issues.

The first ordinance, adopted in August 2021, allows cannabis retailers, delivery services and consumption lounges to operate in town. In March 2022, the borough council approved a second cannabis-related ordinance that refined the local licensing process, as well as clarified provisions for medical dispensaries.

Before the passage of both measures, the plaintiffs “repeatedly warned” local officials “verbally and in writing” that the plans “to establish Highland Park as a ‘Pot City Destination’ violated federal law and would be detrimental to the quality of life for the borough’s inhabitants,” according to the complaint.

While Desai found the lawsuit was filed too late because it came more than 45 days after the adoption of the first ordinance, it was filed within 45 days of the second ordinance and the two codes are “inextricably linked,” the appeals court said.

The judges also wrote that it would not make sense for the court to decide the validity of one ordinance without factoring in the other. Additionally, they believe that the issues in the case are of enough public importance to justify extending the deadline, given the impact the laws have on local business and residents.

“The continued viability of the ordinances plainly affects residents of the borough (who, among other things, would receive the positive fiscal benefit of the 2% in tax receipts generated from the marijuana sales, but who also could be affected by what plaintiffs allege are the negative effects of dispensary activities),” the panel said.

In Middlesex County, 62.7% of voters supported a referendum question on the 2020 ballot about legalizing marijuana. Statewide, 67.08% of voters supported the measure.

The suit was led by Mary Botteon, a resident who has filed other actions against Highland Park and the state challenging CREAMMA. In February, she brought a separate suit challenging the town’s awarding of a license for cannabis distribution, arguing again that the ordinances violate federal law.

In Middlesex County, 62.7% of voters (about 221,500 people) supported a referendum question on the 2020 ballot about legalizing marijuana. Statewide, 67.08% of voters (about 2.7 million people) supported the measure.

Since New Jersey launched legalized adult-use sales in April 2022, more than 130 dispensaries have opened, including at least one in Highland Park. There are also at least four other dispensaries poised to set up shop in town once they receive state approvals.

In a statement, David Evans, an attorney in Flemington representing the plaintiffs, said the appellate decision means “plaintiffs will have their day in court to prove that the ordinances permitting marijuana trafficking and consumption lounges in their borough are inconsistent with sound health and safety policy and the law.”

Highland Park Mayor Elsie Foster declined to comment, citing the ongoing nature of the legal matter.

The trial court has until May 20 to bring the parties together for a case management conference.

‘The ship has sailed’

“I think the best part about this decision is that hopefully we will show objectors everywhere in the state that the ship has sailed,” said Joshua Bauchner, a . “You can’t put the toothpaste back in the tube at this point. New Jersey voted in favor of legalization, dispensaries are opening and the CRC is issuing licenses. We’ve also had ATCs [alternative treatment centers] since 2009 here,” said Bauchner.

Daniel McKillop, a partner and chair of the cannabis law practice group at New Jersey-based business law firm Scarinci Hollenbeck LLC, explained, “The appellate division is clearly saying that New Jersey’s cannabis program is valid and can exist at the same time that the federal illegality of cannabis continues. And because the state program is valid, and these municipal ordinances in Highland Park are basically derivative of that state program, they are also valid unless plaintiffs can show specifically why they’re not.

“They’ve been told you cannot just wish the state program and municipal program out of existence on the basis of federal illegality,” McKillop explained. “But, if they find specific issues with respect to the specific ordinances and how they’re being implemented and applied, then yes, they can bring their case, put it on the record, get evidence going and have at it.”

“The major takeaway from the decision is the court’s rejection of plaintiff’s argument that CREAMMA is preempted by federal law,” said Ryan Magee, a partner at McCarter & English LLP. “This is a significant win not only for the defendants in the case but also for New Jersey’s emerging cannabis industry as a whole.”

Magee, whose specialties at the Newark law firm include cannabis law, explained, “In its analysis, the court placed emphasis on the federal government’s evolving positions with respect to cannabis. The court noted DOJ’s non-enforcement position as to lawful state cannabis markets and Congress’s own annual appropriations riders that prohibit DOJ from allocating funds to prosecute conduct that is legal under state medical marijuana laws. Simply put, if the federal government wanted to more aggressively prosecute violations of the CSA – it could – and CREAMMA does not bar it from doing so.”

McKillop said, “We have at this point, many, many years of simultaneous coexistence of federal and state cannabis programs … And then, the expansion of state medical programs and the onset of state adult use programs, all of which the feds see and do not challenge in any meaningful way ever.”

“Nevertheless, in 2022, these plaintiffs decided – and I think it may be as simple as the fact they just didn’t like that the borough of Highland Park was opting in – to band together and bring their claims,” McKillop said. “I think they took an aggressive stance on deciding to challenge New Jersey’s state and therefore local cannabis structures and programs. But they did. And here we have the result after it came up through the courts and made it all the way to the appellate division.”

“It’s an interesting case because it stands for a couple of things. One is that this is the New Jersey Appellate Division … and it’s a very high court decision and its published, which is unusual and precedential. What they’re saying here is that anybody who’s going to try and challenge a New Jersey municipality’s actions in passing a cannabis ordinance on the grounds that it’s preempted by federal law is out of luck and not going to win,” he continued.

‘A high hurdle’

Magee said, “The Appellate Division’s remand of the case for further proceedings is hardly a silver lining for the plaintiff. The Court firmly disagreed with the plaintiff’s primary argument – federal preemption – and the plaintiff is now left with little to work with on remand.”

He added, “Even if issues remain with the borough’s ordinance, the borough can always amend its ordinance now that the court has affirmed the validity of the state statute on which it is predicated.”

Baucher agreed, saying, “The standard is arbitrary, capricious and unreasonable. These plaintiffs have to show that the township acted arbitrarily, capriciously and unreasonably in adhering to its own ordinance, that it was permitted to pass in accord with state law. It is a very, very high hurdle.”

“Here you have a township adhering to its own ordinance and the plaintiff is just not liking cannabis,” Bauchner said. “I cannot fathom how they’ll be able to prevail.”

“The point of the social ills and all the rest, that’s not really a consideration when you look at the municipal land use law,” Bauchner said. “If that were the case … we wouldn’t have Atlantic City, we wouldn’t have liquor stores and we probably wouldn’t have fast food restaurants. If that’s the real concern … it’s just not the standard by which townships are required to consider zoning applications.”

Here you have a township adhering to its own ordinance and the plaintiff is just not liking cannabis. I cannot fathom how they’ll be able to prevail.
– Joshua Bauchner, Mandelbaum Barrett PC

“I’d say the chance of their success is about as good of a chance of me getting a ticket to the MET Gala,” he said. “The primary issue at the heart of the appeal is preemption and they lost on that – as they should have.

“So, the rest of it – standard of land use – is very, very, very hard in the best case to overturn a township’s land use-type decisions under the Municipal Land Use Law,” Bauchner said.

McKillop noted that there is a “spectrum of municipal cannabis ordinances” among towns that have opted in for legalized sales ranging from “very well crafted and very thorough” to ones that are “frankly pretty rough to read and hard to understand.”

“I think Highland Park’s is pretty decent,” he said. “You notice that there isn’t really any discussion in the decision by the appellate division about any real deficiencies or defects in the ordinance. But that’s because that’s really not what this claim has been about. The appellate division is focusing on the preemption claims, and they kind of punted a little bit by saying, ‘Look, you didn’t have a chance to even introduce any evidence on your other claims. Go do that, and we’ll see where that goes basically.’”

When it comes to the probability of a case like this succeeding, Magee said he’s “always hesitant to say that a lawsuit” never stands a chance. “Any litigator knows that you can never really predict the outcome you might get in a court room, and I’ve been surprised many times – both favorably and unfavorably – in my career. But legally speaking, existing case law already suggested that plaintiff’s federal preemption argument would fail. And practically speaking, the plaintiff essentially asked the courts to declare New Jersey’s cannabis law invalid — that’s an awfully big ask,” he said.

McKillop said he’s “not necessarily surprised at the court’s decision with respect to the preemption issue, which the main kind of thrust of this case.”

“There’s federal illegality of cannabis, but many states have legalized medical or adult use or both, and the feds are perfectly fine with it. That’s been the status quo for at least 15 years if not longer,” he said.

Change in schedule

What it may mean for NJ businesses:

The U.S. Drug Enforcement Administration is taking steps to reclassify marijuana as a lower-risk substance, a move that could open more avenues for medical research and make it easier for cannabis businesses to turn a profit. Click here to read more.

The ruling came a day after the U.S. Drug Enforcement Administration said it was taking steps to reclassify marijuana as a lower-risk substance.

Cannabis is currently a Schedule I narcotic – meaning it’s deemed to have no accepted medical use and a high potential for abuse. But the federal agency recommended April 30 that the substance be designated as a Schedule III drug following a review by the U.S. Department of Health and Human Services.

The DEA’s move comes eight months after HHS initially advocated for the change after a review by the U.S. Food and Drug Administration.

Despite cannabis being legalized in some form in most states, it remains illegal on the federal level, hindering the industry’s growth. Reclassifying it, however, could eliminate some of the obstacles faced by cannabis-related ventures – such as access to banking services, capital and tax breaks – and ultimately better position the emerging sector for success.

As of May 2024, cannabis is legalized for recreational use in 24 states and Washington, D.C., and approved for medical use in 38 states, according to data from the National Conference of State Legislatures.

Since the first legalized adult-use sale took place 10 years ago in Colorado, cannabis has grown into a $34 billion industry that has captured the attention of multinational companies across such sectors as alcohol, pharmaceuticals, tobacco and agriculture.

If cannabis were classified as a Schedule III substance, it would be considered to have some medical uses and a moderate-to-low potential for physical and psychological dependence, joining a category that includes certain opioid-based pain medications, testosterone and anabolic steroids.

McKillop described the DEA’s announcement as “another very, very important indication of where the federal thinking is trending on this topic.”

“It all cuts against the idea that the feds would really come into any particular state and enforce the Controlled Substances. But nevertheless, both the Controlled Substances Act on the federal level and CREAMMA on the New Jersey state level recognize each other’s programs,” he stated.

Despite some progress on the legislative and societal fronts, Bauchner said he believes there’s still people who are “misinformed” and “think cannabis is a gateway drug.”

“It’s far better to have a regulated market where you can ensure there are not sales to minors, where you’re ensuring quality of the product, you’re testing the product and that it is not contaminated with pesticides or God forbid, fentanyl or worse, and that it’s a safe product,” he said.

“That’s the goal here – a far, far better approach than the black market … And, I think people just don’t fully understand the benefits of a safe and regulated market. I think people also don’t understand that the history of cannabis criminalization is predicated on racist and political reasons,” Bauchner said. “There’s been so much misinformation and frankly, ignorance about cannabis criminalization and legalization that people just get caught up in it.”

Bauchner added, “I do think the townships need to be held accountable for complying with their own ordinances and being fair towards competing applicants,” he said. “And we’ve seen it a lot throughout the state – townships favoring one applicant over another for reasons that are frankly arbitrary, from the size of the company, where the company wants to locate and traffic considerations.”