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New Jersey Gets Ready to Roll

Chris Morris,|Special to CNBC.com
Thursday, 19 Apr 2012 | 4:09 PM ET
Medical marijuana dispensary
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Medical marijuana dispensary

More than two years after New Jersey approved a measureto legalize marijuana for chronically ill patients, the program may finally be on the verge of rolling out.

Officials say sales of the drug could be available by mid-summer. That date comes with a few caveats, though, and it's a lot later than the initial estimate of September 2010. Repeated setbacks have frustrated both patients and companies that hope to sell medical marijuana.

Earlier this month, Richard Caporusso and his physician, Jeffrey S. Pollack, filed suit against the state over the continued delays in the program. And the head of the Greenleaf Compassion Center, which this week secured the state's first license to begin growing medical marijuana, says New Jersey officials still have not committed on that mid-summer launch date to his company.

"We can't plan operationally," says Greenleaf CEO Joe Stevens. "We can't plan our financials and determine things like how much medication to cultivate."

Greenleaf stands poised to be the state's first legal dispensary — technically called "Alternative Treatment Facilities" in the program's language. Beyond the grow permit, it has also received approval from the township of Montclair to open a storefront, though it requires another state permit to begin dispensing the drug.

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To date, Stevens says the company has invested more than $270,000 to get the business up and running. He calls the issuance of the grow permit "a good faith gesture," but says he would still like the state to commit to a hard start date for patient sales.

Greenleaf is one of six dispensaries currently slated to operate in the state, but is the furthest along in terms of permits. Compassionate Care Foundation was recently given approval in the town of Egg Harbor — about 20 minutes from Atlantic City — but is still awaiting state approval. Four other non-profits are looking to secure sites for their storefronts.

While the six non-profit dispensary operators have been selected by the state, New Jersey's Compassionate Use Medical Marijuana Act does not set any limits on how many dispensaries may be opened in total. Rather, it only stipulates that there be "at least two each in the northern, central, and southern regions of the State." State officials say they are currently focusing on the non-profit dispensaries — and will turn their attention to accepting applications for for-profit facilities after those are up and running.

In the case of Greenleaf, though, New Jersey notes that the start date is based on Greenleaf's compliance with state regulations.

"The Department is committed to ensuring that medicinal marijuana is safely and securely available to patients as quickly as possible," state Health Commissioner Mary E. O’Dowd said in a statement. "[This] action authorizes Greenleaf to grow medicinal marijuana — which generally takes 3-4 months — so that once a permit for its dispensary is issued, medicinal marijuana will be available without delay."

New Jersey officials say they are aware of the criticisms that have come with the medical marijuana program's long delay, but say delay was necessary to create a system that prevented abuse and that would have opened a gateway for just about anyone to obtain the drug.

"We have seen what happens in other states with loose controls, where marijuana is grown without supervision and distributed 'legally' to large numbers of people who would never qualify in New Jersey to receive it," says Donna Leusner, spokeswoman for the state Department of Health and Senior Services. "Ours is a purely medically based program, and we would not allow our program to be the mockery that other programs in other states have become."

Initially, 100 doctors have signed on to participate in the program (though that number might increase by the time sales begin to patients). A patient registry is in the final stage of development and is expected to open in several weeks.

New Jersey officials say they do not have an estimate of how many people will sign up and qualify, but Greenleaf expects there will be 3,000 to 6,000 patients statewide over the next two years, based on its modeling from Maine and New Mexico programs, those closest in scope to New Jersey's.

The financial benefit to the state is murkier. The first two dispensaries in a particular region (northern, central and southern New Jersey) are required to be nonprofit. Subsequent dispensaries can be for-profit, according to the state treasury department.

While no sales tax will be charged on the product from nonprofit dispensaries, those companies will still have to pay payroll taxes on their employees. Additionally, facilities will have to pay an annual permit fee. Patients and caregivers will also pay a fee to be part of the program, but that is only expected to raise a nominal amount.

Bottom line: New Jersey is unsure how much the medical marijuana program will contribute to the state's treasury.

"It's hard to tell what the economic activity is going to be from [dispensaries and grow farms] in terms of what the state can collect," says Andy Pratt, a spokesman for the New Jersey Department of Treasury.

"This is a new business. People haven't been selling marijuana in New Jersey through nonprofits. So the question is, what will it raise?” continues Pratt. He says that while he could ask the state economist to do a revenue projection, he doesn’t believe it’s worth the effort. “Why would we take his time and do that when it's probably not going to be of major significance and we don't have any data to see what their annual sales are going to be?"

Given that the drug has raised millions of dollars per year in other states, that's a stance New Jersey might be revisiting in the years to come.