Environmental Issues and Cannabis in New Jersey

I recently wrote about the various kinds of environmental regulatory issues DMGS anticipates will emerge in New Jersey’s Cannabis industry. Cannabis cultivators generate significant amounts of organic and inorganic waste that includes plant waste, growing media, and other agricultural material including hazardous wastes in the form of volatile organic compounds.

50/50 Plant Waste Rule

Presently states with recreational cannabis cultivation generally mandate that plant waste must be made unusable and unrecognizable, and then disposed of as solid waste. This is the so called “50/50 rule”. Each cannabis waste generator must take the resulting mash and mix it with other solid waste such that each generator’s solid waste consists of no more than fifty percent cannabis waste. On its face, such a rule seems sensible. But critics point out that the 50/50 rule is flawed in that it forces organic wastes – that could otherwise be put to beneficial reuse – to be landfilled;
itself a negative environmental impact. Critics have also suggested that the 50/50 rule is transportation-centric, relying heavily on carbon-emitting waste disposal infrastructure and that the rule encourages cannabis businesses to produce unnecessary levels of non-cannabis solid waste in order to meet the fifty- percent threshold.

Composting and Anaerobic Digestion

Although less common than the 50/50 rule, states have been coming round to the idea of allowing businesses to dispose of marijuana plant waste outside of the solid waste stream. Massachusetts, for example, permits the disposal of marijuana plant waste by mixing it with other organic matter, such as food waste, soil, mulch, manure, and growing media, and to then disposal of that waste at offsite composting or anaerobic digesting facilities. Advocates for such methods point out that
composting or anaerobic digestion of cannabis plant matter would result in a complete diversion from landfilling the waste and ensure that the plant matter can be put to beneficial reuse.

Composting and anaerobic digestion may be a workable option for New Jersey. New Jersey and New York recently passed food waste recycling acts that will require certain businesses to dispose of food waste through authorized recycling facilities, which in both states, include off-site composting and/or anaerobic digestion. Permitting cannabis-waste generators to dispose of their plant waste in
the same manner as food waste – and perhaps mixed with food waste, if necessary – would seemingly promote each state’s

environmental policy goals underlying their respective food waste acts and provide cannabis-waste generators with an environmentally sound means to dispose of their plant matter.

New Jersey is likely a long way away from fully implementing a system to handle marijuana plant waste, but as new developments arise, DMGS will
keep you advised.

CANNABIS CULTIVATERS and NEW JERSEY ENVIRONMENTAL LAW

New Jersey has legalized the commercial cultivation and sale of recreational marijuana. What is largely overlooked are questions regarding the environmental regulation of cannabis producers.

Little is yet known about the shape the regulations will take in New Jersey.   The path forward is unclear but not uncharted. Looking to other states as guides we explore here some of the types of environmental regulations that we expect producers and dispensaries in New Jersey will need to abide by and other potential issues that may arise.

Waste Disposal

As with any product-oriented industry, cannabis cultivators can be expected to produce large amounts of solid waste. While it goes without saying that solid waste disposal will be an important part of the regulatory regime, disposal of cannabis waste is a potentially complex issue that will surely be addressed as the state begins proposing rules. We can expect that the solid waste rules will be like those of other states that have addressed the problem, that include requirements such as:

  • Cannabis products must be rendered unusable and unrecognizable prior to disposal;
  • Cannabis products must be mixed with other solid wastes such that the resulting waste is no more than fifty percent cannabis waste; and
  • Cultivators and dispensaries must keep records of their cannabis-product disposal.

Additionally, many cannabis producers use solvents, including volatile organic compounds (VOCs), to extract cannabinoid oils from plants. Those VOCs will also need to enter waste disposal streams, although we anticipate that those rules will mimic existing VOC-disposal rules in New New Jersey.

Moreover, cannabis cultivators can be expected to produce a significant amount of wastewater discharge, which will likely require permits, such as treatment works approvals to comply with the state’s wastewater discharge standards. Indeed, that point comes into sharp focus because the industry will likely require the use of solvents, pesticides, and rodenticides regulated under state law and, potentially federal statutory controls such as FIFRA.

Air Quality

Putting aside the complexity of waste-disposal issues, growers may also expect to face significant air-quality regulation. For example, states with a flowering cannabis industry have begun to regulate odors emanating from cultivators by requiring approval of HVAC schematics delineating airflow paths and specifications and, in some instances, installation of approved odor-control devices. In addition, the use of VOCs for oil extraction can be expected to necessitate air permitting. In addition, the mere operation of a cultivating facility may require equipment requiring air permits, such as boilers to the extent necessary to operate a greenhouse growing facility or emergency generators.

Soil and Water Contamination

Producers using VOCs for oil extraction will want to remember that VOCs are harmful substances for purposes of the various environmental statutes controlling soil and water contamination and remediation in New Jersey. Accordingly, we expect that the same rules that apply across industries in those states will apply to this industry, and a cannabis producer will need to exercise caution in using and storing VOCs as part of its operations.

As noted above, it is not yet known with precision what form the environmental regulation of cannabis will take in New Jersey, but as events unfold and regulations are promulgated, we will provide updates.

Visualizing President Biden’s Budget Proposal for 2022

Visualizing President Biden’s Budget Proposal for 2022

On April 9th, President Joe Biden released his first budget proposal plan for the 2022 fiscal year. The $1.52 trillion discretionary budget proposes boosts in funding that would help combat climate change, support disease control, and subsidize social programs.

U.S. Federal Budget 101

Before diving into the proposal’s key takeaways, it is worth taking a step back to cover the basics around the U.S. federal budget process, for those who aren’t familiar. Each year, the president of the U.S. is required to present a federal budget proposal to Congress. It is usually submitted each February, but this year’s proposal has been delayed due to alleged issues with the previous administration during the handover of office. Biden’s publicized budget only includes discretionary spending for now—a full budget that includes mandatory spending is expected to be released in the next few months.

Key Takeaways from Biden’s Budget Proposal

Overall, President Biden’s proposed budget would increase funds for most cabinet departments. This is a drastic pivot from last year’s proposal, which was focused on budget cuts. Here is a look at some of the biggest departmental changes, and their proposed spending for 2022:

Department       2022 Proposed Spending (Billions)          % Change from 2021

Education            $29.8     41%

Commerce          $11.4     28%

Health and Human Services         $131.7   24%

Environmental Protection Agency             $11.2     21%

Interior $17.4     16%

Agriculture          $27.8     16%

Housing and Urban Development             $68.7     15%

Transportation  $25.6     14%

Labor     $14.2     14%

State and International Aid          $63.5     12%

One of the biggest boosts in spending is for education. The proposed $29.8 billion would be a 41% increase from 2021. The extra funds would support students in high-poverty schools, as well as children with disabilities.

Health and human services is also a top priority in Biden’s budget, perhaps unsurprisingly given the global pandemic. But the boost in funds extends beyond disease control. Biden’s budget allocates $1.6 billion towards mental health grants and $10.7 billion to help stop the opioid crisis.

There are increases across all major budget categories, but defense will see the smallest increase from 2021 spending, at 2%. It is worth noting that defense is also the biggest budget category by far, and with a total of $715 billion allocated, the budget lists deterring threats from China and Russia as a major goal.

Which Bills Will Make it Through?

It is important to reiterate that this plan is just a proposal. Each bill needs to get passed through Congress before it becomes official. Considering the slim majority held by Democrats, it is unlikely that President Biden’s budget will make it through Congress without any changes. Over the next few months DMGS will track the legislative process.

New Jersey’s Brownfields Redevelopment Incentive Program: new tax incentives

New Jersey is rolling out a new tax incentive program for the redevelopment of “brownfield’ sites (e.g. underused, contaminated properties). 

On January 7, 2021, Governor Phil Murphy signed into law the New Jersey Economic Recovery Act of 2020, P.L.2020, c.156 (the “Economic Recovery Act”), that provides support for a variety of programs and policies related to jobs, small businesses, sustainable energy, and many other areas.  Sections 9 through 19 of the Economic Recovery Act establish the Brownfields Redevelopment Incentive Program Act (the “Program”). Put simply, the Program allows the New Jersey Economic Development Authority (“EDA”) to award  up to $50 million in tax credits annually for six years to redevelopment projects in need of financial assistance to address environmental contaminants or hazardous building material, such as asbestos. 

Eligibility Requirements

Projects will be eligible for tax credits only if the redeveloper demonstrates the following in its application:

  1. The redeveloper has not conducted environmental remediation work at the site other than preliminary assessments or site investigations.  However, and while this concept will need to be more accurately defined through regulations or guidance, redevelopers who have begun remediation are eligible for tax credits if they can certify that they could not reasonably have known the extent of the contamination when they began the project;
  2. The project is located on a brownfield site;
  3. The project needs tax credits to be economically feasible;
  4. The project has a finance gap, which means the redeveloper itself has contributed at least 20 percent of the capital for the project, but is unable to raise the necessary funds for the project without tax credits;
  5. The municipality in which the project is located must provide a letter of support;
  6. Redevelopers must pay a prevailing wage to every worker performing remediation or construction on the project; and
  7. The redeveloper is not responsible for causing the contamination. 

Available Tax Credits

Redevelopers who are awarded tax credits and complete their redevelopment projects in compliance with the Program requirements will be awarded a tax credit equal to 40 percent of the remediation costs or $4 million dollars, whichever is less.  As noted above, however, only $50 million is available to be awarded on an annual basis.

Competitive Application Process

The EDA and the New Jersey Department of Environmental Protection (“NJDEP”) will adopt regulations describing how to submit applications requesting tax credits for brownfield redevelopment projects, and will set an annual application due date.  The EDA and the NJDEP will jointly review all applications and will consult with the Department of Labor and Workforce and the Department of the Treasury as to whether redevelopers seeking tax credits are in good standing with the respective departments. 

Expect more applicants than available tax credits- the Program will be highly competitive.  In evaluating and prioritizing certain projects, the EDA and the NJDEP are authorized to use any of the following factors: the economic feasibility of the project; the degree to which the project promotes economic development and addresses environmental concerns in communities disproportionately impacted by environmental hazards; and, if the redeveloper has a board of directors, the extent to which the board of directors is diverse and represents the community in which the project is located.

Lessons from Prior Experiences

Based on our prior experience with similar programs, developers that are interested in the Brownfield Tax Incentive Program should begin planning early in the development process, especially given how competitive we expect the application process to be for these tax credits.  Developers also should ensure that they conduct a thorough environmental investigation in connection with acquisition of brownfields for which they plan to seek tax credits, as such an investigation may be a prerequisite to eligibility for such tax credits.  Lastly, early planning also is important under the Program because of its focus on community support and environmental justice.  Developers that want to be ready to seek tax credits as soon as the Program comes online fully may want to begin outreach to community groups now.

New Jersey to Create Venture Capital Fund for Early-Stage and Emerging Growth Companies in the State

The New Jersey Legislature just passed the “New Jersey Innovation Evergreen Act”, and New Jersey Governor Phil Murphy is expected to sign it into law in the coming weeks. Pursuant to the Act, the New Jersey Economic Development Authority (the NJEDA) will create a fund, called the New Jersey Innovation Evergreen Fund (the Fund), to invest in early-stage and emerging growth companies in New Jersey. The Fund is expected to be capitalized with approximately $250 million over the next five years through competitive auctions of state tax credits. All Fund investments into New Jersey companies must be matched by qualified venture firms, yielding a total of at least $500 million in venture capital investment in early-stage and emerging growth companies in New Jersey over the next several years.

How It Works

The NJEDA will:

A. invest in qualified venture firms.

B. for the purposes of investing in qualified businesses in New Jersey.

A qualified venture firm generally includes any entity that invests cash in an early-stage or emerging growth company in exchange for an equity stake in the business. The NJEDA will establish criteria by which to evaluate and qualify venture firms based on management structure; investment strategy; location of the venture firm and its proposed investment portfolio companies; and assets under management.

NJEDA will invest alongside a qualified venture firm in an amount no greater than the amount of capital the qualified venture firm is investing into the qualified business. The Fund may invest no more than $5 million, with certain exceptions, in initial investment (not including reserves for follow-on) in a qualified venture firm for purposes of investing in a qualified company. The Fund may not make more than two investments in the same qualified venture firm within a calendar year.

To be a qualified business:

  1.  a company must be registered to do business in New Jersey;
  2. have its principal business operations located in New Jersey and intend to maintain its principal business operations in New Jersey after receiving the investment;
  3. be in a targeted industry (broadly defined to include a variety of industries and innovative business models);
  4. and  employ fewer than 250 people at the time of the investment. Notably, principal business operations means at least 50 percent of the business’s employees reside in the State or at least 50 percent of the business’s payroll is paid to individuals living in the State.

Potential Impact

The Fund represents an extraordinary opportunity for early-stage and emerging growth companies in New Jersey (as well as their investors) by significantly expanding access to venture capital, internal building activities, as well as diversity, equity and inclusion initiatives. Because the Fund is intended to be an “evergreen” vehicle, the returns generated from the initial investments by the Fund will be used to support early-stage and emerging growth companies in New Jersey for succeeding years.

By driving a total of at least $500 million of venture capital investment into early-stage and emerging growth companies in New Jersey over the next several years, the Fund has the potential to reestablish New Jersey as an epicenter of innovation. Companies will have expanded access to capital to grow and scale. In addition to a capital infusion of at least $500 million into the State, the enhanced innovation ecosystem, which will be supported by the required participation of the tax credit recipients seeding the Fund (which are expected to include some of the largest corporations and entities in New Jersey), will provide early-stage and emerging growth companies in New Jersey with unparalleled mentoring, networking and collaborative engagement opportunities.

Additionally, the Fund will have a goal of investing 25 percent of its proceeds in qualified venture firms that will invest in companies located in Opportunity Zone census tracts in New Jersey. Moreover, within one year, the NJEDA must undertake a disparity study of investment by venture capital firms in women-owned and minority-owned businesses in New Jersey. Based on the findings of this study, the NJEDA is empowered to set aside certain Fund money for investment in women-owned and minority-owned businesses.

We at DMGS are optimistic that the New Jersey Innovation Evergreen Act will produce extraordinary results. This initiative presents an opportunity for New Jersey to ensure historically overlooked founders receive the opportunity to grow and scale their businesses to build a truly diverse New Jersey.

NJ Beneficial Use Exemption to the Solid Waste Rules – “A Flexible Exemption”

Martin Milita

The use of a little understood exemption to the Solid Waste Rules, known as the “beneficial use exemption”, has been on the rise in recent years as awareness of its existence and utility has increased. The beneficial use exemption provides an opportunity for waste generators to reduce economic burdens associated with waste disposal, while complying with the Solid Waste Rules and avoiding harm to the environment.

The New Jersey Department of Environmental Protection (“NJDEP” or the “Department”) promulgated the Solid Waste Rules pursuant to New Jersey’s Solid Waste Management Act, N.J.S.A. 13:1E-1 et seq. (“SWMA”), to regulate the registration, operation, maintenance and closure of sanitary landfills and other solid and hazardous waste facilities, as well as the registration, operation and maintenance of solid waste transporting operations and facilities in New Jersey. The Solid Waste Rules are set forth at N.J.A.C. 7:26-1.1 et seq. While these rules impose extensive, strict requirements…

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The Centers for Medicare & Medicaid Services (“CMS”) announces several Final and Proposed Regulations, Including the Recent Basic Health Program Option

The Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule on federal payment amounts to states that elect to establish a Basic Health Program (“BHP”) under the Patient Protection and Affordable Care Act (the “Act”) for program year 2022.

Comments are due by December 3, 2020.

Under the Act, BHPs may offer health benefits coverage to low-income individuals. States may find that a BHP is a useful option for several reasons, including the ability to potentially coordinate standard health plans in the BHP with their Medicaid managed care plans, or to potentially reduce the costs to individuals by lowering premiums or cost-sharing requirements.

In states that elect to operate a BHP under the Act, the BHP will make affordable health benefits coverage available for individuals under age 65 with household incomes between 133 percent and 200 percent of the federal poverty level who are not otherwise eligible for Medicaid, the Children’s Health Insurance Program, or affordable employer‑sponsored coverage, as well as for lawfully present non-citizens ineligible for Medicaid, whose income is below these levels. For those states that have expanded Medicaid coverage under section 1902(a)(10)(A)(i)(VIII) of the Social Security Act, the lower income threshold for BHP eligibility is effectively 138 percent, due to the application of a required 5 percent income disregard in determining the upper limits of Medicaid income eligibility.

CMS also issued a proposed rule that changes the Medicare durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”) coverage and payment policies under Medicare Part B. In addition, the proposed rule would expand the interpretation of when external infusion pumps are appropriate for use in the home and covered as DME under Medicare Part B, increasing access to drug infusion therapy services in the home. CMS hopes that this rule will provide more choices for beneficiaries with diabetes, while streamlining the process for innovators in getting their technologies approved for coverage, payment, and coding by Medicare. If finalized, the proposed rule will also expand Medicare coverage and payment for continuous glucose monitors that provide critical information on blood glucose levels to help patients with diabetes manage their disease. Lastly, CMS proposes to continue to pay higher amounts to suppliers for DMEPOS items and services furnished in rural and non‑contiguous areas to encourage suppliers to provide access and choices for those beneficiaries.

Comments are due by January 4, 2021.