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Often forgotten in the rush to expand the cannabis industry is the environmental impact of indoor cultivation operations and environmental considerations for the engineering and design of cultivation facilities. This article will briefly address environmental impacts of cannabis cultivation, specifically energy usage, in various states and how cultivators looking to the emerging New Jersey market can better equip themselves for potential regulation similar to what is being seen in other states.

Growing cannabis, especially indoors, is energy intensive. It can take upwards of 5,000 kWh to grow just one kilogram of cannabis (2,000 kWh to grow one pound) as compared to roughly 10,000 kWh of energy to power a residence in the United States for a year. Recent reports show the cannabis industry is having a significant impact on the use of electricity in states that have legalized it. In 2015, various reports concluded that cannabis growers accounted for approximately 1.7 percent of the United States’ total electricity usage, a cost of upwards of $6 billion. The vast majority of states that have legalized cannabis cultivation have not addressed the issues surrounding energy consumption prior to enacting legislation. As a result, municipal governments, state agencies and public utilities have had to take a reactive approach to the astronomical utilization of energy.

Currently, states and municipal governments are implementing various techniques in order to curtail electricity use. The techniques vary, but the most common are taxes and/or fees on energy consumption. For example, Boulder County, Colorado has a requirement that growers either offset energy consumption with the use of renewable energy or pay a $0.02 charge per kWh of energy use. In addition, some state regulations have an adverse effect on energy consumption, and compliance results in an increase in energy consumption by growers. For example, when Pennsylvania legalized cannabis in 2016, its regulations required growers to contain their entire crop in indoor facilities without addressing how the state would cope with the corresponding energy use from the requirement.

Though most states have not addresses environmental impacts of cannabis cultivation until after licenses were already awarded, one state has put into place some of the strictest energy regulations for cannabis cultivation.

In 2008, Massachusetts entered into the Global Warming Solutions Act, which required a reduction in the state’s greenhouse gas emissions by 80 percent no later than the year 2050. However, with the legalization of adult-use cannabis, the state had to address the fact that not only is cannabis an energy-hungry crop, but that it also emits dubious amounts of carbon dioxide (CO2). On average, the energy needed to grow one pound of cannabis indoors emits roughly 5,000 pounds of CO2 into the atmosphere. As a result, the Cannabis Control Commission of Massachusetts has included in their regulations a limit on how much energy can be utilized for cultivation operations.

Although New Jersey has not yet weighed in on the energy use and carbon emission issues associated with the emerging cannabis industry in the most recent adult-use cannabis legalization bill, state lawmakers are openly moving New Jersey towards being a leader in climate change solutions, especially with New Jersey rejoining the Regional Greenhouse Gas Initiative. Additionally, broad environmental concern has not completely escaped legislators, as the most recent call for medicinal cannabis licenses required applicants to submit an environmental impact plan as part of the application process.

As a result, it is imperative that cultivators from out of state, as well as those who are thinking of starting a cultivation operation, who wish to apply for licensing in New Jersey, consider the impacts of their future operations regarding electricity use in order to be prepared for any future regulations and/or taxes that might negatively affect their operations and profitability.

This article was originally published on the NJSBA website.

The jurisdictional reach of the federal 1972 Clean Water Act, which hinges on the definition of “navigable waters” or the “waters of the United States,” has been the subject of hot debate, consternation and interpretation – with plenty of litigation, regulation, agency interpretative guidance, inter-agency memorandum of agreements, more litigation, new regulations, supplemental agency guidance and memoranda, even injunctions, and so on – for decades.

The last major action in this saga was the Obama administration’s 2015 Clean Water Rule, which broadened the Act’s jurisdiction to water bodies not previously regulated, such as smaller streams and tributaries, dry washes or intermittent streams, and certain ditches or gravel pits.  Farmers, especially in the West (where a large majority of surface water flows intermittently), developers, and the mining industry were most affected by the expansion.

One of President Trump’s first actions in office was a February 2017 executive order directing the United States Environmental Protection Agency and the Army Corps of Engineers (the two agencies share regulatory authority under the Act) to rescind and replace the Obama Rule.  Today, the two agencies released the proposed replacement rule.  As expected, it proposes a significantly more limited definition of “waters of the United States.”

Early estimates are saying that millions of acres of wetlands and thousands of miles of streams will no longer be subject to federal regulation, but there is a long road ahead before the rule becomes law.  First, the proposed rule is subject to a 60 day public comment period.  Second is the litigation, which is a practically guaranteed – environmental groups have made their opposition clear.  And the saga continues…

 

 

The odds of OSHA showing up at your worksite have increased for construction employers engaged in excavation and trenching.  OSHA recently announced an update to its National Emphasis Program (“NEP”) to prevent trenching and excavation collapses after a spike in construction fatalities.  The October 2018 update focuses on both increased enforcement and education activities by OSHA Area Offices.

The updated NEP instructs inspectors to initiate an investigation whenever they observe an open trench or excavation, regardless of whether or not a violation is readily observable.  These observations could be made during the course of the inspector’s work-day travels or during a routine inspection.  OSHA will also continue to conduct inspections based on employee complaints or referrals from third-parties, such as city inspectors or other governmental agencies.

The scope of the inspection will, in most cases, be limited to evaluating the hazards associated with the excavation.  However, if other violations are observed, the inspector can expand the scope of the inspection to address those other areas.

Pursuant to the updated NEP, OSHA Area Offices are required to develop and implement a “comprehensive excavation safety outreach program.”  The education outreach activities are likely to include:

  • News releases to disseminate information concerning the updated NEP;
  • Seminars on trenching and excavation safety for employer groups, trade associations and unions; and
  • Educational material on trenching and excavation safety for (i) licensing or other municipal agencies for distribution to employers when they request dig permits; (ii) utility and plumbing companies for distribution to employers; and (iii) industry association for distribution to members.

Employers are well advised to focus on maintaining a safe worksite by complying with OSHA’s standards on trenching as well as other applicable standards.  OSHA’s website has a wealth of information regarding trenching and excavation safety.

The Tax Cuts and Jobs Act of 2017 makes it harder to take tax deductions for some payments to governmental entities.  The change may impact settlements between private entities and federal, state and local environmental agencies.  In most cases, it will not affect environmental settlements between private parties.

Section 162(f) of the Tax Code has long prohibited deductions for fines and penalties paid to the government.  The new law makes the tests for deduction of certain payments to a governmental agency more stringent.  The amended Section 162(f) substantially limits the tax deduction available for (1) any settlement or other payments, (2) made to or incurred at the direction of a governmental entity, (3) related to a violation of any law or governmental investigation or inquiry into the potential violation of any law.

There is an exception to this rule, which allows a deduction for the following payments: (1) restitution, including remediation of property; or (2) an amount paid to come into compliance with a violated law or involved in an investigation or inquiry.  To be deductible, the payment has to be expressly identified under a court order or settlement agreement as a restitution or compliance payment.  This exception does not apply to amounts paid “as reimbursement to the government for the costs of any investigation or litigation.”

Under the statute, the limitation applies only to payments made to, or at the direction of, a governmental entity.  A deduction, therefore, remains available for remediation expenses paid to private parties without governmental direction.

Finally, a new provision under Sec. 6050X requires government agencies involved in settlements to report to the Internal Revenue Service (IRS) the portions of the settlement payment that are and are not deductible under Section 162(f).

Our tax and environmental groups can advise on the implications of the new law, including factoring into negotiations the potentially higher tax cost of government settlements and ensuring that the settlements reached are well-drafted and as tax-efficient as possible.

Last week, the New Jersey Department of Environmental Protection (NJDEP) announced a new Response Action Outcome (RAO) Notice, which allows Licensed Site Remediation Professionals (LSRPs) to issue an RAO for a site with contaminated sediment that migrated from an off-site source.  The new notice, entitled “Sediment Contamination From an Off-Site Source Not Remediated – General,” is the most recent addition to the growing list of RAO notices.

The notice can be used after a Preliminary Assessment and Site Investigation (PA/SI) confirms that the source of the sediment contamination is off-site and not related to the site being evaluated.  The off-site source must be reported to NJDEP and the resultant new incident number included in the Notice.  Furthermore, the LSRP can identify an existing NJDEP case if it is known to be the off-site source and is currently undergoing investigation or remediation.

Given that it is well-established law that you are not responsible for contamination coming from offsite, the primary purpose of this action appears to be to streamline the RAO process.  So, this is another tool in the LSRP toolbox for the often complicated sediment cases, which continue to garner regulator’s attention here in New Jersey and nationwide.

Read more on sediment contamination in these discussions:

JOIN THE CLUB: EPA Sizing Up Hackensack River for Superfund Listing

WE ARE JUST GETTING STARTED: EPA Issues Much Anticipated Cleanup Plan for the Lower 8.3 Miles of the Lower Passaic River