A New Jersey appeals court on Thursday upheld the state’s medical marijuana law, along with the Department of Health’s determination that only nonprofit entities may qualify as cultivators and dispensaries.

The Appellate Division turned away a challenge by Natural Medical Inc., a for-profit company that argued the department’s restrictions on “alternate treatment centers” (ATCs) were onerous and beyond statutory authority.

“The statutory provision at issue here, considered in full, does not allow for automatic licensure. Nor does it express an explicit legislative commitment to an unlimited number of ATCs,” the judges said in Natural Medical Inc. v. Department of Health, A-3406-10.

The New Jersey Compassionate Medical Marijuana Act, N.J.S.A. 24:6I-1 to -16, requires the health department to establish a minimum of six ATCs: two each in the northern, central and southern portions of the state.

The act also requires that the original six licenses must be granted to non-profit groups. More ATCs may be licensed as needed, and both for-profits and nonprofits may apply.

After a lengthy delay in issuing its final rules, the department put out a request for proposals, saying only six ATCs would be authorized and only not-for-profits would be considered.

Natural Medical, which wants to open three ATCs, sought direct judicial review. The Appellate Division acceded, though the company did not apply and there was no license denial to appeal.

“[It] is undisputed that the Department would not accept, let alone process and review, applications from for-profit entities,” Judge Anthony Parrillo wrote for the panel in Thursday’s opinion.

“In our view, the Department’s refusal to accept an applicant from appellants is so effectively dispositive of the case as to be fundamentally akin to a final judgment as to permit its appeal without an ensuing order,” he wrote, adding that the issue is clearly one of public interest.

Natural Medical argued that the statute, in saying that the department “shall seek to ensure” that there are enough ATCs to meet patients’ needs, required the state to establish more than six.

Parrillo, joined by Judges Jack Sabatino and Douglas Fasciale, rejected that interpretation of “shall.” In legislative language, he said, “shall” often is meant to offer “direction, suggestion or instruction.” Here, the statute directs the department to determine the number of ATCs that are needed, with a minimum of six, and determined that only six are required at this point.

“Appellants have made no showing that this decision is arbitrary or unreasonable,” said Parrillo. “Nor could they, given that the number of qualifying patients in the State was, at least as of the time of rejection, unknown.” The department is still in the process of determining how many patients meet the stringent standards for participation.

“In these particular circumstances, and given the built-in statutory safeguards that ‘need’ will be assessed on an ongoing basis, we defer to the Department’s threshold determination to institute the State’s medicinal marijuana program with no more than the statutorily prescribed minimum number of ATCs,” Parrillo said.

“This decision follows the law, violates no express or implied legislative policies, and has not been shown to be unreasonable. Consequently, the Department’s announced declination to accept applications from for-profit entities at the outset of the program was not improper.”

Natural Medical’s attorney, New York solo Neal Wiesner, says he has not had a chance to discuss a possible appeal with the company’s owner, Nir Shalit.

But he says he believes the health department and the Appellate Division were wrong to conclude that six ATCs will serve the state’s needs. That translates to only one ATC for roughly 1.5 million residents, Wiesner says, noting that other jurisdictions with medical marijuana programs have much lower ratios of treatment centers to patients.

“This was a political decision,” Wiesner says.

The Department of Health, through a spokesman, Daniel Emmer, says it is “pleased that the appellate court recognized the department acted consistent with the statute and has the authority to decide how the application process is administered and to determine need.”