Cannabis Entrepreneurs

Senator Troy Singleton’s (D-Burlington) bill to help cannabis entrepreneurs with capital and assistance passed the NJ Assembly Health Committee again with amendments and bipartisan support.

Chair Herb Conaway (D-Burlington) said Assembly Speaker Craig Coughlin (D-Middlesex) intervened to have the amendments passed by the committee.

Current law prevents any entity from holding more than one permit for a medical cannabis cultivator, manufacturer, or dispensary. Under the bill (A-5179) sponsored by Assemblymembers Brian Bergen (R-Morris), Jamel Holley (D-Union), and Verlina Reynolds-Jackson (D-Mercer), investors who significantly assist someone applying for a medical cannabis dispensary permit would be allowed to hold up to 35 percent interest in up to seven medical cannabis dispensaries, provided those businesses are minority, woman or disabled veteran-owned.

Business owners would be required to pay back the financial assistance they receive from an investor within a period determined by the size of the loan. In addition, the cannabis entrepreneurs bill specifies that ownership would not revert to the investor if the business were to default. 

The Cannabis Regulatory Commission (CRC) would also be permitted to review the agreement between the business owner and investor to ensure the terms are commercially reasonable and consistent with fair market value.  

“Lack of access to capital is one of the biggest barriers women, minority and disabled veteran entrepreneurs face when trying to become business owners. Lower wages mean these individuals generally have fewer personal savings or opportunities to borrow external funds. In fact, the vast majority of startups backed by investors are overwhelmingly white and male-owned,” the sponsors said in a statement.

By allowing investors to have partial ownership of more than one medical cannabis dispensary, the sponsored believed would incentivize investors to sink money in businesses that are minority or women-owned.

“Minorities have historically been disproportionately impacted our country’s War on Drugs. It is only fair they have the opportunity to benefit from this substance’s legitimization as the medical cannabis industry advances,” the sponsors said in a statement.

The amendments require applicants for an Alternative Treatment Center (ATC) permit to submit to the CRC copies of services agreements an applicant has made with a third-party entity with their application.

The CRC can then review agreements that would provide significant financial or technical assistance, or intellectual property to an applicant, to determine whether the terms of the agreement are commercially reasonable and consistent with fair market value.

If the CRC finds the terms are not reasonable and consistent with fair market value, they can withhold approval of an ATC permit application until the parties negotiate a new agreement. It must have commercially reasonable terms and consistent with fair market value, as determined by the CRC.

At the CRC hearing last night, the idea of a third-party effectively controlling several licenses of equity applicants and microbusinesses and the negatives consequences of that was raised.

Helping Cannabis Entrepreneurs

With a lack of a great deal of capital, a cannabis entrepreneur is bound to fail, Assemblyman Brian Bergen said.

“It’s just not possible,” he said regarding cannabis entrepreneurs with limited resources getting a license and succeeding in the industry.

Bergen said he’s been in the situation as a small business owner of needing to raise money quickly. He noted it takes at least a couple hundred thousand dollars for a cannabis entrepreneur to have sufficient capital to get involved.

“That’s a huge barrier to entry,” Bergen said.

Thus, the bill was introduced to ensure cannabis entrepreneurs can enter into the industry and maintain their licenses.

Bergen said that the high costs of starting up would lead to a monopoly developing. Thus, he noted that protections against a monopoly had to be put into place.

“Being a small biz owner is tough,” Bergen said. He noted credit is hard to get for even a normal business.

“It gives them a shot,” he said regarding cannabis entrepreneurs, the bill, and the amendment.

Bergen noted the amendment ensures investors are not predatory and cannot own more than 35 percent of the business. In addition, third-party entities can invest in up to seven entities. It was previously 40 percent of a business and ten entities.

The Senate version of the bill passed on December 17th along with New Jersey’s legalization implementation and decriminalization.

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