The NJ Cannabis Regulatory Commission (NJ-CRC) held a webinar to prepare applicants seeking NJ cannabis license classes in wholesale, distribution, and delivery.
They will begin accepting applications for wholesale, distribution, and delivery of recreational cannabis business licenses on Thursday, September 27th.
“We’re very excited to be opening 3 new classes,” NJ-CRC Executive Director Jeff Brown explained.
New applicants or existing operators looking to integrate their cannabis business vertically can apply for three more NJ cannabis license classes.
Vertical integration is when different parts of the supply chain are allowed, like growing, manufacturing, and selling cannabis products. In horizontal integration, you get chains on the same part of the supply chain, like store chains.
Emerging NJ Cannabis License Classes
The new NJ cannabis license classes are:
- Class 3 Cannabis Wholesale license allows the owner to store, buy, and sell bulk cannabis and cannabis products.
- A Class 4 Cannabis Distribution license allows the owner to transport bulk cannabis and cannabis products between cannabis cultivators, manufacturers, or retailers within New Jersey.
- A Class 6 Cannabis Delivery license allows the owner to transport retail-purchased cannabis and cannabis products to consumers.
Of the three emerging New Jersey cannabis license classes, the Delivery License is the one that most businesspeople are excited about in the cannabis market.
However, some New Jersey industry experts are worried that operating just a cannabis delivery business might be very hard due to a thin profit margin.
Licensed New Jersey Cannabis Market Issues
According to the NJ-CRC, about 2,030 applications have been received by the NJ-CRC. But almost 1,800 cure letters notifying applicants of deficiencies went out. That’s about 89 percent.
Director of Diversity and Inclusion Wesley McWhite III said they have made great progress towards an equitable and diverse New Jersey cannabis market.
He said 231 annual licenses have been won by annual and conditional process. 49 or 21 percent are SE owned. 68 percent are Diversely owned by women, minorities, and disabled veterans.
Some might be fronts or puppets of others moving behind the scenes using a variety of titles.
Awards are going out faster than applications are submitted McWhite noted.
“Our priority processes are working,” he declared.
Those with past convictions make up 16 percent of the 231 licenses.
McWhite repeated diverse numbers from the last CRC meeting that show poor Hispanic licensing percentage numbers versus Blacks and Asians which are higher.
It shows the need to help the most downtrodden.
“Read the full regulations,” Brown advised.
NJ Cannabis License Application Process
He explained the licensing process is based on prioritization due to ownership.
Social Equity and Diversely-Owned Businesses will be given priority review and approval as the application opens for an exclusive 90-day period – from September 27, 2023, to December 26, 2023.
Applications from Diversely-Owned Businesses will begin to be accepted for another 90-day period from December 27, 2023, to March 26, 2024.
Beginning on March 27, 2024, the application process will open for all other applicants.
Once the priority is verified, the applications are reviewed and assessed for completeness and are then scored Then they must pass a criminal background check and go through a financial probity process.
Cure Letter Problem Avoidance
To avoid cure letters, Brown suggested reviewing their guidelines. He said they have an SE business guide on how to get certified as such.
Brown noted a long list of issues including the investigation of “Persons of Interest” and the Certification of Diversely Owned Businesses that generate cure letters.
“Double-check your documents,” he said.
Brown implied some attorneys and consultants have switched client documents which hurt them. He encouraged people to make an account on the site prior to approval.
“If you have site control, if you have municipal approval, you can go right to annual,” Brown advised.
If not, it makes sense to seek a conditional license.
Conditional applications don’t need site control or real estate which is very pricy and hard to find The local New Jersey cannabis municipal process is also very difficult and shady at best quite often.
A lot of towns in New Jersey remain opposed to cannabis companies operating in their limits. Those that do only are allowing a very few in what’s known as “Green Zones.”
Applicants should know New Jersey cannabis law has a clause where they do not allow companies to have a Doing Business As (DBA) with two names to reduce shadiness most likely.
“Figure that out from the onset,” Brown said.
“I know access to capital, access to banks is a problem throughout this industry,” he acknowledged.
Brown noted Certifications as Women, Minority and Disabled Veteran owned businesses expire.
“You want to maintain that certification,” Brown said.
Devils in the Details of MSAs and FSAs
The details of Management Service Agreements (MSAs) and Financial Service Agreements (FSAs) can become very problematic.
“These are agreements that help canna biz operate,” Chief Counsel Christopher Riggs explained. “Be careful what you sign.”
He noted they are highly regulated. An MSA is a contract with a Management Service Contractor (MSC). They cannot own part of the company. Owners can’t be MSCs either. MSCs can only have a maximum of 5 clients in the industry.
They can essentially run the business.
MSAs can only last 5 years. Contracts have to be renegotiated.
“We review all these. We want to avoid cure letters,” Riggs said regarding FSAs.
Avoid Shady Financial Agreements
FSAs are made by lenders to businesses. Companies can only make FSAs with 7 cannabis businesses.
He explained they cannot impose unreasonable fees. The highest percentage they can charge is 20 percent. They can’t own the business.
“There can’t be an unfair advantage in the contract,” Riggs said.
FSAs cannot require a business to enter into non-compete agreements.
“That’s important,” he declared.
“You can’t have the power to overrule the fundamental decisions of the owner,” Riggs exclaimed.
Their zeal in explaining these issues likely reflects widespread problems.
Riggs said there cannot be a penalty for paying off a loan early.
“We see this a lot,” he noted. “Check the document and cross-reference it with the regulations.”
Riggs recommended applicants submit them to the investigator for review. They also need to include details about payments, interest rates, and debts. Documents that must accompany an FSA include an entity disclosure form/personal history disclosure form, and information related to changes to ownership or control.
“You need to maintain control of those business operations,” he said.
Owners need access to records to audit the performances of vendors.
“Go over the regulations for FSAs. Check the document,” Riggs added. “Avoid that cure letter.”
A full application includes financial source document disclosures.
NJ Cannabis License Review Timeline
“Review timelines are going to be largely dependent on the volume,” Brown noted. “We’re in a better place from a staffing perspective from when we first started.”
He explained the processing times after submission is under 90 days for conditional licenses. For annual and conversion applications, it takes about six months to get reviewed.
“We’ll try to be transparent with applications about review times,” Brown said.
He said they would have new features soon that make the process more transparent.
Many New Jersey cannabis license applicants have complained about delays, especially when the volume was greater and they were likely understaffed.
Brown encouraged people to check out the NJ Business Action Center for help. He also recommended Chambers of Commerce.