A town hall webinar was held on large corporate Multi-State Operator (MSO) deals and NJ minority cannabis business owners.
Charles “Tank” Harris of the upcoming Mom and Pop Shop dispensary noted there are many horror stories from licensed NJ minority cannabis business owners trying to open their doors.
Tank is a co-owner with his wife, Regina, of the shop, which is set to open for adult-use recreational cannabis sales in Roselle in Union County. He also is part of another company that has cultivation and manufacturing licenses.
“You can very much feel by yourself. I wanted to have this forum where people could come together… and commiserate,” he noted.
Tank noted access to capital or a lack of money is the biggest issue preventing NJ minority cannabis business owners from opening. He noted getting money from family and friends is the most successful route to secure investment.
MSO Dispensary Chains to Help Little Guys Survive
He noted many brands and MSOs want to get into the New Jersey cannabis market.
Tank explained struggling NJ minority cannabis business owners can survive by becoming part of larger companies.
“This idea isn’t for everybody,” he said.
Tank noted an MSO wants to establish a dispensary chain in New Jersey with 5 to 8 locations.
He said officially, adult-use cannabis dispensary license holders are allowed only one location. Alternative Treatment Center medical cannabis license holders are allowed three locations. However, Tank explained that through Financial Services Agreements (FSA), companies can own 30 percent of several dispensaries in a chain.
He said they cannot have the same name, so companies change it slightly by adding the town name, for example.
Many small MSOs and investor groups also want manufacturing and cultivation licenses because they think it will help them survive a drop in price.
Getting By
Tank is concerned independent dispensaries won’t survive a severe drop in price due to the high taxes caused by federal marijuana prohibition.
“While consumers many agree the price is too high, businesses are concerned with it dropping too low which would hurt profit margins of their fragile businesses,” he noted.
Tahir Johnson of Simply Pure Trenton Dispensary noted opening his dispensary was like finishing a race and the beginning of another one since now he has to run the operations.
“It took a lot of money to just stay alive and get to this point,” he noted.
Johnson noted he is now working to get traffic to his store now.
This is especially difficult since other dispensaries are opening nearby.
Johnson added underground legacy operators preserved the cannabis market during the dark years of extreme marijuana prohibition on the state level.
Financial Service Agreements Issues
Tank noted conversations about controlling shelf space and Financial Service Agreements (FSAs) are very prominent.
“The goal of the MSO is to wholly own one day these multiple doors,” he declared.
“I’ve had conversations with license holders who will not survive. Everyone is at various stages of survival,” Tank said.
He said that franchising and taking the brand of others is a strategy to survive versus holding onto a name associated with values and an emotional connection.
Tank said MSOs are looking to buy up to 30 percent via an FSA since that is the limit for 2 years. After two years, he said they want to own the whole company.
A few minority-owned companies have already gotten into the NJ cannabis market with the help of a large MSO.
Tank said it is difficult when investors want a return and few other options are on the table.
“The offers aren’t for everyone,” he explained.
More MSO Cannabis Chains Coming to Jersey
Tank noted some investors and MSOs are interested in following the rules. He said the deal terms vary. Tank noted some FSA deals are offered by predators.
He said some deals are for 100 percent ownership of the company. Others want you to follow their orders after agreeing to a Management Service Agreement (MSA).
Tank said these are not good deals for those close to opening. Some potential investors waste time with schemes.
Tank explained that most NJ minority cannabis business owners will likely sell out after 10 years or grow to become an MSO.
Beware Bad Deals
Holistic Solutions dispensary owner Suzan Nickelson said she was offered “cartel money” when she was looking for investors while in the process of opening.
“An FSA, MSA, and profit sharing are all red flag words,” she declared. “Asking for all three is predatory.”
“There are a lot of fraudsters running around in sheep’s clothing,” Nickelson noted.
So she explained you need to review deals thoroughly.
Tank commended Commissioner Charles Barker of the NJCRC and his criticism of corporate deals.
“I know an MSO has three letters but can be a four-letter word,” he noted.
However, Tank thought a small minority-owned MSO could be different.
Helping Independent NJ Minority Cannabis Business Operators
Nickelson said buying groups and collectives are being formed to help independent dispensaries combine their purchasing power and get better deals.
She said it’s good to develop a relationship with cultivators and manufacturers to get deals. It’s especially good if they have promoted their product and a few others are selling it nearby.
“We will find people are not running stores well. There will always be opportunities for people to come into this business and do it well,” Tank noted.
“You can’t recreate the vibe,” Nickelson said.
However, “Cannabis is not where you will build it, and people will come,” she noted.
Getting into the Welcoming Cannabis Industry
“Cannabis was not my passion. I grew up utilizing cannabis. I’ve had my share of seshes,” Tank noted.
Thus, he explained the cannabis community is very welcoming.
“People of all ethnic backgrounds, people of all genders and orientations, everybody shows love,” Tank explained.
He praised a Heady NJ event he attended for the welcoming and diverse crowd as an example.
