The NJ CannaBusiness Association (NJBCA) held a webinar with the NJ Cannabis Regulatory Commission (NJCRC) and other officials on rules changes and access to capital.
“New Jersey is doing it right,” NJCBA President Ed DeVeaux said. “Other states are trying to be like New Jersey.”
“We are setting up New Jersey to be a national model not only for the cannabis industry but sensible rules and regs,” NJCRC Executive Director Jeff Brown said.
“We had to adopt our initial rules for months after the CRC was formed. Six months is near impossible. Four months is even less,” he argued in defense of their progress thus far.
NJ Cannabis Rule Changes
Brown noted the NJ cannabis news of the rules changes that went into effect on February 22nd. They were part of the Cannabis Regulatory and Enforcement Marijuana Modernization Act (CREAMMA) that implemented the state cannabis legalization referendum.
Brown noted the ban on vertical integration has ended. Previously, companies could only hold one license.
There is also no cap on cultivation. The previous cap was 37. Currently, New Jersey has nowhere near 37 cannabis cultivators operating.
“Now locally owned, locally operated businesses can vertically integrate,” Brown said.
“That is really great news. If somebody wants to do vertical integration, will they be applying for individual separate licenses?” DeVeaux asked.
“That’s correct. You have to do it all under the same company,” Brown replied.
Service Agreements Issues
“Can licensees work together?” DeVeaux asked.
“It comes down to what type of relationship businesses have. I want to highlight our Financial Source and Management Service Agreements (FSAs) (MSAS),” Brown said.
“We’ve seen Management Service Agreements used in other jurisdictions, both good and bad. We want to recognize businesses that could use Management Service Agreements. Management Service Agreements contract holders cannot be license holders,” he explained.
Brown said one overall company could manage up to five licensed businesses.
That could equal a total of five locations if they were all dispensaries.
He noted someone with an FSA can only be involved in seven license-holding businesses.
Brown encouraged people to read the regulations.
“We haven’t really had many requests for that. The statute does specifically authorize some co-location. It’s something we’ll have to address here. It’s very case-specific. I do expect us to have to put out some guidance on it,” he explained.
An NJCRC official previously noted dispensaries only get one location per license, unlike the medical cannabis Alternative Treatment Centers (ATCs) that were vertically integrated and could have up to three locations.
“We have an incredibly diverse market shaping up here in New Jersey,” Brown said. “We are seeing more municipalities opt-in.”
He said they’re working on educating them.
Effects of Expansion
“It’s a natural progression for the market to take,” Brach Eichler attorney Charles Gormally said. “If they knew what the last two years were gonna be like, I think they would have done a four-year period.”
“Vertical integration, it’s going to make it a much bigger game,” he noted. “If you can control your product… you’re way better off.”
“There’s no new business commodity that has evolved this way. There’s no guide for it. You’re always on the edge of an event that changes everything. It’s an odd market. It’s not for the faint of heart,” Gormally added.
Since the New Jersey cannabis market is so small, lawmakers’ intentions to see a market of small businesspeople were probably lost due to inevitable delays.
Increasing NJ Cannabis Market Competition
Brown seems very aware now of the cartel/trust-like nature of the few legal cannabis companies and the exorbitant prices they charge for cannabis that is largely considered mediocre by the New Jersey cannabis community.
“We need competition in this market. We need more businesses online,” he said.
Theoretically, an MSA could include one vertically integrated company and four dispensaries, thus giving them five locations and vertical integration.
A company with only five locations is not Walmart which can open and put every nearby small company out of business.
It could be considered a lot since there were only five medical dispensaries in New Jersey when Governor Phil Murphy took office. But there are also more than 1,000 cannabis licenses by the NJCRC, and no end is in sight.
A vertically integrated company that grows, makes, sells, and delivers its product will have to compete in the New Jersey cannabis market aggressively. Eventually.
It would be interesting to see how much companies will try to push the rules and what the NJCRC will allow. The NJCRC has made it clear it wants to prioritize minority-owned companies and those with cannabis convictions in the licensing process.
Access to Capital Assistance
“There are lots of things outside the CRC’s control that includes access to capital, real estate, and municipalities,” Brown admitted.
“One of the concerns of this has been access to capital,” DeVeaux noted.
Thus, he introduced John Costello and Jenell Johnson of the NJ Economic Development Authority (NJEDA).
“We’re excited to be part of this meeting,” Johnson said. “We are fully aware of how expensive this industry is. We’re proud to have the highest grant program in the nation.”
She noted their $10 million grant program for the initial NJ cannabis pilot program.
“New Jersey can be the leader in cannabis products and services,” Costello said. ‘New Jersey is very focused on cannabis entrepreneurs, especially those impacted by the War on Drugs, have access to capital. We know a lot of capital is involved.”
Costello noted the Seed Equity program for struggling conditional license holders includes technical assistance. They will award 24 companies $150,000 a piece in their first pilot program.
“This is open exclusively to SE applicants,” he noted.
The second tier, Joint Ventures, will help those closer to opening open to all license holders. They can get up to $250,000. It is for those with land and town approval. The Joint Ventures tier will be launched in the next 60 days.
Johnson explained that Seed Equity doesn’t have an approximate date when it will be available.
NJBAC Technical Assistance
“This academy is going to be your home Penni Wild of the NJ Business Action Center (NJBAC) said. “Things are still under development.”
She noted they want to help the prioritized license holders.
Classes will be virtual and bilingual in Spanish.
“We’ll have live Q& A session every couple of weeks,” Wild said.
She gave an overview of the curriculum:
She noted how thorough the process is.
“We’re also working with the legacy community,” Wild said.
She also praised underground legacy operators spearheading legalization.
