CRC takes steps to give business owners room to grow

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As part of an effort to spur development of New Jersey’s emerging cannabis marketplace, as well as encourage diversity, the Cannabis Regulatory Commission is taking steps to give business owners room to grow.

During the regulatory board’s Feb. 8 meeting, members moved forward with several recommendations from its permitting and licensing committee, including allowing the state’s cap on the number of cultivation licenses to expire and improvements to the overall licensing process.

Under the state’s cannabis law, the number of companies allowed to hold Class 1 (cultivator) licenses is limited to 37, but presently only 17 businesses are licensed to grow cannabis in New Jersey.

The number of licensed operations – six that are medical only and 11 that can cultivate for recreational use as well as medical – is far below other states in the U.S. with legalized markets.

Under New Jersey’s cannabis law, there is a limit on the number of licenses for cultivators for a 24-month period, a rule that is set to end Feb. 22. Based on the state’s market demands, the agency decided to allow the provision to lapse as a way to “open the space for more cultivators,” according to CRC commissioner Maria Del Cid-Kosso.

“The market is developing, and we don’t want to hinder that. The New Jersey canopy is currently only 418,000 square feet – far below the average of other states with legal cannabis. New Jersey currently has only one cultivation license for every 197,000 residents. The national average is one license for every 31,000 residents. We have a lot of room to grow,” said Del Cid-Kosso, a member of the permitting and licensing committee.

Commissioners also expect that lifting the cap will ultimately result “in more favorable pricing and better access for patients and other consumers,” she said.

Other actions taken by the board include adjustments to the criteria for priority applicants to require all social equity, diversity-owned businesses and impact zone applications for annual and conversion licenses be reviewed before all others.

Since the CRC put out a notice of application in late 2021, it has received 1,575 applications for Class 1 (cultivator), Class 2 (manufacturer) and Class 5 (retailer) licenses. Of those applications, 72% are categorized as diversity-owned, 25% as social equity and 43% as impact zone.

The CRC recently approved a proposed framework that would allow medical dispensaries and recreational-use retailers to operate consumption lounges, which would be an additional endorsement that attaches to a Class 5 license. However, it would require an additional application and approval by the state and local officials

Before the regulations can be enacted, they are subject to a 60-day public comment period, which ends March 18.  If the board issues a final approval, New Jersey will join eight other states that have regulations providing for an on-site use option at dispensaries: Alaska, California, Colorado, Illinois, Michigan, Nevada, New York and New Mexico.

Additionally, the CRC is allowing the state’s ban on certain vertically integrated businesses to end. After Feb. 22, cannabis license holders may have cultivation, manufacturing, retail and delivery service licenses at the same time, however they can only have one of each license type in any combination.

The changes come as the board finalizes regulations overseeing three new license types – Class 3 (wholesaler), Class 4 (distributor) and Class 6 (delivery) – which, once they go into effect, will result in a new notice of applications for those classes of uses.

CRC Chair Dianna Houenou said, “The change in priority order ensures that annual license applications from priority designated businesses are promptly reviewed and approved, and that the priority designation applies for all stages and application categories. The change should help those businesses get up and running in time to boost competition in the industry.”

Since New Jersey’s recreational market launched in April 2022, adult-use sales have kicked off in several other neighboring states, including New York and Connecticut. Altogether, 39 states have legalized cannabis to some extent, with 21 states, plus the District of Columbia, permitting adult use.

As New Jersey’s industry nears its first anniversary, the state’s cannabis business community is focused on expanding the market in a way that is equitable and fair.

Right now, the landscape has been dominated by multistate operators, making it hard for entrepreneurs to enter the market because they don’t have the experience and resources that larger ventures do.

Moving ahead, Houenou has said the CRC wants to see more local, small businesses participate in the industry and that it’s working with partners “in and outside” of state government to identify sources of capital that entrepreneurs need.

One of those initiatives, a New Jersey Economic Development Authority pilot program that will provide grants of up to $250,000 to prospective business owners who want to establish themselves in the legalized marketplace is launching soon.

Under the newly created Cannabis Equity Grant Program, up to $10 million in state funding will be made available to help startups with early-stage expenses, such as regulatory fees, rent, utilities and wages, as well as technical training.

Sixty percent of the initial round of grants will be disbursed to qualifying social equity applicants, such as those who have previous cannabis convictions or live in economically disadvantaged areas.

The state also said it will waive the $1,000 application fee as a way to encourage participation in Impact Zones, which are communities that have high levels of marijuana arrests, unemployment rates and other socioeconomic factors. The remaining funding will be allocated to all entities that have secured municipal approval and site control over their business’ real estate space.

According to NJEDA Chief Community Development Officer Tai Cooper, the agency will begin accepting applications in late February or early March.

After presenting details about the grant program at the most recent CRC meeting, Cooper said, “This is exciting for our state. I have to give kudos to our governor for having the foresight to understand that social equity has to be at the center of what we are doing with the new programs.”

In New Jersey, the law requires that at least 70% of all tax revenue, including all social equity excise fee revenue, is supposed to be invested in “impact zones,” defined as cities with high crime indexes and unemployment rates.

Since the debut of recreational sales, about $219,482 has been collected in SEEF revenue, according to CRC Vice Chairman Sam Delgado. For Fiscal Year 2023, Delgado, who chairs a committee on fees, anticipates $1.5 million to be raised by the SEEF, which is $1.52 per ounce on all cannabis sold.

Based on feedback the CRC received over the course of five public hearings on how to invest the revenue, the board said four common themes emerged: economic/community development, criminal justice reform/reinvestment, workforce development/youth services and public health

According to the CRC, its first set of recommendations call for investing the funds in grants and training/technical assistance for aspiring entrepreneurs in impact zones and economically disadvantaged areas, or areas with other economic designations such as Urban Enterprise Zones through the NJEDA’s grant program and the New Jersey Business Action Center’s training/technical assistance programs.

The CRC will send those recommendations to the governor and Legislature, which have the final say on how the funding is allocated.

Following the meeting – during which the CRC awarded 49 conditional, 11 annual and 11 condition-to-annual licenses – CRC Executive Director Jeff Brown commented on the market’s potential for expansion, saying that New Jersey is primed for growth.

During a Feb. 13 Assembly Oversight, Reform and Federal Relations Committee meeting on the current state of the cannabis industry and economic incentives for certain cannabis businesses, Brown said he is “extremely proud of the ground we’ve covered and confident in the direction” that state is going.

“We’re setting New Jersey up to be a national model for the safe and sensible regulation of cannabis,” Brown stated.

Shaya Brodchandel, chief executive officer and president of Harmony Dispensary, a Secaucus-based nonprofit medical dispensary that will soon enter the state’s adult-use cannabis market, also praised the CRC.

Brodchandel, who also serves as the president of the New Jersey Cannabis Trade Association, told NJBIZ, “The CRC should be proud of their actions, boldly taking steps to make the cannabis industry more accessible to aspiring entrepreneurs. This was the promise of legalization in New Jersey, one that I am glad to see coming to fruition.”

Stephen Pemberton, an associate in the Cranford office of leading cannabis law firm Vicente Sederberg, described some of the CRC’s latest actions as milestones for the agency, particularly the new regulations for wholesalers, distributors and delivery services that are expected to take effect in early March.

Pemberton, whose practice focuses on cannabis business licensing, land use and regulatory compliance law, also noted the agency’s decision to allow the license cap of 37 cultivators to expire later this month without any new restrictions.

Pemberton described it as a move that’ll help “bolster New Jersey’s nascent cannabis market and gives hope to those potential cultivator licensees working hard to overcome licensing hurdles, including those relating to property, municipal support, and funding.”