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Delay in ATC licensing posing issues for applicants

When the Department of Health announced it wouldn’t make its Nov. 1 deadline for issuing licenses for six medical marijuana alternative treatment centers, applicant and real estate specialist Potter Polk was hardly surprised.

When the Department of Health announced it wouldn’t make its Nov. 1 deadline for issuing licenses for six medical marijuana alternative treatment centers, applicant and real estate specialist Potter Polk was hardly surprised.

He’d seen this process and its occasional delays in other states, where his company Kalyx Development Inc. is a real estate investment trust specializing in cannabis businesses. He’s landlord to at least nine of them in four states. In New Jersey he’s part of an applicant group called Constellation Wellness that’s hoping to operate in Newark.

As applicants wait to hear whether they will be awarded licenses, so, too, do their landlords. And some, according to Polk and two lawyers who operate in the cannabis space, are putting out the word they can’t wait much longer.

“People relied on Nov. 1 based on how they set up their property deals. They negotiated certain deals or carry ing-cost agreements to only give them coverage through the Nov. 1 deadline,” said Eric Reiser, a partner at law firm LoFaro & Reiser LLP.

“It was three months after the applications were submitted and most property owners aren’t willing to keep their property off the market for that long,” he continued. “Now that [the deadline’s] come and gone, applicants are faced with forking over a significant amount of money to these property owners or essentially jumping ship and finding the new property.”

Relocation would pose no small issue for an ATC applicant.

“Now that [the deadline’s] come and gone, applicants are faced with forking over a significant amount of money to these property owners or essentially jumping ship and finding the new property.”

– Eric Reiser, LoFaro & Reiser LLP

 “If you can’t execute, it’s not going down the street and picking another property — it has to be [in consideration of 1,000-foot] setbacks, the financing behind the building and [getting] cities and municipalities on board with the process,” Polk said.

As alluded to by Polk, there are factors that make real estate shopping in the cannabis space different. Not all municipalities are open to such businesses coming in. Current regulations say dispensaries can be no closer than 1,000 feet to a drug-free school zone, and buildings used as cultivation and processing facilities or dispensaries can’t carry a mortgage.

“We’ve kind of always likened it to finding a needle in the haystack, and when we’re on the real estate side, that’s what we build our business on,” he said. “You have a real estate need and it’s much more difficult than finding a vacant building.”

According to Reiser, the empty warehouses littered throughout New Jersey are fertile ground for cannabis business, and those landlords know that leasing to a licensee would be a huge boon.

Property owners in less-desirable but still functional positions may have negotiated deals whereby applicants pay little until they have the license in the bag, he said, but even those property owners are losing patience.

“I know a property owner who called for my advice saying ‘we’ve given someone the option to buy by Nov. 15 and the date has come and gone. What should I do?’ That property will end up trading away for some people,” said Polk.

Based on numbers alone, the majority of applicants who secured property won’t get to use it. There are 103 organizations with 146 applications waiting in the wings, and when an announcement is made only six will receive a license.

Losing a property might also reduce the likelihood of receiving a license, according to Reiser and Charles Gormally, Cannabis Practice co-chair at Brach Eichler who also counseled an applicant.

“One of the ways [the DOH] is going to break a tie is looking at whether or not an application has their real estate tied up,” said Gormally. “Whether you have an irrevocable option to lease or any other permutation on how to lock up real estate, if applicants are tied, there is going to be substantive decision making from the state [based] on if the real estate is locked up.”

With this in mind during the application process, Gormally told his applicant group to negotiate control of their real estate well passed Nov. 1 in case of a delay.

Gormally said he believes the state should extend the window for licensees to replace real estate once they’ve been identified as the best candidates.

“[Landlords] are interested in renting their property, not whether or not you get a license,” Gormally said. “But if you know you have a license or know you’re going to know by a date, that injects some certainty and it becomes a more concrete discussion.”

Even still, Reiser said he feels the DOH is putting candidates in an unfair position since they are already losing out on potential business opportunities because the millions they have earmarked for a potential ATC are sitting in an account, unable to be used.

“It’s kind of interesting that the state imposed such a crazy deadline for the applicants to meet but they couldn’t return the favor and give them a timely decision,” he said.

Reiser was among several hundred others who attended the mandatory pre-application conference in Trenton on Aug. 9.

“From that, the legal community is surprised that the DOH didn’t anticipate the amount of paperwork they’d receive based on the amount of people that attended and how many applications could be submitted. Based on that, why they didn’t set a more realistic deadline than Nov. 1? It’s simple math to calculate that.”

Not so fast, said Jeff Brown, the DOH assistant commissioner who oversees the program.

“The department received 146 applications totaling roughly 43,000 pages of material that needed to be reviewed for only six permits,” Brown said in an email. “When the review is completed, there will unfortunately be 140 disappointed applicants who will have to figure out how to hold on to investments and properties if they intend to participate in future Requests for Applications.

“That math was evident only days after the application period closed on Aug. 31, regardless of the time it has taken the department to review the applications. We expect to announce the successful applicants before the end of the year.”

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Gabrielle Saulsbery
Albany, N.Y. native Gabrielle Saulsbery is a staff writer for NJBIZ and the newest thing in New Jersey. You can contact her at gsaulsbery@njbiz.com.

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