So much to do, so little time What it takes to vie for an ATC license

Gabrielle Saulsbery//July 30, 2018//

So much to do, so little time What it takes to vie for an ATC license

Gabrielle Saulsbery//July 30, 2018//

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Whatever plans Tara Sargente had for August are going to have to be rescheduled.

That’s because she and her team of five have limited time to submit their application to obtain one of six new licenses to operate an Alternative Treatment Center (aka medical marijuana dispensary) in New Jersey.

The monthlong application begins Aug. 1. One look at the Department of Health’s request for application and it’s readily apparent applicants have their work cut out for them.

On top of providing pages upon pages of legal and financial documents, each application is rated on a 1,000-point system that questions everything from the cannabinoid profile of the products applicants plan to sell to their knowledge of botany, horticulture and phytochemistry.

“We’re all handing over our first-born,” joked Sargente.

With more than two decades of cumulative experience between them, including 10 as the expert cultivator for a cannabis company and eight at the helm of her just-add-weed edibles business Blazin’ Bakery in South River, Sargente’s team has a lot going for it.

With so much to do in so little time – the application period was only announced July 16 – their 4-acre Central Jersey site is one of their most important attributes, according to Jonathan Havens and Ruth Rauls, cannabis-law attorneys at Saul Ewing Arnstein & Lehr.

“You will have needed to be on the ground working on this before the announcement came off, particularly with issue to real estate,” Rauls said. “You have to show that you have control over the property that you intend to put your facility at, and you have to show that the town has given you written approval to put it there.”

The RFA states that if you don’t have property control and are chosen as a licensee, you must show that you will have it by Nov. 30, 29 days after licensees are supposed to be announced.

“From a capital perspective, you’re going to have to be able to pay for a lease or for ownership over that particular property for a period of time before you’re making any money coming in the door,” Rauls said.

The rapid expansion of New Jersey’s medical program under Gov. Phil Murphy has brought in over 10,000 new patients in the last seven months, at one point boasting more than 100 new patients per day. The six current ATCs have been tasked with serving the more than 25,000 patients, 1,000-plus caregivers, and 700-plus doctors registered.

The urgency of patient care means the six new facilities will need to hit the ground running when licensees are announced Nov. 1, hence the extensive prework required for consideration. The state wants to make sure if it’s awarding a license, it’s to someone who can pull it off.

You’d be hard-pressed to find someone more versed in what’s needed by a vertically integrated cannabis startup than Brian Staffa, who started his cannabis business consulting firm BSC Group nine years ago and has since brought dispensaries from the ground up in 13 states.

Staffa said the main thing applicants need to have to truly be in the running are previous business success and adequate funding.

“Does someone on their team have success in a cannabis business out West? I think they’re going to look for a track record to leverage,” he posited.

Though speed is important — after all, the need for the additional dispensaries is critical to eliminating supply shortages across the state — so, too, is realism.

From seed to harvest, Staffa says you’re looking at 12 to 20 weeks for quick harvest after you get your plants in the ground, which itself will take about 90 to 120 days with respect to getting supplies and permits.

“They’re looking for a real timeline,” he said. “The biggest test is what’s practical and what can actually happen. I’ve seen some applications saying they’re going to have a harvest in nine weeks, and that’s just not possible because it takes the plants nine weeks just to flower.”

Another thing the state will be looking for is how much an applicant can produce. If every patient purchased the maximum prescription of 2 ounces a month, then one pound could serve eight patients. So to accommodate the 10,000 new patients, an additional 1,250 pounds of marijuana needs to be produced per month as compared to previous yields.

“The longer we’re waiting without additional capacity, the supply shortage is only coming more quickly,” Staffa said. “It’s quite clear that we’re going to have a short age. I’m not sure when that shortage is going to be, but at the pace the patients are growing, I don’t believe the market can accommodate patient growth much longer. The key reason for the expansion is to make the supply shortage as short in length as possible.”

Getting your bucks in a row

With marijuana still federally classified as a Schedule 1 drug and most banks refusing to handle money associated with it for fear of complicity, the cannabis boom has created a completely secondary market for family offices, Staffa said.

“Because traditional investors won’t give [money] to cannabis, we have a whole side industry that’s spawned because of it,” he said.

Funding for Sargente’s team comes entirely from in-state investors, with much of it from friends and family. One investor has a background selling medical equipment and, to her knowledge, there are “no Wall Street types,” she said.

“Friends and family viewed this as an excellent opportunity, so there were more family and friends than we were able to offer opportunities to,” Sargente said. Although she wouldn’t divulge how much her crew is funded, she did say that “$5 million [in funds] is bootstrapping.”

“With cultivation, processing and dispensing, you’re really talking about three businesses. $5 million is bare minimum if you’re willing to call in favors and roll up your sleeves,” she said.

Cost of setting up shop depends on a variety of variables, like which area of the state is being looked at as a base of operation and if the necessary structures, such as warehouses and greenhouses, are in place.

“If you set up an operation in Southern New Jersey that has a greenhouse already on the property [and] you just need to make minor improvements, you could get into the cannabis market with a [$1 million-plus] investment. For those looking at something more sophisticated, it can go from a million to $20 million, depending on the location and everything else that comes with it,” explained Scott Rudder, president of the New Jersey Cannabusiness Association. “It also depends on the type of personnel you’re hiring and where they’re coming in from. It’s just like any other business. Establishing a business will really come down to what the owners and operators want it to be.”

Staffa had a more conservative estimate, aligning with Sargente that $5 million is the bare minimum to start a vertically integrated facility. However, he added he expects groups ready to drop $20 million to $25 million on operations will be seen as more viable candidates.

Who’s calling the shots?

While the state Department of Health wouldn’t specify members of the ATC selection committee for privacy reasons, it is expected to be a combination of officials from the health department and Attorney General Gurbir Grewal’s office, said Lee Vartan, who currently heads up the cannabis practice at Chiesa Shahinian & Giantomasi PC.

Lawyers will assess each application to ensure they’re checking all the boxes on the 10-page RFA, and the Division of Gaming Enforcement will likely have a hand in background checks.

“[The DGE] has investigators [who are] really well-versed in doing complex investigations of finances,” Vartan said. “Their primary job is to make sure that there is no criminal involvement in the gaming industry in New Jersey. To be an investor in a gaming property there is a thorough background check that requires investigators to travel overseas and do interviews and things like that. Obviously this is a different business, but the concerns are the same.

“You want to make sure an ATC is not tied to criminal proceeds or a criminal front for money laundering. That’s why I assume the DGE will play a part in this process, because they played a significant part in the original process.”

Community and cannabis

Beyond its funding, infrastructure and experience, Sargente’s team has another thing going for it: Jersey roots. A South River native, Sargente is in the company of four other New Jerseyans, two of whom live in the state and two others who have spent recent years out West gaining experience about the cannabis business.

“Community support — that’s a huge part as well. I have a background in community service in the Central Jersey area. I’ve worked here, I’ve lived here,” she said.

And while this round of licensing is for vertically integrated businesses, the possibility of separate licenses for cultivation, processing and dispensing also looms.

“I very much hope we’re one of the six selected, but I go to cannabis events and I meet people with all of these amazing ideas who just aren’t going to be able to get in on this round,” Sargente said. “Micro-licenses will help women and minorities get into the cannabis green rush as well. With [the potential for] adult use, more variety is possible. Eight years ago, it was everyone in tie-dye; today, everyone’s in suits talking equity. But this is where it needed to be to get legitimacy.”