Social equity applicants for adult-use cannabis licenses face hurdles

Matha Figaro has operated ButACake, her everything-but-THC edibles company, in Jersey City for seven years. Like several other legal cannabinoid-focused operations, her cakes and gummies business is woven into the fabric of her community. Now that cannabis is legal, she plans to seek a Class 2 Manufacturers license with the state.

But social equity applicants like Figaro, microbusinesses and those with limited capital must clear some significant hurdles.

The legislators who wrote the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act and the Cannabis Regulatory Commission created by that law have made a concerted effort to get folks from communities affected by the War on Drugs—particularly Black and Brown people, and people from disadvantaged areas—off on the right foot with market regulations that favor their participation. At the state level, cannabis business applications are affordable.

But at the municipal level—where approval is required by the state—applicants face thousands of dollars in fees just to submit their applications. And landlords have hit applicants with rental costs of up to $50 per square foot when they realize they’re dealing with a cannabis business.

Linda Solana is currently looking for real estate to open a dispensary, was given the $50-per-square-foot-figure by a landlord in Montclair, and said she “just started crying—like oh god, you guys are really looking to get rich quick, overnight, over other people’s back sweat, you know, their blood, sweat, and tears?”

Solana is a cancer survivor, medical cannabis patient, and owner of the successful full-service pet center K9Nanni in North Arlington. Medical cannabis was “a lifesaver” during her cancer treatment, allowing her to go from 74 pounds and unable to stomach food to 104 pounds with a healthy appetite. She’s always wanted to help people, she said, which is what draws her to open a dispensary. But she’s a social equity applicant, not backed by a multi-state operator. She has investors and some of her own money, but not the type of money that allows her to put tens of thousands monthly into something that’s not a guarantee.

“Here it is, I’m a social equity applicant, and everyone’s trying to get money out of me,” Solana said. “There’s [a company] out of Las Vegas, they’re on the stock market. They want to help me find a place. They want $2,500 up front. If they find a place and I get a place to [present] in front of the zoning board, they want another $5,000. Because it’s so hard, you need these companies, and your money keeps flying out the door.”

Not all landlords are predatory. Solana found one she liked in Belleville, but that opportunity fell through once Belleville handed its allotted approvals out to other potential operators before reviewing her application. The so-called “pot-tax” is ubiquitous even among well-intended landlords who cite the continued federal prohibition on adult use cannabis and the attendant legal risks as justification for the high costs.

And no help is forthcoming from the CRC. “[T]here is nothing we can do about municipal fees or real estate costs,” spokesperson Toni-Anne Blake said via email.

To tackle fees associated with launching a cannabis business, neighboring New York will soon launch a $200 million fund for social equity applicants to draw from to set up their cannabis business. The fund was written into the adult use cannabis enabling legislation enacted by New York Gov. Kathy Hochul in January. New Jersey doesn’t have such a fund.

In pursuit of a manufacturing space, Figaro has had at least one landlord ask her for a $25,000 monthly holding fee on real estate he could rent out in the meantime.

“I told them to [no.] I’m not doing that. It’s honestly not fair, my business it too small, and I wouldn’t be able to be operational by the time I got my license if I succumbed to holding fees like that,” said Figaro, adding that she’ll likely have to move out of Jersey City to operate her business in a town that makes it more affordable.

Shayla Cabrera, who is also based in Jersey City and in March became one of the first 68 applicants in the state to hold a conditional cannabis business license, said that locking in a location has been her biggest challenge.

“What people do when they see it’s a cannabis business is they raise the rate, right? The rent was $18,000 a month. There’s no way a micro-cultivation can even cultivate enough to cover that overhead. So we said no. We’ve been saying no — to predatory investors, to overpriced real estate – because we want this to succeed. When you look at the cannabis market nationwide, a lot of the small grow operations nationwide go under, because farmers and cultivators make the least,” said Cabrera.

Now that she has her conditional Class 1 Manufacturing license, it’s “definitely easier” to find landlords willing to work with her, and Cabrera said she has a few potential spaces. But the increase in rental costs that come with a landlord realizing the space will be used for cannabis stands, and raising the money required for that is a challenge for many.

“Part of the hurdle going from a conditional to an annual [license] is we need to submit our real estate and it needs to be municipally approval. We need $80,000 to put down our real estate to hold it down … There’s a lot of specs to cultivation. It takes a little time to find what’s right for us. It’s not like a dispensary where we can just pop up cement walls and get some security,” Cabrera said.

Beyond real estate costs on the private market, public market requirements of getting into the cannabis space also aren’t cheap: Many municipalities are charging application fees, and those fees don’t guarantee that a business will result. Jersey City is charging a non-refundable $2,500 application fee, and Montclair is charging applicants $5,000. West New York is charging $6,000. Evesham is charging $5,500, but $3,500 is refundable for those who don’t get a license. In Willingboro, Class 1 Cultivator, Class 2 Manufacturer, and Class 3 Wholesaler applicants face a $40,000 non-refundable fee, and Class 5 Retailer applicants face a $10,000 fee.

If and when a business becomes operational, additional municipal fees can be imposed. On top of the up-to-2% tax municipalities are allowed to apply to cannabis transactions, towns with application fees also have annual renewal fees.

Zoning itself is another issue, explained Figaro, who noted that putting dispensaries away from residential areas makes accessibility an issue for folks who get around by public transportation or bicycle. The Jersey City Planning Board approved a plan in March for Blossom Dispensary LLC to open the city’s first adult use dispensary on Tonnelle Avenue, a main thoroughfare with four lanes and a jersey barrier in the middle.

“It’s one of the worst places they can zone for retail. There’s no bike lanes, it’s bad urban traffic. They’re welcoming everyone from outside of Jersey City to shop there,” said Figaro. “If they want to be competitive with the legacy market they’re going to have to start thinking about accessibility, and real accessibility. We can’t succumb to the soccer moms because they just happen to be property owners.”

Calculated hesitation

One would-be social equity applicant, who spoke on conditions of anonymity, said he’s holding off on applying anywhere until cannabis real estate’s price per square foot-age goes down, which he believes will happen.

“Right now, it doesn’t make sense to license and not be able to operate. Why apply if we want to operate between $3 and $4 per square foot when the prices now will be around $20 [per square foot]?” he asked.

A cultivator, he operates legally in California and internationally in Spain’s grey market—you’re not allowed to grow there, but he said strains of cannabis he’s bred are available at social clubs in Barcelona. But in New Jersey, predation remains to the degree that he believes the risk in getting into the industry now is too high. If he’d procured real estate months ago and due to delays had paid $100,000 or $200,000 in rent already without having his business any further along—at this point, he believes, an investor might only give him more money if he coughed up more equity; and then somewhere down the line, his business would no longer be his.

It’s happened to people he knows in the cannabis industry out west, he said: “I’ve got people calling me on the daily damn near cursing me out because they don’t want to see what’s happened to them happen to me.”

For now, the would-be applicant, who first started selling cannabis in high school 20-some years ago, continues to operate in New Jersey’s black market.