Lindabury, McCormick, Estabrook & Cooper, P.C. Firm News & Events
At a meeting of the New Jersey Cannabis Regulatory Commission (the “CRC”) held on August 19, 2021, an initial set of regulations were adopted which will govern the recreational cannabis industry in New Jersey. These are not the full set of regulations that will be needed to govern the industry (e.g. the current regulations do not cover licensing requirements for wholesaler, distributor, or delivery licenses). However, the regulations do mark a major milestone in the path to a legal adult recreational cannabis industry in the State of New Jersey.
Among other things, the adoption of these regulations triggers a 180-day countdown to the day when adult recreational sales are to be permitted in New Jersey. That would be February 15, 2022, which now becomes the outside date for such sales. The date for businesses to first be permitted to apply for licenses in the cannabis industry, however, has not yet been determined. When the CRC decides that it is ready to accept license applications, a notice of that initial application date will be published. No applications will be permitted until at least 30 days after the publication date of that notice. The date for that publication is unknown at the present time. As CRC Chairperson Dianna Houenou stated at the August 19, 2021 meeting of the CRC, the commission will hold off on accepting license applications until it has the ability to “process applications effectively and efficiently”.
The new regulations provide that three types of cannabis businesses will be given priority in the review and approval of their license applications—effectively moving these applications to the “top of the pile” in the review process (jumping ahead of other, even earlier submitted, applications):
- Social Equity Businesses: These would involve businesses owned by individuals who live in zip codes where (i) the median household income is 80% or less of the State median household income, (ii) the health uninsured rate is at least 150% of the State uninsured rate, and (iii) there is a poverty rate that is at least 150% of the State poverty rate. Alternatively, a business could qualify as a Social Equity Business if it owned by individuals with previous marijuana-related convictions. It is not immediately clear how this latter criteria could be affected by the State’s ongoing program that is automatically expunging prior marijuana convictions.
- Diversely Owned Businesses: These are businesses that are minority-owned, women-owned, or disabled veteran-owned, and certified as such by the New Jersey Department of Treasury in one or more of those categories. One problematic aspect of this arrangement is that the Department of Treasury certification process was designed primarily for ongoing businesses that desire to obtain the certification in order to qualify for certain governmental or public company projects. As such, the certification process has historically required that applicants show at least some measure of revenues. In the case of new cannabis businesses, these will almost by definition have no revenues as they are not allowed to engage in most cannabis related business activities until they are licensed to do so. Thus these businesses, even if entirely minority-owned or women-owned, may not qualify under the Department of Treasury process to be certified as minority-owned or women-owned businesses. Apart from this, that certification process can take 30 days (and perhaps more in the days of COVID). The Treasury certification process would therefore need to be commenced at least 30 days before the license application submission (to even potentially have the certification in hand for the license application, and the resulting priority in the licensing process).
- Impact Zone Businesses: These are businesses located in an Impact Zone, owned by people in an Impact Zone, or employing residents of an Impact Zone. Impact Zones are municipalities (20 in total) that meet certain criteria for high unemployment rates, or crime levels or marijuana arrests.
Preferences will also be given in the license application process for “microbusinesses”. A microbusiness must be owned entirely by persons who have resided in New Jersey for at least two years, and at least 51% of the owners, directors, and employees must be residents of the municipality where the business will be located (or an adjoining municipality). The microbusiness can have no more than 10 employees, and will be subject to certain occupancy space restrictions (2,500 square feet) and volume restrictions depending on the type of license involved (e.g. cultivator versus dispensary). The new regulations also provide a mechanism for a microbusiness to be approved to transition to a general cannabis business (no longer subject to the various restrictions of a microbusiness) after one year of operating as a microbusiness.
The regulations also allow for certain “conditional” licenses to be applied for. A conditional license application requires most of the information, background checks, security and business plans needed for an ordinary license, but the applicant is allowed to apply for the license without having leased or purchased the site location where the business will operate. The applicant can thus obtain conditional license approval, and then will have 120 days to finalize their site arrangements. This will allow applicants to know that they have a license approval, without needing to sign a lease (or real estate purchase) for site space in advance. In order to be allowed to apply for a conditional license, every owner with any decision-making authority must have had income of less than $200,000 in the prior tax year (or $400,000 if filing jointly).
Application fees for microbusinesses and conditional licenses have been kept quite low to avoid barriers to entry. Fees generally can range from $500 to $2,000, and only 20% of that amount is required with the license application itself—the balance only becoming due if the license is approved. Large scale cultivators may pay license fees of up to $50,000. And existing Alternative Treatment Centers (serving the medical cannabis field) may have conversion fees of up to $1 Million if they want to convert to allow service to the adult recreational community.
The regulations also lay out the requirements for cannabis packaging (e.g. childproof packages), and place restrictions on cannabis advertising to try to ensure that it does not target children.
Municipalities retain their ability to restrict or prohibit cannabis businesses located in their boundaries, and this may end up being one of the most impactful issue for cannabis businesses. Many municipalities have outright banned cannabis businesses at the present time, in part because the law gave them until August 21, 2021 to enact bans or restrictions—and if they did not do so by that date, then they would be prevented from enacting such bans for five years. Given the timing of the new regulations (adopted only two days before the above August 21 deadline), many municipalities determined it was safer to adopt a general ban before the deadline. If they did so, they then have the freedom to undo the ban or impose less restrictive limitations at any time. It is unclear how long towns will retain their bans, but in the interim a cannabis business cannot operate without a site location—and site locations may be difficult to come by with all the bans and other restrictions that municipalities have imposed in recent months.
The new regulations are 160 pages long, and the above merely touches on some of the general highlights. They do, however, represent a major step forward as New Jersey moves to the opening of its adult recreational cannabis market. Lindabury will continue to provide additional guidance and information on the new regulations, and on additional regulations as they are subsequently developed and approved.