Business

New Jersey legalized cannabis. What’s next?

By Alex Halperin

On Monday, New Jersey Gov. Phil Murphy (D) signed laws to decriminalize cannabis and create the mid-Atlantic region’s first legal REC market, projected to be worth $1B in annual sales. The move, which comes nearly four months after Garden Staters voted to legalize, kicks off a process for the state to create regulations, as companies position themselves to win licenses. It could be close to a year before the first legal REC shop opens.

WeedWeek spoke to Rob DiPisa, co-chair of the cannabis group at law firm Cole Schotz about what to expect in a state where nothing is ever easy.

The Current Situation

Thus far, New Jersey’s MED market has awarded 12 licensees, all of which are vertically integrated. The first of those were awarded about a decade ago with a follow on round in 2018 dominated by multi-state operators (MSOs).

  • At the moment, dispensaries offer minimal selection and struggle to meet patient demand, DiPisa said.

In 2018, the state attempted to issue more licenses to New Jersey-based companies but the effort ran aground following litigation over community support for their businesses and technical aspects of the submission process. The litigation led to a judicial stay, prolonged by the pandemic, which was lifted last week. 

  • In the meantime, the applicants have been “sucking wind,” as they maintain the properties they’ve secured without a way to generate revenue. With the stay lifted, DiPisa anticipates some of those to be awarded in coming weeks. “The state has every incentive to get those licenses out,” DiPisa said. 

What’s next

The new law signed by Gov. Murphy triggers a period for the remaining members of the state’s Cannabis Regulatory Commission (CRC) to be installed and shape the regulations which will govern the market. Once that happens — based on the law, DiPisa is confident the regulations will be ironed out and within approximately seven months — companies can apply for licenses.

  • The operators vying for licenses are scrambling to identify real estate, raise capital, get their corporate documents in order and make arrangements with the localities where they want to operate. 

Though the law limits the state to 37 cultivation licenses, including the existing MED operators awarded cultivation licenses in the REC market, much of the rest of the licensing structure will be determined by the forthcoming regulations. (The 37 cap doesn’t include microbusinesses.)

  • For the first 24 months, the law creates a complex system governing which kinds of licenses a company can own. Different rules apply to the existing vertically integrated MED operators which move into the REC market.
  • The categories will include cultivator, manufacturer, retail, delivery, distributor and, a less familiar license type, wholesaler. 
  • As part of the law’s effort to promote industry equity, at least 25% of licenses will be reserved for microbusinesses which must be owned by New Jersey residents. DiPisa said restrictions in the law essentially limiting these companies’ size could make it difficult for them to compete since they won’t benefit from the same economies of scale as their larger counterparts. 

Regional spillover

Legalization in New Jersey is widely expected to accelerate the process in nearby states eager to keep the tax revenue within their borders. New York and Connecticut could both legalize REC this year, and Pennsylvania is in the mix as well. 

  • So far, nowhere else in the country has seen the conflict and confusion between legal state cannabis laws that this has the potential to create. Discrepancies could involve taxes, business climate, consumer issues — New Jersey will allow consumption lounges — criminal justice and the implications for interstate trade, once that becomes more imminent.  
  • Before Covid, the governors of New York, New Jersey and Connecticut discussed coordinating a regional approach to legalization, though their momentum seems to have dissipated with the pandemic.
  • While these issues are just beginning to unfold, it could be a “huge mess,” DiPisa said.
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