The New Jersey chapter of the American Civil Liberties Union is calling on the state to do more to help people from diverse backgrounds establish themselves in the lucrative new recreational marijuana market.

Advocates of marijuana legalization touted it as an equity initiative — not just taking a lighter approach toward drug enforcement, but creating business opportunities in many of the same communities most hurt by the war on drugs. Yet the ACLU warns that there’s a serious risk that the industry will instead be dominated by white, well-to-do business owners who are often from out of state, as it’s seen happen in other states where equity was also a stated priority.

The state’s Cannabis Regulatory Commission — which approves licenses for marijuana cultivators, manufacturers, and retailers — has an opportunity to address that concern, the ACLU says. It has sent the CRC a series of proposed changes to its latest draft rules, for a public comment period that’s open until Sept. 30 — all aimed at giving small businesses with diverse owners a shot at competing effectively with larger, more established marijuana industry players.

“There are a lot of multi-state operators coming in that have spent tons and tons of money over the last few years,” Joe Johnson, policy counsel for the ACLU, said. “So they have kind of the expertise and the money behind them, and the history behind them, to be able to make those type of applications competitive.”

The ACLU said it is hearing from applicants who say that the cost of entry is simply too high. Johnson estimates it costs more than $100,000 to open a weed store.

Many would-be applicants don’t have the resources to seek out the municipal approvals they need in addition to the state’s OK, the ACLU said. Some towns charge high fees for local applications, while others don’t allow marijuana sales at all. Equity applicants struggle with a tight real estate market overall — making it difficult to find somewhere to set up shop.

And applicants need money upfront to make their applications competitive, Johnson said.

The industry as it stands

New Jersey’s recreational marijuana industry got off to a slow start. Voters approved legalization in 2020, but the CRC didn’t start authorizing retailers until earlier this year — a first wave that gave recreational sales licenses to many established medical dispensaries, with an eye on maintaining a statewide canopy rich enough to serve both medical and recreational users. Many of those businesses are owned by multi-state outfits and have spent years in the industry.

Yet by at least some measures, NJ’s market is seeing success in its equity initiatives. New Jersey explicitly sets aside 15% of licenses for minority-owned businesses. As of early June, the state was pacing ahead of that threshold — 34% of licenses had gone to minority-owned businesses, according to the most recent data from the CRC.

Another 15% of licenses are set aside for businesses owned by women and disabled veterans; 24% of licenses had been awarded to businesses in those categories, according to the CRC’s data.

This is already changing people's lives. This is already altering, you know, wealth, disparities and wealth gaps in neighborhoods.

Wesley McWhite III, director of diversity and inclusion at the Cannabis Regulatory Commission

The CRC’s process aims to encourage those applications, prioritizing reviews of applications from several categories of businesses. One is for minority-owned, woman-owned, or disabled veteran-owned businesses. Another is for people who live in economically disadvantaged areas, or who have convictions on their record for marijuana offenses. And another prioritizes marijuana business in “impact zones” — areas disproportionately targeted by drug enforcement in the past.

The CRC further prioritizes reviews of conditional licenses before considering standard, annual ones — letting businesses begin to pursue municipal approvals, apply for financing or take other critical steps while they pursue the more involved process for annual licenses. The measure is meant to provide a path forward for business owners who don’t have experience in the marijuana industry, or don’t have their own real estate.

“It's really a first-of-its kind process, ensuring that those most impacted by prohibition, the war on drugs, and underserved communities get their applications reviewed first,” said Wesley McWhite III, the commission's director of diversity and inclusion. “And so far, we're seeing success. We're seeing great numbers.”

McWhite said he’s happy with the numbers he’s seeing.

“This is already changing people's lives. This is already altering, you know, wealth, disparities, and wealth gaps in neighborhoods,” he said.

Making room for new businesses

Johnson, of the ACLU, approves of those measures. But the cost of opening a business is a challenge for many of the same people who qualify for the priority designations, he said.

“That [equity] priority is great, you know, it'll get you to the front of the line to have your application reviewed,” Johnson said. “But it doesn't help address a lot of the concerns that people from the community feel in terms of trying to get into the industry.”

The ACLU notes in a letter to the CRC existing marijuana businesses reported $80 million in sales in the first 10 weeks of recreational marijuana operations alone. With support, more small businesses with diverse ownership could have a piece of that market, the organization wrote.

“So we would really love to see the state and the [Cannabis Regulatory Commission] work together to make sure that there is funding for those folks who fall into those equity categories,” Johnson said.

In its letter, the ACLU said that’s the “true test” of whether New Jersey will have a diverse and equitable marijuana market, and avoid the patchwork of often ineffective regulations meant to encourage diversity it says can be seen in many other states. The “steps taken now will shape whether New Jersey’s industry is able to set a national example for creating an inclusive industry,” it wrote.

Among the changes the ACLU is seeking to the CRC’s rules: It would have the state create an equity fund for grants and loans, similar to one started this year in New York, and provide funding to the state’s Office of Minority, Disabled Veterans, and Women Cannabis Business Development. Financial assistance programs and waivers for equity applications would help with costs. Mentorship programs would be established. Because marijuana sales are still illegal under federal law, data privacy protections would help shield businesses from reviews by federal immigration enforcement that could lead to deportation for individuals in violation.

Municipalities would be encouraged to prioritize equity when reviewing marijuana businesses locally, and to set up their own assistance programs. They’d also be discouraged from setting high fees that create a barrier to entry for applicants. An editorial from The Star-Ledger noted many of the same concerns about start-up costs last month, and said some municipal fees can go as high as $50,000. The paper also argued for capping those fees.

[Priority for applications] doesn't help address a lot of the concerns that people from the community feel in terms of trying to get into the industry.

Joe Johnson, policy counsel for the NJ chapter of the ACLU

The ACLU isn’t alone in its concerns about the practical difficulties for small entrepreneurs. Cannabis attorney Chirali Patel recently told NJ Advance Media the process is “fraught with so many challenges for social equity applicants,” citing issues like the limited number of towns allowing for marijuana licenses, and the steep competition from multi-state operators.

And last month, KYW Newsradio in Philadelphia spoke to New Jersey applicants, including Rasean Morrison, who secured a conditional approval but then struggled to find investors.

“The state took the approach of — ‘alright, we’re gonna say that we gave you social equity, say that we gave it out to the minorities, but when you guys don’t find funding, ah, my hands are up, because I did my job. I gave y’all the licenses. Everything else was on you’ — which I don’t think is right,” Morrison told KYW.

In June, the state took a step aimed at opening the market to more people when it passed a bill that allows the New Jersey Economic Development Authority to provide grants and low-interest loans to cannabis entrepreneurs in impact zones. State law previously barred those kinds of incentives, because of the federal prohibitions on marijuana sales that remain in effect, even as several states have moved ahead with their own marketplaces.

While the ACLU has pushed for feedback to the CRC during its public comment period for new rules, it said in its letter to the commission that some of the policies it advocates would require action from Gov. Phil Murphy or the state legislature. Still, it urged the CRC to back its proposed initiatives.

“This moment presents an opportunity for the CRC to build equity into every facet of the industry,” the ACLU wrote. “And its commissioners and staff must ensure that the promises of equity and inclusion come to fruition.”