New Jerseyites older than 21 are supposed to be able to walk into a dispensary and buy weed starting on February 22nd. At least, that was the deadline set when the state legalized cannabis a year ago.
This opening date is now in doubt. Already up-and-running medical marijuana companies say they are ready to transition to serving recreational buyers as soon as they get the green light from Gov. Phil Murphy’s administration. But state officials say they are worried about whether there will be enough supply to meet the initial demand.
Some aspiring "cannapreneurs" are facing significant challenges to enter the Garden State’s recreational marijuana industry, which could eventually net about $1 billion in annual revenue, according to a report from New Jersey Policy Perspective and New Jersey United for Marijuana Reform. For new companies looking to grow and produce marijuana products, competition for licenses is fierce and just getting underway.
A significant barrier is a lack of business space for newcomers amid tight regulations on where they can physically open. Some towns prohibit cannabis businesses within a certain proximity to schools, parks or child-care centers, for example.
The fledgling operations are duking it out over sparse industrial warehouse space while trying to curry the favor of local governments, many of which have layered their own licensing restrictions on top of those imposed by the state. Much of the industrial space in the state has been eaten up by companies storing goods for online shoppers, such as Amazon and Peloton.
“We’re going to keep pushing to move as fast as we can,” Jeff Brown, executive director of the state’s Cannabis Regulatory Commission, told NJ.com. “That requires approval and industry readiness, and the readiness is uneven.”
New Jersey’s commitment to “home rule,” or the autonomy granted to local governments, has created some of these wrinkles. More than 70% of the towns in New Jersey have opted to ban cannabis businesses altogether. For comparison, only about 50% of New York municipalities decided not to allow dispensaries and 58% said no to cannabis lounges — but they weren’t given the option to outlaw other types of cannabis operators.
Everyone is trying to walk the line between allowing people to have control over their municipalities and also trying to reduce the barriers to entry.
“Everyone is trying to walk the line between allowing people to have control over their municipalities and also trying to reduce the barriers to entry,” said New Jersey-based legalization advocate Evan Nison, who founded the cannabis consulting firm NisonCo and sits on the board of the National Organization for the Reform of Marijuana Laws. “But that will definitely cause confusion, and it does mean that applicants should be educated and aware of all of these nuances.”
Brown said last week that there is “no firm commitment” to the February 22nd start date. But the medical companies that are already established are raring to go. They hope to gain an edge over newcomers as New Jersey ventures into recreational marijuana.
New Jersey started accepting applications for licenses to grow, manufacture and test cannabis products in mid-December and will open up applications for dispensaries on March 15th. More than 200 of the 336 applications submitted as of Friday were for cultivation, but the Cannabis Regulatory Commission will only grant 37 of those this year. (More dispensary licenses could become available a year from now, in February 2023.)
The state is not restricting the number of licenses it will issue in other business categories, such as for manufacturing or retail. It is also seeking to make the industry accessible to local entrepreneurs by allowing an unlimited number of microbusinesses, which will be able to grow, process and sell smaller amounts of marijuana.
The Challenges of ‘Home Rule’
The New Jersey towns that haven’t opted out entirely still have the freedom to decide which types of businesses they will allow and how many of each type will be permitted. Companies have to gain local support in the town where they aim to operate to get a license from the state.
And that’s a heavier lift in some municipalities than others.
Some cities have implemented their own formal application processes, which can come with hefty fees. The city of Bayonne, for instance, will allow two dispensaries, one cultivation site and one processing facility. It is charging growers and processors $10,000 just to apply for a license, with a fee of $5,000 for a dispensary application.
Cannabis businesses in Bayonne will then have to pay the city an annual registration fee. For a grow operation, that will be $40,000 a year. In Newark, the fees are lower – $2,500 to apply for a full cultivation or manufacturing license, or $750 for a microbusiness.
“We don’t have any say over municipal fees,” said Toni-Anne Blake, a spokesperson for the state’s Cannabis Regulatory Commission. She declined to comment on cities that are charging large sums.
It’s also possible that some of the local discretion around application fees and other cannabis regulations could face challenges from applicants and eventually be reined in, said Michael McQueeny, a cannabis lawyer with the firm Foley Hoag, who said he is working with several companies applying for cannabis licenses in New Jersey. “I wouldn't be surprised if we saw litigation related to some of these issues,” he added.
McQueeny said the state’s regulations seemed designed to “get people into the marketplace and let market factors decide who's successful or not – not just the folks who have the most money or have the greatest connections.” But he said some municipalities might be undermining that goal.
The Struggle To Find Space
Microbusinesses are supposed to favor local residents and create a lower barrier to entry, but they can also come with challenges.
For years, Paul Bially has been helping farmers improve their soil health through his consulting firm Bially Formulators. Now, the Pitman resident wants to put his scientific knowledge to use growing cannabis.
“What I aspire to do is going to be very small and specialized,” said Bially. “The more people that you get involved [in cannabis] and give a chance, I think you’re just going to elevate the industry.”
Bially wants to apply for a microbusiness license, meaning his entire operation would be contained within 2,500 square feet — about the size of a schoolroom — and his team would have 10 employees or less.
But he can’t look too far afield for a facility because state regulations dictate that at least 51% of the owners, officers and employees of a microbusiness have to live in the town where it’s located or a neighboring town. Bially said he has struggled to find an appropriate facility for the operation within one of the South Jersey jurisdictions available to him. He said he would ideally want to be situated within a technology incubator that could provide lab space to go alongside his grow operation. He said he was hoping to get space at Rowan University’s South Jersey Technology Park but didn’t find any available.
Barring that, he is looking for industrial space that he can retrofit to his needs — something he and other applicants say is also extremely hard to come by.
Northern New Jersey is home to almost 500 million square feet of warehouse space, but the vacancy rate was down to 2.9% in the third quarter of last year, according to an October 2021 report from Newmark, a commercial real estate firm. The “insatiable demand for e-commerce” is leading companies to scoop up space for their inventory and driving up prices, the report found.
We found a property in Somerdale, and the owner actually has benefited from medical cannabis.
“This is just the industrial market, in general, but the pandemic has put gasoline on the fire,” said Heather Kumer, a lawyer with the cannabis firm Vicente Sederberg who specializes in real estate. “People started shopping online more than ever.”
Matte Namer is the founder and CEO of Cannabeta Realty, a real estate brokerage firm for the cannabis industry serving the tri-state area. Namer estimated that only about 15% of New Jersey municipalities currently allow cultivation, and those that do often have zoning regulations that further limit where businesses can operate. On top of that, cannabis consultants say not all landlords are open to tenants in the industry.
Given all these factors, finding an appropriate space “starts to become very difficult to sometimes impossible, depending on what you're looking for,” Namer said.
Joseph Payack, who is seeking a manufacturing license for his company, Jersey Extraction Lab, said after searching for a space with his son all last summer, he finally struck gold.
“We found a property in Somerdale, and the owner actually has benefited from medical cannabis,” said Payack. “He claims it cured his cancer. So, this property had a landlord that was very supportive, and he was friends with the mayor of the town, so getting township approval was very easy.”
While there can be an advantage to being first, Nison from the National Organization for the Reform of Marijuana Laws, said he sometimes advises people with fewer resources to hold off on getting into a new cannabis market until some of the early wrinkles get ironed out.
“They’re less likely to get burned,” Nison said. He also predicted that more municipalities will allow cannabis businesses down the road.
“I live in East Brunswick, where [dispensaries] will not be allowed,” Nison said. “I'm going to be driving to Edison and spending my money in Edison and giving Edison tax dollars. Eventually, East Brunswick is going to want those tax dollars.”