New Jersey’s recreational cannabis market is gearing up to launch within weeks and is poised to become one of the largest on the East Coast, with annual sales projected to top $2 billion within a few years.
The state is positioned to challenge rival New York and match, if not exceed, Massachusetts in annual adult-use sales.
But, like most new markets, industry officials are concerned about whether supply will be adequate to meet demand – at least in the early stages.
New Jersey’s adult-use market – approved by voters in November 2020 – is expected to launch with only a handful or so of the state’s existing medical cannabis operators.
The start of recreational marijuana sales also comes as social equity applicants are struggling to develop their business know-how, raise funds, and secure real estate.
Existing medical marijuana operators might get as much as an 18-month head start on some new cannabis businesses, an industry expert said.
Missed deadline
The recreational marijuana law implementing the voter initiative called for sales to begin by February 22, 2022, but the state ignored that deadline, saying it was too early.
Gov. Phil Murphy then hinted in late February that the market could launch “within weeks,” state regulators recently indicated that they were nearly finished reviewing applications by five current MMJ operators.
Industry officials say the state’s Cannabis Regulatory Commission could consider and approve those applications at its March 24 meeting. Still, it’s unclear how quickly sales would then be allowed to begin.
“We could have only five operators trying to meet the initial demand of the entire state,” said Rob DiPisa, co-chair of the cannabis law practice at Cole Schotz in New Jersey.
“It’s almost naive to think we aren’t going to run into some issues.”
While that’s been the case in other new adult-use markets as well, the New Jersey recreational marijuana law included provisions intended to prevent negative fallout for the state’s roughly 120,000 MMJ patients.
MJBizDaily projects that New Jersey recreational marijuana sales will ramp up from $625 million to $775 million in 2022 to more than $2 billion annually by 2025 or 2026.
Medical marijuana sales, meanwhile, are expected to peak by 2023 and then begin declining, as has been the trend in most adult-use states.
Supply issues?
Existing medical cannabis operators have maintained since November 2021 that they are ready to sell recreational products.
But New Jersey’s regulators resisted, voicing skepticism the state’s medical marijuana industry could adequately serve both the MMJ and adult-use markets.
New Jersey has only 11 licensed medical marijuana businesses operating 23 dispensaries, according to state data.
In recent months, regulators approved an additional four vertically integrated medical marijuana licenses, ten cultivation permits, and 30 dispensary licenses to support the MMJ market.
But those businesses aren’t yet in operation.
So it surprised some when Gov. Phil Murphy said in late February that New Jersey was “within weeks” of launching its adult-use program.
Interestingly, Murphy didn’t mention the new recreational marijuana industry in his budget address last week.
The Asbury Park Press, meanwhile, reported that eight MMJ companies had applied to the state’s Cannabis Regulatory Commission (CRC) for approval to begin adult-use sales.
The commission’s executive director, Jeff Brown, told the newspaper that five applications were considered “complete and are in substantive review.”
Those five haven’t been publicly identified but will be if they’re considered at the commission’s March 24 meeting.
Operators are allowed up to three dispensaries each, so the five likely have a dozen storefronts nationwide.
Ed DeVeaux, president of the New Jersey CannaBusiness Association, said current medical cannabis operators have assured him that they have adequate supply to serve both the medical and adult-use markets.
“Also, the CRC must make sure there’s adequate supply not just to launch the recreational market but to ensure that the patient community is taken care of as well,” DeVeaux noted.
“The license holders have told me they are ready, so we’ll see.”
The problem, DiPisa said, is that the state’s projections might prove to be inaccurate.
“We can speculate and project demand, but we won’t know until the doors have opened,” he said.
One option to ensure MMJ patient needs are met, DiPisa said, would be to open stores only to medical cannabis patients at the start of the day and then serve adult-use customers later in the day.
The other issue is when new adult-use businesses will be licensed and operating.
New Jersey started accepting grower, processor, and testing laboratory applications in December and will begin accepting retail store applications on Tuesday.
DiPisa predicted that some of the licensed businesses from those rounds might not be operational for another 18 months or so.
Equity challenges
Both DeVeaux and DiPisa noted that social equity applicants, in particular, face hurdles.
“I think it’s especially challenging (for them),” DeVeaux said.
DeVeaux said his experience is that the industry either has businesspeople going into cannabis or cannabis people going into business.
Equity applicants tend to fall into the second category.
“The latter probably is a bit more challenging to find investors simply because if you’ve never had that conversation before, you don’t speak the language and don’t know where to look,” DeVeaux said.
“How to develop that business acumen is one of those things that keeps me up at night,” he added.
DeVeaux said the association is trying to fill in some gaps through a free, weekly “Lunch & Learn.”
The nearly-year-old series has featured experts in financing, accounting, securities, and other topics. Friday’s session featured state regulators discussing the retail license portal.
Participants also are encouraged to network through the chat feature during the Zoom meetings.
“It’s fascinating when you see in the chat feature someone who identifies themselves as a Realtor with (available) real estate or as an investor,” DeVeaux said.
Equity applicants are given preference in New Jersey’s application process.
But DiPisa said the applicants need to be able to tap funds such as grants or zero-interest loans at an earlier stage, such as after conditional license approval, so they can secure property and begin to build their businesses.
“I still feel there’s this gap in the infusion of funds,” DiPisa said.
The CRC indicated in a news release last week that gaps remain in completing applications, such as “missing proof of social equity status, diversely owned business certification or impact zone status.”
However, the CRC stressed that applicants would have an opportunity to fix and resubmit their applications and that equity applicants would be placed at the end of the highest priority list, not the end of the overall list. The CRC also provides technical assistance to applicants.
In addition to financial and technical challenges, experts said securing real estate for retail locations remains daunting.
DeVeaux and DiPisa noted that roughly 70% of New Jersey municipalities opted out, and competition for storefronts is especially heated in communities along the Hudson River across from Manhattan.
Often, multiple bidders are vying for the same property, DiPisa said, and it’s not unusual to hear a landlord say to a prospective marijuana business, “This other one has offered me ‘X,’ can you match it?”
Disclaimer: https://mjbizdaily.com/new-jersey-prepares-to-launch-2-billion-recreational-cannabis-market
