8 Tips for Navigating New Jersey’s New Adult-Use Cannabis Licensing and Regulatory Process

Now that adult-use cannabis has been legalized in New Jersey and the state legislature is ironing out how the program will run—prospective and established business owners hoping to participate in the new mid-Atlantic market should begin preparing now, according to Robert DiPisa, a real estate attorney and co-chair of the Cannabis Law Group at the firm Cole Schotz, which handles cannabis business law for real estate, license applications, fundraising, intellectual property, and more.

Opportunity abounds in the densely populated Garden State, which could amplify with potential tourist activity from neighboring Northeast states. Adult-use cannabis sales figures are predicted to top $350 million in 2021, according to research firm Brightfield Group; however, DiPisa recommends tempering expectations, as many municipalities still have adult-use cannabis bans in place, and competition for licensing will be significant.

To that end, DiPisa spoke with Cannabis Business Times and Cannabis Dispensary about what aspiring plant-touching license holders should keep in mind as they look to apply for adult-use licensing in New Jersey.

1.  Understand the Timeline to the First Day of Sales

“There are a lot of misconceptions of what the timetable looks like,” DiPisa says, who predicts that the “earliest that you’re going to be able to purchase adult-use cannabis in New Jersey is going to be fourth quarter of 2021.” Understanding the time that a license applicant has to work with to acquire all they need for submittal will factor into plans for the overall business.

While predicting timelines in cannabis legalization and rollout can be difficult—DiPisa hopes the draft bill will be passed before Jan. 1. “Then, the Cannabis Regulatory Commission—let’s say they start Jan. 1—then [they] have up to 180 days to come out with their regulation. I’m hopeful it will happen quicker than that. … And six to eight months into 2021, you could easily see a call for applications.”

2. Know Where It Will Be Feasible to Set Up a Dispensary

DiPisa has experience traveling around the state, speaking to mayors and city councils about the benefits medical cannabis can provide to communities. “It was met with two approaches,” he says—”I’d have doors essentially shut in my face … no one responded to emails.” But also, “you have those successes where mayors are like, ‘Sure, I’d love you to come meet with me.’”

Polling in the state this spring showed that more than 60% of New Jerseyans were in favor of adult-use legalization. However, dozens of cities have instituted bans on recreational cannabis business.

“I hate saying this, but I would not encourage [an applicant] to approach a municipality that has a ban,” DiPisa says. “If you’re a business looking to get involved in New Jersey, you need to make the best use of the time that we have before there’s … another call for applications. And the best use of that time is not only assembling obviously your team, getting your corporate documents in shape, but you really need to be having open conversations with local governments and leadership in the municipalities where you want to set up your operation and get that dialogue going. It’s like a marriage. It’s got to be a good fit.”

3. Select Your Facility Location Wisely

DiPisa says he’s encouraged by the onsite consumption allowance in the legislature’s current draft bill.

“We’ve all seen what’s happened to retail in the post-COVID-19 environment. And retail has truly evolved to be not as much of an in-person experience. … On-site consumption is different. That’s an experience. People can go to a liquor store and order alcohol, but they still go to bars for an experience,” he says.

So if an applicant is looking for a retail site, they may want to factor onsite consumption into their selection. “It’s looking like you’re going to [need] to have a separate retail location from your onsite-consumption location—which, by the way, can be outdoors or indoors—[so] you’re going to want a facility that’s going to be large enough to accommodate both a retail operation and an onsite consumption operation on the same piece of property.” For example, “an AT&T-store size might work for just a retail dispensary, but that would just not function if you’d like to do onsite consumption. And then, the other alternative is there’s always room for growth,” he adds.

© Courtesy of Cole Schotz

4. Know the Nuances of Cannabis-Related Building Leases

DiPisa says negotiating a building lease for a cannabis business can be tricky—not only in New Jersey, but in any U.S. state with a legal cannabis program. “I was contacted by a couple landlords after the ballot measure was passed because obviously … a lot of retail storefronts are suffering because of COVID-19, so a lot of them view a cannabis dispensary as a potential solution to fill those empty retail locations,” he says, adding that the biggest hurdle at the moment is that the Secure and Fair Enforcement (SAFE) Banking Act has not yet been passed at the federal level. “There’s a lot of concern with landlords who have existing financing on their property, or who are looking to potentially refinance their property [or] take out a construction loan. Having a cannabis-related use as a tenant will either cause an acceleration on their existing financing or prevent them from getting any kind of future financing,” he says.

He adds that large multi-state operators, in some cases, have gotten around this hurdle by being the financier for the real estate, providing private lending to landlords if they are unable to obtain it from a bank.

“What obviously avoids all this is if your landlord owns the property outright, but there are also challenges when it comes to insuring the property,” he says, adding that larger, national insurance companies can be uncomfortable with a cannabis-related use. In addition, in strip-malls, demand for cannabis can cause difficulties with parking and long lines. In some cases, neighboring tenants also are not open to being next door to a cannabis operator.

All this oftentimes boils down to a more expensive lease, DiPisa says. “The landlords want something that offsets those challenges to them. … Until some form of the SAFE Banking Act gets passed, I don’t see landlord’s concerns [being] alleviated.

5. Prepare to Potentially Be at the Back of the Line

“The other thing I think is important to touch on in New Jersey is the fact that we’ve always anticipated that our medical program was going to continue to grow. There was a call for applications in the summer of 2019, and because of a lawsuit and because of a state proceeding, those licenses have still not been given out,” DiPisa says. “They were supposed to be given out in November of 2019, and here we are in November of 2020, and you have all these applicants just waiting in the wings.”

DiPisa adds that the problem with this is that the medical patient pool is continuing to expand (it currently has more than 90,000 patients) and 12 license holders are trying to serve them all, with mounting pressure on the supply chain.

“I don’t see how they can permit the sale of adult-use cannabis until not only the medicinal demand is met, but there’s enough surplus to also meet the demands of adult-use,” he says. “So even if everything plays out timing-wise with respect to the passing of the bill, the finalizing and implementation of the regulations—if the existing license holders don’t have enough time to ramp up their operations, I don’t see how we can permit adult-use sale of cannabis in New Jersey.”

6. Envision How You’ll Operate

With New Jersey being densely populated with an expectant tourism market—opportunity abounds. “But as the licenses get released and the market becomes more and more saturated, those who can figure out how to operate lean are the ones that are going to survive,” DiPisa says. “There are multi-state operators who have already worked out the kinks, and they’ve figured out how to operate as efficiently as possible. And if you’re new to this industry … that’s your competition. So if this is your first operation, you’re going to hit those bumps in the road that these other multi-state operators hit years ago, and figured out the workarounds.” Making sure you partner with and hire people on your team with experience is critical.

7. Tell Your Company’s Story in the Application

“You need to focus on telling a story about your group,” DiPisa says. “The important thing is obviously experience. You have to show how this team[’s] past experience in other markets is going to be applied here in New Jersey, and how they’re going to succeed. You also need to show that you have sufficient financing … so that you’re going to be able to get open. … We always anticipate … people are going to be up and operational a lot sooner than they actually are. And … a lot of these operators are going to try to get open and operating during COVID-19.”

It’s equally as important for applicants to show how they plan to be a good neighbor and help uplift their communities, including how they’re going to hire within their community, the details of their diversity plan, and how they plan to give back. “I think that’s key,” he says, though DiPisa says social equity was lacking in the initial draft bill. “There’s nothing in there that talks about the tax dollars that are being generated from this industry. There’s no allocation of those tax dollars [being] contributed directly to Impact Zones, [to] schools, programs for kids—that seemed to be missing,” he says. (The bill received much criticism over the past few weeks, has since been amended, and lawmakers from the Assembly and Senate are working on a unified proposal.)

8. Study New Jersey’s Medical Cannabis License Applications

“If you’re coming from outside the state … the best advice I can give you is New Jersey is a completely different animal,” DiPisa says. “It is not like other applications in other states. It is tedious, it is time-consuming, and you need to be on your game the whole time during that process.” He says applicants will need to be prepared to get into the nitty gritty of their cultivation processes, how they plan to ramp up operations to meet demand, and what kind of technical expertise are on the team to help the company succeed.

DiPisa says that clients will suggest editing their successful applications in other states—such as California—and using them to apply in New Jersey. “That will never work,” he says. “The disclosures here are similar to if you’re going to be involved in gaming. I had to make disclosures just for being the attorney who was filing the application.”

Prospective applicants should visit the New Jersey Department of Health website, try to acquire an older version of the medical application, and go through it. “It will start to get the wheels turning and you might say, ‘Oh, I didn’t know I had to put something like that together. OK, let’s get started on that.’ Because arguably, the new application is not going to be the same. But I’ll tell you what, I don’t think they’re going to totally recreate the wheel,” he says.

DiPisa says this step is incredibly important because operators, especially those who do business in other states, are only learning to get better at the application process. “It’s the mom-and-pop versus the well-oiled machine,” he says, predicting competition will only become tougher so it’s important to “get a heads up as to some things you should be thinking about.”