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New Jersey prepares to launch $2 billion recreational cannabis market

2022-04-06

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 beat rival New York to the punch and to 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 Feb. 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,” and state regulators indicated recently that they were nearly finished reviewing applications by five current MMJ operators.

Industry officials say that the state’s Cannabis Regulatory Commission could take up and approve those applications at its March 24 meeting, but it’s unclear how quickly sales would then be allowed to begin.

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.
Experts say New Jersey recreational marijuana sales will ramp up from $625 million to $775 million in 2022 to more than $2 billion a year 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.

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, 10 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.

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 or so storefronts across the state.

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.

The problem, DiPisa said, is that the state’s projections might prove to be inaccurate.

The other issue is when new adult-use businesses will be licensed and operating.

New Jersey started taking grower, processor and testing laboratory applications in December and will begin accepting retail store applications on Tuesday.

Some of the licensed businesses from those rounds might not be operational for another 18 months or so, DiPisa predicted.

Equity challenges

Both DeVeaux and DiPisa noted that social equity applicants, in particular, face hurdles.

Equity applicants tend to fall into the second category.

DeVeaux said the association is trying to fill in some of those 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 talking about the retail license portal.
Participants also are encouraged to network through the chat feature during the Zoom meetings.

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.

But the CRC stressed that applicants would have an opportunity to fix and resubmit their applications and that equity applicants would go to 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.


 
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