Big Changes Coming to New Jersey Cannabis Licensing

Big Changes Coming to New Jersey Cannabis Licensing

Several important changes to New Jersey’s cannabis licensing framework are on the horizon...

Several important changes to New Jersey’s cannabis licensing framework are on the horizon. The changes are intended to make it easier for certain applicants to obtain licenses, including diversely owned retailers and social equity applicants.

Social Equity Applicants

The first change gives greater priority to social equity businesses, which are owned by people living in economically-disadvantaged areas of the state, or who have convictions for cannabis-related offenses. For a one-year period starting September 27, 2023, the Cannabis Regulatory Commission (CRC) will only accept applications for wholesaler, distributor, and delivery service class licenses from social equity applicants. The change will not impact applicants seeking cultivation, manufacturing, or retail licenses.

According to the CRC, it has not done enough to achieve social equity, with just 250 out of 947 social equity applicants receiving approval as of December. “Based on our current framework, I don’t believe social equity businesses—those most harmed by the failed war on drugs, that represents the people and communities that we want to see in the game—they’re not seeming to make it through the process to be considered for an award, let alone open up a business,” Commissioner Charles Barker said.

Expanded Access to Retail Licenses

The New Jersey Legislature recently approved another change to the state’s cannabis licensing requirements. Gov. Murphy is expected to sign Assembly Bill 4151, which authorizes individuals, including current licensees, to possess up to a 35% equity stake in a maximum of seven different class 5 retail licenses.

Currently, CRC regulations prohibit an owner (holding 5% or more equity) of one entity holding a cannabis license from being an owner in any other entity applying for or holding a cannabis license. The regulations also restrict entities from holding any ownership interest in more than one Class 5 Cannabis Retailer.

The proposed changes only apply to diversely owned retailers, including certified women-owned, minority-owned, and disabled-veteran businesses. Social equity, impact zone, bonus point, and general license applicants and license holders will not benefit from the proposed changes.

Assembly Bill 4151expressly provides that an investor, investor group, or fund that provides significant financial or technical assistance or the use of intellectual property (IP), or a combination thereof, to an applicant for a personal use cannabis retail license that has been certified as a minority or women’s business or is a disabled-veterans’ business, may own up to a 35 percent interest in up to seven entities that have been issued a cannabis retail license, provided that each such retail license holder is also certified as a minority or women’s business or is a disabled-veterans’ business. The bill also authorizes an entity issued a personal use cannabis cultivator, manufacturer, or retail license, or a medical cannabis alternative treatment center, or an individual associated with the ownership or management of such entity or center, to invest in or participate in an investor group or a fund with respect to supporting certified personal use cannabis retailers or medical cannabis alternative treatment centers. 

Entities taking advantage of the new opportunity would need to satisfy several requirements. For instance, the legislation mandates that the terms of the agreement for the provision of significant financial or technical assistance or use of IP, whether provided in the form of equity, a loan, or otherwise, including interest rates, returns, and fees, are commercially reasonable based on the terms generally provided to comparable businesses. The terms of the agreement could, however, include performance, quality, and other requirements as a condition of providing the significant financial or technical assistance or the use of intellectual property.

Assembly Bill 4151 further provides that an applicant for a cannabis retail license that receives significant financial or technical assistance or the use of IP would be required to pay back the full value of the financial or technical assistance or intellectual property provided, plus any applicable interest and fees, within a specified number of years depending on the value of the assistance or intellectual property.  The time period would be: not less than five years after the date of the agreement if the full value is less than $100,000; not less than seven years after the date of the agreement if the full value is between $100,001 and $250,000; not less than 10 years after the date of agreement if the full value is between $250,000 and $500,000; and, subject to any terms and conditions imposed by a lender, not less than 10 years after the date of the agreement if the full value is greater than $500,000.

Additionally, the legislation expressly provides that in no case may the controlling interest in the entity that holds a retail license revert to the investor group or fund in the event of a default or failure by the certified minority or women’s business or disabled-veterans’ business. Any such controlling interest may only be transferred to a certified minority or women’s business or a disabled-veterans’ business.

Key Takeaway

As New Jersey’s cannabis industry evolves and grows, changes are inevitable. For current and prospective cannabis licensees, it is imperative to stay on top of regulatory updates. Failing to do so may not only result in compliance headaches, but also missed opportunities.

Scarinci Hollenbeck has helped clients successfully obtain cannabis licenses in New Jersey for several years.  We encourage you to contact Scarinci Hollenbeck’s Cannabis Law Group for more information regarding applications, CRC regulations, and other legal compliance issues.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

This article is a part of a series pertaining to cannabis legalization in New York, New Jersey and the United States at large. Prior articles in this series are below:

• AMA Clears Way for Reimbursement of Psychedelic Therapies
• New Jersey Employer Guidance Regarding Employee Cannabis Impairment At Work
• NY Cannabis Control Board Approves Rules for Advertising and Packaging Cannabis

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.