New Jersey’s Proposed Recreational Cannabis Licensing Framework

New Jersey’s Proposed Recreational Cannabis Licensing Framework

Now that New Jersey voters have approved legalizing recreational marijuana, the cannabis industry is closely watching how the New Jersey Legislature plans to regulate it...

Now that New Jersey voters have approved legalizing recreational marijuana, the cannabis industry is closely watching how the New Jersey Legislature plans to regulate it. On November 5, the “Cannabis Regulatory, Enforcement Assistance, & Marketplace Modernization Act” (the “Act”) was simultaneously introduced in bills brought before the New Jersey Senate (S21) and Assembly (A21).  The bills have already been initially reviewed by appropriate Senate and Assembly committees, and A21 was the subject of a public hearing conducted on November 9.  The Senate and Assembly are conducting further review of the bills now.  Though amendments to the Act are likely, those interested in the coming adult-use cannabis market should familiarize themselves with the key provisions as they are currently set forth and prepare to follow the evolution of the Act through the legislative process. 

Cannabis Regulatory, Enforcement Assistance, & Marketplace Modernization Act

The Act provides the framework for the development, regulation, and enforcement of activities related to the personal use of legal cannabis. Of particular interest to the cannabis industry, the legislation establishes the licensing requirements for personal use cannabis growers, processors, wholesalers, distributors, retailers, and delivery services.

Many of the provisions of the Act are similar to those in prior legalization legislation that did not gain approval in the State Legislature. However, there are some substantive changes. Notably, under the proposed legislation, existing medicinal marijuana license holders would be allowed to open two more cultivation sites to help build supply. Below are several other key provisions:

• No Cap on Licenses: Unlike the State’s medical marijuana system, the number of business licenses available would not be capped at a set number but rather determined by market demand. The Cannabis Regulatory Commission (Commission or CRC) would be authorized to make requests for new license applications as it deemed necessary to meet those demands.
• Six Classes of Licenses: The bill would establish six “marketplace” classes of licensed businesses: a Class 1 Cannabis Grower license, for facilities involved in growing and cultivating cannabis; a Class 2 Cannabis Processor license, for facilities involved in the manufacturing, preparation, and packaging of cannabis items; a Class 3 Cannabis Wholesaler license, for facilities involved in obtaining and selling cannabis items for later resale by other licensees; a Class 4 Cannabis Distributor license, for businesses involved in transporting cannabis items in bulk intrastate, from one licensed cannabis establishment to another; a Class 5 Cannabis Retailer license, for locations at which cannabis items and paraphernalia are sold to consumers; and a Class 6 Cannabis Delivery license, for business providing courier services for a licensed cannabis retailer in order to make deliveries of cannabis items and related supplies to a consumer.
• Ranking of Applications: The Commission would score applications based upon a point scale, with the CRC determining the amount of points, the point categories, and system of point distribution by regulation, subject to some required criteria for consideration in the point scale, such as an analysis of an applicant’s operating plan, environmental plan, and safety and security plans. 
• Impact Zones: The Commission would prioritize applications based on “impact zones,” which are identified under the bill as any municipality that: (1) has a population of 120,000 or more according to the most recently compiled federal decennial census as of the bill taking effect; or (2) ranks in the top 40 percent of municipalities in the State for small amount marijuana possession arrests in the calendar year next preceding the bill taking effect; has a crime index total of 825 or higher based upon the indexes listed in the most recently issued annual Uniform Crime Report by the Division of State Police, as of the bill taking effect; and has an annual average unemployment rate that ranks in the top 15 percent of all municipalities in the State in the calendar year next preceding the bill taking effect.  The CRC would not only prioritize applications for at least two licensed businesses in such zones, but would also prioritize applications: that included a person who is a current resident of an impact zone and had resided therein for three or more consecutive years at the time of making the application (to the extent possible the Commission would grant at least 25 percent of the total licenses issued, regardless of license class and location of the business, to such applicants); or that included a plan to employ 25 percent of employees who reside in an impact zone. 
• In-State Applicants: The point system used to rank applications would also give higher rankings to an applicant which includes an in-State resident of at least five years who is a “significantly involved person,” being someone who holds at least a five percent investment interest or is a member of a group who holds at least a 20 percent investment interest and would have authority to make controlling decisions about the cannabis business, or an applicant that met one of the following conditions for its labor environment: being a party to a collective bargaining agreement with a labor organization that currently represents, or is actively seeking to represent, cannabis workers in New Jersey; being a party to a collective bargaining agreement with a labor organization that currently represents cannabis workers in another state; submitting an attestation affirming that the applicant will use best efforts to utilize building trades labor organizations in the construction or retrofit of the facilities associated with the cannabis establishment or distributor; or submitting an attestation affirming that they have a project labor agreement, or will utilize a project labor agreement, which is a form of pre-hire collective bargaining agreement covering terms and conditions, including labor issues and worker grievances, associated with any applicable project.
• Microbusinesses: At least 10 percent of the total licenses issued for each license class, and at least 25 percent of the overall total number of licenses issued would be designated for and only issued to “microbusinesses.”  A microbusiness is defined as employing no more than 10 employees, and: possessing no more than 1,000 cannabis plants each month, except that a cannabis distributor’s possession of cannabis plants for transportation would not be subject to this limit; operating an establishment occupying an area of no more than 2,500 square feet, and in the case of a cannabis grower, growing on an area no more than 2,500 square feet measured on a horizontal plane and growing above that plane not higher than 24 feet; in the case of a cannabis processor, acquiring and processing no more than 1,000 pounds of cannabis in dried form each month; in the case of a cannabis wholesaler, acquiring for resale no more than 1,000 pounds of cannabis in dried form, or the equivalent amount in any other form, or any combination thereof, each month; and in the case of a cannabis retailer, acquiring for retail sale no more than 1,000 pounds of cannabis in dried form, or the equivalent amount in any other form, or any combination thereof, each month. For this subset of the five classes of cannabis businesses, 100 percent of the ownership would have to involve New Jersey residents who have resided in the State for at least two years. 
• Equitable Distribution of Licenses: When processing applications, the CRC would also incorporate the licensing efforts developed by the Office of Minority, Disabled Veterans, and Women Cannabis Business Development designed to promote the formulation and participation in the lawful operation of cannabis businesses by persons from socially and economically disadvantaged communities. In addition, 15 percent of licenses would be reserved for minority-owned businesses, and an additional 15 percent would go to businesses owned by women or veterans. 
• Licensing Approval Timelines: The CRC would be required to complete its review for full license approval or denial within 90 days of the submission of the application, unless the Commission determines that more time is required.  If approved, a license would be issued by the Commission not later than 30 days after it gave notice of the approval, unless the applicant was subsequently found to not be in compliance with relevant regulations or local regulating ordinances applicable to the applicant’s business operations.  An issued license would expire after one year but could be renewed following submission of a new application, in which the applicant would detail aspects of the cannabis licensee’s operations and on-going compliance measures as part of the renewal process.
• Conditional Licenses: At least 35 percent of the total licenses issued for each class would be conditional licenses, the primary requirement for which would be that the significantly involved person and any other person with a financial interest who also has decision making authority for the proposed cannabis business could only have, for the immediately preceding taxable year, an adjusted gross income of no more than $200,000 or no more than $400,000 if filing jointly with another. The CRC would complete an expedited review for conditional license approval or denial within 30 days unless the Commission determined that more time is required.  If approved, a conditional license would be issued by the Commission not later than 30 days after it gave notice of the approval, unless the applicant was subsequently found to not be in compliance with relevant regulations or local regulating ordinances applicable to conditionally licensed operations.  The applicant would not need to be in compliance with every aspect of the regulatory requirements expected for full licensure in order to obtain a conditional license but would need to provide sufficient plans for actions to be taken to eventually achieve compliance for full licensure.  During a 120-day period following issuance of the conditional license, which period could be extended for an additional period of up to 45 days at the discretion of the Commission, if it determined that the conditional licensee was in compliance with all plans and other measures necessary to achieve full licensure, it would replace the conditional license with a full, annual license, dated to expire one year from its date of issuance and which could be subsequently renewed; if the conditional licensee was not in compliance as needed for full licensure, the conditional license would automatically expire at the end of the 120-day (or extended) review period.
• Initial Limit on Licenses: Once retail sales by licensed cannabis retailers have begun, there would be a limitation, for a period of 18 months, on the number and classes of licenses any one licensee could hold. During this time, the bill would not permit a licensed grower, processor, wholesaler, distributor, or delivery service to also be a licensed retailer, and vice versa, plus a grower or processor could only concurrently hold two licenses (either another grower or processor license), and a wholesaler would be limited to just the one wholesaler license; these restrictions would not apply to a medical alternative treatment center deemed to concurrently possess one of each type of cannabis license class as described above.  Additionally, throughout this 18-month period, the CRC would not allow more than 28 cannabis growers to be simultaneously licensed and engaging in personal use cannabis activities, which number would include any alternative treatment centers deemed to be licensed as cannabis growers who are issued licenses by the CRC. Following the 18-month period, a license holder could hold: a Class 1 Cannabis Grower license, a Class 2 Cannabis Processor license, and a Class 5 Cannabis Retailer license concurrently, provided that no license holder would be authorized to concurrently hold more than one license of each class, except for an alternative treatment center that was deemed, during the 18-month period, to have an additional Class 5 Cannabis Retailer license for each satellite dispensary as described above; or a Class 3 Cannabis Wholesaler license;  in no case could a holder of a Class 3 Cannabis Wholesaler license concurrently hold a license of any other class of listed above.

We will continue to track the progress of the Cannabis Regulatory, Enforcement Assistance, & Marketplace Modernization Act and post updates as they occur. For entities that are interested in entering the New Jersey cannabis industry, there are numerous legal, logistical and operational issues that must be addressed, and it is never too early to start your preparations.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, 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 Jersey and the United States at large. Prior articles in this series are below:

• NJ Voters Approve Adult-Use Cannabis: The Path Forward
• Medical Marijuana May Now Be Prescribed Via Telemedicine in New Jersey
• NJ Medical Marijuana Dispensaries To Start Home Delivery Soon

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.