- Smart Counsel
New Jersey’s Recreational Cannabis Program Has Smooth Launch Despite Supply Worries
By Jeff Smith, Legal & Regulatory Reporter for MJBizDaily
New Jersey’s recreational cannabis market has gotten off to a relatively smooth start, with no major bottlenecks despite long lines reflecting pent-up demand from local residents as well as customers coming over from neighboring New York and Pennsylvania.
State regulators reported few initial glitches after sales began last Thursday – although some recreational customers were frustrated by prolonged waits in lines dozens of people long.
Also, one of the 13 stores approved by regulators delayed its opening.
The store, owned by Massachusetts-based Curaleaf Holdings in Edgewater Park, northeast of Philadelphia, attributed the delay to undisclosed details that needed to be resolved with the municipality.
New Jersey is the first East Coast recreational market to open in 18 months, following Maine in October 2020.
Supply issues were top of mind ahead of Thursday’s launch, given concerns over whether operators could serve the state’s 120,000 medical cannabis patients without disrupting recreational supplies.
New Jersey’s Cannabis Regulatory Commission noted in a news release that no patient-access issues or shortages were reported on Day One and only a “few minor complaints” were investigated.
Despite the relatively smooth launch, supply concerns haven’t vanished.
Rather, a number of questions remain for a market that the 2022 MJBiz Factbook projects will generate $625 million-$775 million in sales this year, growing to $2 billion-$2.4 billion a year by 2026.
The questions include:
Will supplies hold up for residents, customers from neighboring states and tourists? New Jersey drew 116 million tourists in 2019, before the pandemic.
What will happen to the state’s grand experiment to license a large number of social equity and microbusinesses? Will those businesses get the capital they need to build their businesses and succeed in a market currently dominated by multistate operators?
How will New Jersey’s recreational marijuana sales fare once its rival neighbor New York launches its adult-use market later this year or in early 2023?
“Over-demand and undersupply is the biggest initial risk to New Jersey,” said Joshua Horn, co-chair of the cannabis law practice of Fox Rothschild. “I do see foresee supply-chain issues in the short run.”
Horn noted that the New Jersey medical program – with only a dozen licensed operators – remains “kind of in a catch-up mode. There’s a concern that if the medical program is not operating at 100% capacity and now you have adult-use, what’s going to happen?
“When things settle down (from the initial flurry of sales), that’s when we’ll see the viability of the program.”
Ed DeVeaux, president of the New Jersey CannaBusiness Association, was the second to purchase recreational marijuana at Acreage Holdings’ The Botanist retail store in Williamstown, 40 minutes southeast of Philadelphia.
“It’s just an exciting time,” he told MJBizDaily.
DeVeaux said he had mixed emotions about customer cars taking a lane of the highway, but it reflected the strong demand.
“You had drivers from New York and Pennsylvania,” he added. “So guess what? We (New Jersey) beat you.”
DeVeaux said he thought the state’s Cannabis Regulatory Commission (CRC) fulfilled its obligation to ensure the seven marijuana companies approved for the launch were capable of handling the business while ensuring that MMJ patients were the priority.
Bill Caruso, a cannabis law attorney with Archer in New Jersey who helped write the state’s first medical marijuana legislation, agreed.
Caruso noted that the first day “went off basically without a hitch, with patient priorities being paramount.”
Sharon Ali, Acreage’s mid-Atlantic regional general manager, reported that customer lines stretched around the company’s stores in Egg Harbor Township and Williamstown and down their respective block.
In anticipation of the demand, the company said it hired more than 25 additional employees, added point-of-sale terminals, reconfigured lobbies, increased parking and expanded hours.
For MMJ patients, Acreage said it provided separate lines, preorder priority pickup, curbside pickup and parking near the building.
On Friday afternoon, one recreational marijuana customer told MJBizDaily that the adult-use line at the Egg Harbor store had about 100 people waiting and that he heard a security guard say, “No recreational, no recreational, medical only.”
An Acreage spokesperson wondered if the security guard might have meant that MMJ patients could walk right in, while recreational marijuana customers needed to wait in line.
DeVeaux said that the fact the CRC initially held off for several weeks in allowing a group of seven existing medical cannabis operators to start adult-use sales “put us closer to making sure those social equity applicants – minority, women, disabled veterans – got their applications in. It was closer to realizing the legislative intent (of the recreational marijuana law).”
But concerns remain about whether those equity businesses will be able to raise capital, build their businesses and successfully compete.
DeVeaux acknowledged raising capital is a challenge, although the good news, he said, is that the recreational marijuana law enables equity businesses to seek investors.
He said the association has been discussing with the state which agencies are in the best position to assist new businesses and applicants.
“I believe we are closer to making some decisions about which agencies will step up,” he said, acknowledging the process still could take months rather than weeks.
“Our concern is that you really need these businesses to be successful. Providing capital doesn’t equate to success.”
Caruso said the other issue for small marijuana businesses will be “finding a home.”
Roughly 70% of the municipalities initially opted out of recreational marijuana, and those that are participating can decide where and how many local licenses to award.
But Caruso and Horn predicted more communities will want to participate in the recreational marijuana market.
“What you see is a lot of concentrated population in Jersey, around Philadelphia and New York,” Horn noted.
For communities that opted out near those metro areas, Horn said, “I think you’ll find they’ll regret that because they’re going to miss out on tax dollars” and job creation.
Caruso said he’s already hearing that more towns “want in on the experiment” and, surprisingly, specifically want stores that sell the “devil’s lettuce.”
Many towns have seen their main streets decimated by the coronavirus pandemic and recognize that cannabis brings in foot traffic and “the ability to rebuild downtown retail centers,” Caruso said.
Cannabis attorney Steve Schain, who is also an adjunct professor of cannabis law at New Jersey’s Stockton University, expressed the most skepticism about the state’s recreational marijuana program. He characterized himself as just being realistic.
Schain asserted that New Jersey is “ill-prepared” to meet adult-use demand and, because of a scarcity of capital, has set up equity businesses to fail.
New Jersey so far has issued 102 conditional adult-use licenses of various types, including to equity businesses.
But “at a time when capital is slim to none, social equity license holders face a Sisyphean task” of developing their cultivation, manufacturing and retail businesses and making ends meet, Schain said.
Until New York’s adult-use marijuana industry comes online, New Jersey might have a brief period dominating the mid-Atlantic region. But it won’t last, Schain predicted.
“In one fell swoop, New Jersey has managed to simultaneously eviscerate both the social equity applicants and the entire marketplace,” Schain asserted.
But Caruso was more upbeat.
“What we’ve built into the pipeline coupled with new cultivators (that will be coming online), I think we’ll be OK,” Caruso said.
“We didn’t do this fast and first; I think we’re good.”
Caruso said New Jersey is an experiment in how equity and craft cannabis operators can coexist with large marijuana companies – “and I think it’s going be successful.”
Jeff Smith can be reached at email@example.com.