Part I – Licensing and Site Location Considerations
by Nicholas L. DePaolo, Esq., and Daniel Pierre, Esq. of Genova Burns LLC
The Current Status of Cannabis in New Jersey
Most are undoubtedly aware that, in this past election, New Jersey voters overwhelmingly passed a ballot initiative to legalize the recreational use of cannabis for adults age 21 years or older. Due to our state’s geographic location and dense population, experts predict this marketplace will quickly become a multibillion-dollar industry. As we wait for the cannabis sector to spark up in New Jersey, now more than ever, those interested in joining the industry should evaluate what type of real estate space is best suited for this emerging industry, which will differ based on the type of cannabis license it seeks.
Since the ballot initiative passed in November, the pathway for the state’s expansion into a recreational use industry is one step closer. On December 17, 2020, both the Assembly and Senate approved the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act — the law that will regulate both the medical and recreational use marketplaces. Now, the bill simply awaits Governor Murphy’s signature to go into law, which has been delayed as of this writing due to the Governor’s objections to decriminalization issues that are in the process of being ironed out in the Legislature. Under the current version of the bill, businesses must apply for one of six classes of licenses in order to operate a cannabis business in New Jersey.
The Six Classes of Licenses
The six classes of Licenses available under the bill are as follows:
Class 1 Cannabis Cultivator license — permits growing, cultivation or production of cannabis in New Jersey. Cultivators are also permitted to sell and transport cannabis to other cultivators, manufacturers, wholesalers or retailers, but not to consumers.
Class 2 Cannabis Manufacturer license — permits the manufacturing, preparing and packaging of cannabis and selling it to other cannabis manufacturers, wholesalers, retailers, but not to consumers.
Class 3 Cannabis Wholesaler license — permits the storage and sale of cannabis strictly for resale to another wholesaler or retailer, but not to consumers.
Class 4 Cannabis Distributor license — permits the intrastate transportation of cannabis in bulk from one licensed cannabis establishment to another licensed cannabis establishment. Distributors may also engage in the temporary storage of cannabis as necessary to carry out transportation activities.
Class 5 Cannabis Retailer license — permits the sale of cannabis directly to members of the public from a retail store. Cannabis retailers may also operate cannabis consumption areas for consumers.
Class 6 Cannabis Delivery license — permits courier services for consumer purchases of cannabis by a cannabis retailer directly to consumers.
The bill currently restricts vertical integration between the six classes of licenses for a period of 24 months after the effective date of the Act. This restriction, however, does not apply to alternative treatment centers, i.e., businesses authorized to grow and provide registered qualifying patients with medicinal cannabis.
In addition to the six licenses described above, small businesses (“microbusinesses”) will be permitted to apply for any of the six classes of licenses so long as they employ no more than 10 employees, operate a cannabis establishment that occupies no more than 2,500 square feet and possess no more than 1,000 cannabis plants each month.
Finding the Right Location For Your Business
It is clear that real estate will play a vital role in whether a particular applicant is ultimately selected, as proved to be the case during New Jersey’s prior licensing rounds in the medical space. Particularly, while site control (evidenced by a lease, deed, contract of sale, etc.) as a basis for licensing will continue to be key, applicants will also need to prove that their proposed location is both suitable and zoned for the use permitted by the class of license for which the applicant applied. It is thus critical that potential applicants immediately begin evaluating potential site locations and preparing for the submission of: 1) a floor plan and description of the proposed location, including the surrounding area, detailing the suitability or advantages of the proposed location; 2) a letter or affidavit from the municipality certifying that the location and proposed use that will be conducted on the property will conform to local zoning requirements; and 3) proof of local support for the suitability of the location, which may be evidenced by a resolution of the municipality’s governing body.
Accordingly, licensee hopefuls would be wise to start by determining which regions of the state are taking steps to welcome this emerging industry while having the industrial and commercial property inventory to support it. In doing so, applicants will want to pay special attention to areas deemed “impact zones” (as defined in the bill) as applications that identify a site location within an impact zone are earmarked for prioritization. Unfortunately, approximately 70 municipalities within the state to date have passed ordinances banning the sale, manufacturing, growth or recreational sales of cannabis in some form. According to the current bill, however, those municipalities have been provided with an opportunity to reconsider their position, as all such ordinances will be null and void unless the municipality enacts a new ordinance that prohibits the cannabis-related business within 180 days after the effective date of the Act. If a municipality fails to act within the 180-day period, the current bill provides that all cannabis uses not expressly prohibited by municipal ordinance shall be deemed a permitted use within all industrial zones and a conditional use in commercial/residential zones. While it is possible that municipalities may enact new ordinances to prohibit cannabis-businesses within their borders, the bill’s provisions allowing municipalities to impose a tax of up to two percent on cannabis sales provide significant incentive to permit such businesses.
Conversely, larger cities, such as Trenton and Newark have already taken affirmative steps to build such uses into redevelopment plan areas or to amend their municipal zoning code to permit cannabis sales in the medical space as a conditional use. Meanwhile, other municipalities have been more selective, expressing interest in welcoming cultivation and manufacturing type uses, but placing restrictions against retail uses. Applicants should pay particular attention to which municipalities begin to review and amend municipal zoning codes to provide for expanded cannabis uses into the recreational space accordingly.
Keep an eye out for Part II of our series on cannabis, where we will discuss potential complications in site selection as well as considerations for property owners throughout the industrial, commercial and retail markets interested in engaging tenants in this emerging industry.