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  • Brandon Cantarella

NEW JERSEY ADULT-USE CANNABIS PROGRAM FALLING FLAT AS THE GARDEN STATE MISSES OUT ON NEW TAX REVENUE

August 2023 – In its commitment to supporting the growth and success of New Jersey’s adult-use cannabis market, the New Jersey Cannabis Trade Association (NJCTA) has issued the following memo underscoring significant issues that are hindering the market’s potential under the oversight of the Cannabis Regulatory Commission (CRC).


In March 2022, operators in New Jersey’s Medicinal Marijuana Program (MMP) were informed by the CRC’s Board of Commissioners that they were further delaying the approval of the sale of adult-use cannabis in the state – citing supply shortages that would negatively impact patient access to their medicine. Operators, many of whom are members of the NJCTA, refuted this assertion and insisted that ample supply was available to accommodate both MMP patients and recreational consumers. Eventually, seven Alternative Treatment Centers (ATCs) would gain the authorization to begin selling adult-use cannabis on April 21, 2022, but it took the threat of an investigative hearing by the New Jersey State Senate Judiciary Committee into the CRC Commissioners’ continued delays to get there.


The NJCTA strives to help foster both a thriving medicinal as well as adult-use cannabis market. However, our Board Members’ recommendations and messages have frequently been ignored by the Commission and it is now evident that CRC’s actions are costing the state thousands of jobs and tens of millions of dollars in tax revenue.


New Jersey’s cannabis industry is being willfully held back and it is inhibiting the fulfillment of promises made to residents and taxpayers, including generating increased tax revenue to support critical social programs. Additionally, the CRC is falling short in its obligations to support social equity entrepreneurs and cannabis businesses of all sizes who desire an efficient regulatory process that effectively addresses illicit market competitors.


The Withering Garden State

As of July 26, 2023, 37 recreational cannabis dispensaries are operating in New Jersey – up from 11 when adult-use sales began in April 2022. Disappointingly, the state’s overall sales figures have stagnated after reaching a nine-month plateau since the adult-use market’s initial launch. When compared to other smaller states’ adult-use cannabis programs, New Jersey is falling short and lagging significantly behind.


During the first nine months of adult-use sales, the state generated only $20.1 million in new tax revenue. In comparison, even smaller states like New Mexico, with a population of 2.11 million, managed to surpass New Jersey’s revenue, bringing in $36.6 million during the same time period.


Moreover, only 21 expanded ATC retail locations have opened to the public so far. Based on calculations utilizing the Q1 sales information, each retail location is projected to generate roughly $1.8 million in sales tax revenue annually. Therefore, for every retail store the CRC delays opening, New Jersey stands to lose $1.8 million in potential annual tax revenue.


Meanwhile, smaller states are taking advantage of the booming industry.

  • Montana – population 1.1 million – generated nearly $42 million in cannabis excise taxes the last year alone.

  • Oregon – population 4.2 million – brought in over $150 million in revenue.

  • Arizona – population 7.2 million – raised nearly $224 million in 2022, only the second year of its program’s existence.

In contrast, New Jersey is currently on pace to yield only $38.39 million.


The Doom Loop of Slow Licensing and Weak Regulatory Enforcement

The root cause of the weaknesses in New Jersey’s cannabis industry is straightforward: The Cannabis Regulatory Commission’s anemic pace of licensing operators has suffocated the legal market. Out of the more than 2,100 applications submitted to the CRC since 2021, approximately 717 are still pending, leaving aspiring cannabis entrepreneurs unable to open their operations. Consequently, potential tax revenue that would greatly benefit the state is lost as it continues to flow through the illicit market. Additionally, these factors result in the unfortunate corresponding loss of good-paying jobs, from entry level to management positions.


At the outset of the State’s adult-use cannabis program, the New Jersey Legislature explicitly established a clear timeline for license issuance, identifying that annual applications must be approved “not more than 90 days after the receipt of the application.” However, the CRC stalled for over 210 days before issuing its first approvals. This delay created a supply headache for cultivators and resulted in hundreds of small business owners and social equity licensees incurring financial losses due to unopened operations.


While the CRC cites flaws in the applications as a reason for the backlog, at some point, it must stop blaming the applicants and take ownership of this failed application process.


The combination of slow licensing mixed with weak civil regulatory enforcement of the illicit market has created a doom loop for New Jersey’s cannabis industry. A recent poll revealed that about 30% of cannabis users bought weed from non-licensed dealers. Of that group, about 18% of people said that high prices at legal dispensaries pushed them to purchase cannabis on the street. However, the vast majority stated that the lack of legal dispensaries near them led them to non-licensed dealers.


The Doom Loop of Slow Licensing and Weak Regulatory Enforcement (cont.)

Currently, New Jersey only has 37 dispensaries selling recreational cannabis, as well as another 13 selling only medicinal. Yet, it is estimated that the state has nearly 700,000 of-age cannabis users, resulting in approximately one recreational dispensary for roughly every 21,200 cannabis consumers.


Same Old CRC

Not only has the pace of licensing by the CRC’s Board been soundly criticized, but more so, we’ve seen an all too frequent level of dysfunction and arbitrary decision-making. Famously, the CRC’s Board denied the application for renewal of one of the market’s largest ATCs in April based on criteria outside the scope of the regulatory discretion and in stark contrast to the recommendations of its staff – only to do an abrupt about-face days later. The NJCTA issued a statement at that time warning of these issues:


“The New Jersey Cannabis Trade Association (NJCTA) is disheartened by the Cannabis Regulatory Commission’s (CRC) non-renewal of a license holder, especially as it starkly contrasts with the recommendation for renewal expressed from all staff-level offices of the CRC – including the Office of the Executive Director, Counsel’s Office, and the Office of Diversity and Inclusion.


“The CRC’s decision is counterproductive and will negatively impact our young industry, its consumers, and the state due to the disruptions of wholesale agreements between operators, the loss of adult-use retail locations, and the subsequent loss of tax revenue. This action should cause concern for everyone, from the largest operators to the entrepreneurial upstarts, as there is a clear disconnect between the agency’s recommendation and the votes placed by its commissioners.


“The NJCTA is comprised of operators of all types and sizes, and we are hopeful that a solution can be crafted that treats everyone fairly and in accordance with the rule of law.”


These issues, among others, took center stage when the CRC appeared before the Senate Judiciary Committee on June 23, 2023. Notwithstanding that, we have continued to witness the Board taking arbitrary actions without providing adequate rationale to the public, highlighting the lack of alignment within the CRC when the actions of its Board starkly contrast with its own staff’s recommendations. For instance, in June, the public witnessed the revocation of another set of expanded ATC approvals, despite a purported agreement

between that license holder and the CRC’s staff. Indeed, conspicuously absent from the CRC’s publicly available record from the June 1, 2023, meeting is any staff recommendation suggesting that Licensing, Compliance, Legal, or the Office of Diversity and Inclusion were in agreement, or even consulted.


The July meeting reflected the same arbitrary action by the CRC’s Board. For instance, despite a clear CRC staff recommendation for renewal, the ministerial act of renewing a previously approved expanded ATC was initially voted down by the Board – only to be saved by a subsequent call for a vote with conditions. It is worth noting that no such conditions were requested or noted as required under the Statute and Regulations.


While the NJCTA is thankful that another license renewal was not arbitrarily rescinded, which would have necessitated legal action, the NJCTA raises concerns about the wisdom of the CRC’s Board action that is so out of step not only with controlling law, but also the recommendations of its staff. Notably, this arbitrary action at the July meeting was not limited just to expanded ATCs, as one annual conversion application for licensure was inexplicably yanked from consideration, despite the CRC’s staff recommendation for approval, for little to no articulable reason.


Same Old CRC (cont.)

The NJCTA emphasizes that the challenges facing the cannabis industry in New Jersey go well beyond mere delays of the licensing process. The issues extend further to arbitrary decisions on license applicants, even when they have met all applicable criteria identified under the Statute and Regulations. This fact is evident from the Recommendation Reports publicly available on the CRC’s website.


Industries are designed to be regulated by transparent authorities that adhere to both controlling legislation and implementing regulations. However, it is apparent that the CRC’s Board consistently makes decisions that deviate from these established rules, imposing their own thoughts, judgments, and determinations. As highlighted in the examples mentioned earlier, these decisions often contradict the intentions and guidelines set forth in the law. Such inconsistencies raise concerns about the integrity and effectiveness of the regulatory process for the cannabis industry in the state.


Conclusion

The NJCTA suggests straightforward solutions to the issues facing the cannabis industry in New Jersey:

  • End the bureaucratic entrenchment at the CRC and accelerate the licensing process so vetted social equity applicants, entrepreneurs, and multi-state operators can close the gap; and

  • Begin meaningfully enforcing state law by cracking down on the illicit market selling untested, untaxed, and unsafe cannabis products.

By taking these steps, New Jersey can overcome the current challenges and create a thriving, well-regulated cannabis industry that benefits the state’s economy, public safety, and the overall well-being of its residents.










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