NJCTA Executive Director Todd Johnson's Testimony: Senate Judiciary Committee - June 23, 2023
Good morning Chairman Stack and members of the New Jersey Senate Judiciary Committee,
My name is Todd Johnson and I am the Executive Director of the New Jersey Cannabis Trade Association, an organization comprised exclusively of licensed cannabis businesses operating in New Jersey. I am joined by my friend and colleague, Mike McQueeny, who serves as the NJCTA’s General Counsel and is here to answer questions the Committee may have for us. The NJCTA’s membership is made up of 16 license holders, including ten vertically integrated, medical, Alternative Treatment Centers (ATCs) and six licensed operators from 2019’s round of medical licenses that were announced in October and December 2021. We expect more operators to join our membership, including newly approved adult use licensees, as we strive to build a fair, equitable and profitable industry here in the Garden State.
Prior to serving as the Executive Director of the NJCTA, I held the position Executive Vice President and Head of New Jersey operations for Justice Grown / BLOC Dispensary from October 2019 until September 2022. Justice Grown was one of the six vertically integrated ATCs awarded a license in New Jersey’s 2018 Request for Applications.
In my role as Head of Operations I oversaw the buildout of a cultivation facility and dispensary in Ewing NJ as well as two satellite dispensaries located in Somerset and Waretown. I was responsible for hiring and training all of the cultivation, finished product, inventory, security and dispensary team members.
On the regulatory and compliance side, I served as Justice's point of contact for compliance and communication with the New Jersey Department of Health and, subsequently, the Cannabis Regulatory Commission. I have had the pleasure of working closely with CRC Executive Director, Jeff Brown and members of DOH and CRC staff as we received permits to cultivate medicinal cannabis in 2020 and distribute medicinal cannabis in our Ewing dispensary in 2022.
I have experienced the exhilaration of passing our final inspections, followed by planting the cannabis seeds which would become our first harvests. I have also experienced the frustrations of waiting for long periods of time for the approvals of everything from new hire background checks, to new packaging, to new product applications, wholesale supply agreements, minor facility upgrades and changes and even approval to use our BLOC dispensary name at our own Grand Opening. Processes that I thought would be formalities or take days for approval, sometimes took months to reach a resolution.
Prior to the cannabis industry, I worked in the financial services and investment research industry for 18 years.
I spent my college years right down the road from here, at Penn, and graduated with an economics degree from Wharton with concentrations in Finance and Management.
When I looked at the list of speakers for this morning’s hearing, I noticed that there was not a single operator and only one other applicant, Scott Rudder, scheduled to speak. This absence speaks volumes as many have a fear of speaking openly about the frustrations of operating in the cannabis industry here in New Jersey. As Executive Director of the NJCTA, I am afforded a bit more freedom to communicate the realities of operating in New Jersey as a spokesperson on behalf of a group of operators. However, I am also a cannabis entrepreneur and hold a conditional license for a Class 5 adult-use retail dispensary. While part of me, and all of my business partners, wished for someone else to deliver this message, my primary goal here today is to contribute to the development of a robust and successful cannabis industry in New Jersey, one that other states aspire to replicate.
Before I dive into the details of my testimony, I would like to acknowledge the staff of the CRC for the tremendous work they have put in and accomplished to date. Over the past two years, the CRC has worked to construct an industry from scratch while simultaneously ensuring the involvement of relevant stakeholders. This endeavor can be compared to building a plane as it is taking off from the runway and fly it all while engineers actively work on both wings. The magnitude of this undertaking should not be underestimated and it is important to acknowledge the immense importance of the work being carried out by the CRC. The NJCTA commends the team at the CRC for all that has been accomplished to date.
With that being said, it is essential to understand that members of the NJCTA along with other operators and applicants in the industry are akin to passengers on this plane ride. Any subtle shift in direction profoundly impacts how we operate our businesses. Business operators crave stability which allows us to plan, forecast and strategize effectively with our management teams and investors. Bumps in the road are to be expected, sinkholes, conversely, are not and cause huge problems.
While I loathe complainers, my job here is to highlight examples of sinkholes that have caused issues and made operating more difficult and expensive. The first issue severely impacting the ability of operators to forecast and plan is a lack transparency, communication or adherence to mandated approval timelines under CREMMA. For instance, CREAMMA mandated that applications for conditional licenses be approved within 30 days and applications for annual licenses be approved within 90 days. As of today, many annual license applicants that submitted applications the first day they opened, Dec 15th, 2021, have been waiting over 540 days to hear their name called at a CRC Board meeting without clarity or a resolution in sight. These cultivation and manufacturing license hopefuls have spent hundreds of thousands, if not millions of dollars, in order to maintain site control of properties they plan to use to operate their businesses once they are finally approved.
For operators, delays and lack of communication are notorious among cultivators and manufacturers when new product applications are submitted to the CRC. Whenever an individual operator seeks to start making a new product, the operator must submit what often amounts to hundreds of pages of documents for review and approval before starting that product line. This process is repeated for every new product from that manufacturer, even where the same exact product, pre-rolls for instance, has already been approved for use by other operators in the marketplace. In contrast, states like Maryland have a streamlined process that simply require operators to submit a compliance checklist prior to commencement of production, with the understanding that if the operator fails to comply with underlying regulations, they will be fined, and their product pulled from the market.
Furthermore, it is seemingly an impossible task for an operator to secure a meeting with any of the CRC’s Commissioners in hopes of having some sort of educational conversation or express concerns. In fact, one of our members has submitted over 1,000 meeting requests to connect with individual commissioners via the official CRC communication channels. To date, only one response was received in which the communication request was denied and the rest have gone unanswered.
To capture the next issue negatively impacting the cannabis marketplace in NJ, I will share a personal story about Justice opening the first BLOC dispensary in Ewing NJ. The construction of this dispensary was fraught with issues for over two years including the roof caving in during the tornados that touched down in Bucks and Mercer Counties late in the summer of 2021. By July 2022 we were finally ready to open our doors. However, because our official business name was JG New Jersey, and our dispensary name was Bloc, we had to file for a Certificate of Name Change, or a DBA, with the Dept of Treasury. We received that approval from Treasury and were ready for our Grand Opening on July 16th. Or so we thought…because our name change was not approved at an official CRC Board Meeting, we were informed on July 14th that we could not open our doors with the BLOC name displayed anywhere on the exterior of the store. Let that sink in for a moment. We had already received the required approval from Treasury but that was not enough. The name had to be officially approved at a CRC Board meeting and the next one was weeks away. Why? That is a question that I didn’t have time to answer. We needed to open our doors asap and start generating sales. I ordered $800 worth of tarps with next day delivery to cover up the BLOC name everywhere on the outside of our storefront. There I was, leaning against our building while standing on a 20-foot ladder, covering up the business’ name while simultaneously preparing to host a Grand Opening celebration and press event two days later. In our case, this bureaucratic hurdle did not help set our business up for success.
Regulation without a clear and defined purpose leads to overregulation. Overregulation inevitably hurts industry. Streamlining processes and promoting efficiency is vital to provide operators with a strong regulatory foundation that prioritizes compliance as well as speed to market.
Overregulation and lack of transparency also impacts an operators ability to raise money from investors. Cannabis is a very capital-intensive industry. One in which operators do not have the ability to seek conventional loans from traditional banks or lenders. As a result, operators rely on private investment, non-traditional lenders, and investors that better understand the specific risk factors involved, given cannabis’ federal illegality. However, the lack of transparency from the CRC on timelines, expectations, and outcomes in turn diminishes investor confidence and the availability of capital. What is an investor supposed to think when they just witnessed an existing operator, in good standing, with over $50 million invested into the NJ marketplace, and their adult use license is not renewed during what was expected to be a routine license renewal process. An operator that received a recommendation for approval by CRC staff and no communication whatsoever that their license renewal was in jeopardy or why. As an investor, if the CRC can do that to an operator with an established track record and tens of millions of dollars invested in the State, what could happen to a smaller, less established, operator? To quote Walter Wriston, “Capital goes where it is welcome and stays where it is well treated.” The opposite is also true as capital flees where there is uncertainty and risk of loss.
Contrary to popular belief, our membership is eagerly awaiting an expanded adult use cannabis marketplace. More cultivators bring diversity of products to be sold at dispensaries. More manufacturers bring diversity in brands and product categories. An increase in dispensaries allow for a greater number of wholesale outlets and expands consumer access to safe and regulated products.
Since adult use applications began to be accepted in Dec 2021, there have been over 2000 applications submitted. Of those applications, only 4 adult use licensees have become operational and all 4 of those are retail licensees. No new adult use cultivators or manufacturers have entered the marketplace. Every other operator to come online in the adult use marketplace has been an expanded ATC from one of the previous medical rounds. There are currently medical only ATCs desperate to expand their operations into the adult use market given the severe drop in medical cannabis sales. In Q3 2022, medical cannabis sales were $61 million. In Q1 2023, that number dropped to $34 million, representing a staggering decline of 45%. This statistic should shock and concern everyone who supports a strong legal cannabis industry. While some may point to an increase in adult use sales as the reason for the drop in medical, the total sales in Q3 2022 were $177 million and $179 million in Q1 2023. Forecasts were for our market to be a billion dollars annually but a 1.2% growth rate over the first 6 months of the program is a far cry from the strong growth most forecasters expected. In contrast, Missouri, a state with a total population of 6 million, or two thirds the size of New Jersey, brought in $256 million in total cannabis sales in its first 3 months of legal sales for adult use.
In conclusion, New Jersey must act to strengthen the cannabis marketplace and make it easier to operate or risk seeing operators fail under the weight of bureaucracy and unnecessarily high operating costs. Decreasing delays, streamlining processes, increasing communication and transparency will all help build efficiencies and make it easier for operators and new licensees to be successful over time.