Microbusinesses: An opportunity for cities and small businesses

New Jersey and New York both provide microbusiness options

Both New York and New Jersey have provided for “microbusinesses” as part of their cannabis licensure legislation. While each state treats microbusinesses differently, both states’ visions provide opportunities for entrepreneurs looking to break into the cannabis market.

New Jersey

New Jersey’s Cannabis Regulatory Commission released its regulations for cannabis businesses, including microbusinesses, on August 19, 2021. Under the state regulations and statute, microbusinesses are defined both by their physical size and number of employees. A microbusiness can have up to 10 employees and is limited to 2,500 square feet and either 1,000 mature plants or 1,000 pounds of cannabis product per month, depending on the class of cannabis license they possess. Cultivator microbusinesses are further limited to 24 feet of canopy height.

But what makes New Jersey’s microbusiness model attractive to its municipalities are its employment requirements. Under the state regulations, all microbusiness owners must be New Jersey residents and at least 51% of owners and employees must reside in the municipality of the business or in an adjacent municipality. These requirements guarantee that microbusinesses will be hiring locally, thereby keeping money within the communities that allow them to thrive.

Like larger cannabis businesses, New Jersey’s microbusinesses are limited to a single class of license. However, microbusinesses have an advantage within the cultivation space that will make them especially appealing: Microbusinesses seeking a Class 1 cultivation license in New Jersey do not count toward the state’s cap of 37 cultivation licenses statewide. Thus, microbusinesses will not need to compete with large businesses and multi-state operators seeking one of the 37 cultivation licenses (which is likely to only be 21 licenses after New Jersey’s licensed alternative treatment centers apply).

Because there are no limits whatsoever on the number of microbusinesses that can receive a Class 1 cultivation license, it’s possible that dozens of entrepreneurs will have the opportunity to cultivate cannabis throughout the state. This, combined with the lower application fees for microbusinesses and favorable zoning ordinances in some municipalities, will make it easier for entrepreneurs to enter the cannabis industry as a microbusiness and potentially upgrade to an annual license down the line.

New York

While New York has yet to release its cannabis regulations, there is statutory language regarding microbusinesses. Unlike New Jersey, New York will allow businesses holding microbusiness licenses to vertically integrate, meaning a microbusiness will be able to cultivate, manufacture and sell its own cannabis product, all under a single license. Vertical integration is not available for any other adult-use cannabis businesses in New York in the first round of license applications.

Because microbusinesses will have the unique experience of growing, manufacturing, and directly selling to customers, consumers provide direct feedback on products. This is a fantastic opportunity for entrepreneurs, as they will be able to capitalize on the feedback and adjust their production to match demand.

Microbusinesses will still have an advantage in that they will see the full profit of their products, without having to deal with the logistics and expenses associated with wholesalers and distributors.

New York’s vertically integrated microbusinesses also provide a great opportunity for legacy operators to enter the legal market. Legacy operators who have cultivated and sold their own cannabis can continue to do so with a microbusiness license, allowing them to continue doing what they love and maintain their customers, so long as they follow New York’s regulations. This may be more tempting to a legacy operator than a license for a single cannabis activity, and therefore New York’s vertically integrated microbusiness model may have better success luring legacy operators to the legal market than New Jersey’s.

Conclusion

In both New York and New Jersey, microbusiness licenses provide an attractive option for entrepreneurs with a lower barrier to entry. The smaller sizes and lower associated fees will allow entrepreneurs to enter the market with lower risk and less of a need to immediately start a large, boom-or-bust operation, and a large quantity of microbusinesses will lead to more local hiring, more money remaining in the community and more variety for consumers.