More than 70% of applicants fall into the ‘diversely owned’ category
“Social equity” and “social justice” were two of the key promises made by politicians when introducing New Jersey legislation allowing adult-use cannabis production and sales. Despite many states’ efforts to “right the wrongs of the past” through cannabis reform, national statistics show a steady reduction of non-white ownership of licensed cannabis businesses (estimated to have dropped to 15.4% from 20.7% in 2021) and low rates of leadership positions held by women and minorities, according to multiple reports.
Undeterred by these alarming statistics, New Jersey vowed to be a leader in providing opportunities for those most disadvantaged by the War on Drugs, racism and prior marijuana convictions. Only time will tell if this effort is successful, but New Jersey is not off to a bad start.
In welcoming applications for Class 1 cannabis cultivation, Class 2 cannabis manufacturing and Class 5 cannabis dispensing operations, the New Jersey Cannabis Regulatory Commission developed a priority scale to review, score and approve applications in the following order: social equity businesses; diversely owned businesses; impact zone businesses; and businesses receiving “bonus points” for applicants with owners who have lived in New Jersey for more than five years, are parties to collective bargaining agreements and/or have a signed labor peace agreement with a bona fide labor organization.
Within each priority category, conditional applicants and microbusinesses get priority over standard annual applications.
Benefits of Conditional Applications
Conditional applicants make up the majority of applications received by the Cannabis Regulatory Commission to date (81% of nearly 1,500 applications). Many decide to go this route because conditional applicants are not required to have site control, local approvals or a plethora of detailed standard operating procedures to get conditional approval. All that is required are owner/principal disclosures, a business plan, a regulatory compliance plan and a plan to obtain liability insurance. But owners with decision-making authority must meet an income threshold and show an adjusted gross income of no more than $200,000, or no more than $400,000 if filing jointly. Once an applicant obtains conditional approval, they can submit a conversion application providing the remaining qualifying materials.
Once a conversion application is approved, the applicant can secure an annual license. To date, however, only 33 conversion applications have been approved out of the 1,003 conditional application approvals. The number is growing, but approved conditional applicants are having undeniable difficulties securing real estate, obtaining local approvals and raising funds.
Recognizing these challenges, the Cannabis Regulatory Commission continues to extend the time allotted for approved conditional applicants to submit their conversion applications beyond the 120-day window. But despite these struggles, the benefits of a conditional application remain: a phased approach and priority review over annual applicants, which is a major benefit when speed to market is paramount.
Microbusiness Designations
A “microbusiness” designation is New Jersey’s effort to make room for the “little guy” and give local non-affluent entrepreneurs a chance at market share. To qualify as a microbusiness, an applicant must be wholly owned by New Jersey residents and must have at least 51% of the microbusiness participants (owners, principals, employees, etc.) reside either in the municipality in which the microbusiness will be located or in a town bordering the host municipality.
But there are other restrictions: the totality of the plant-touching areas inside a microbusiness facility (cultivation canopy, processing, storage, packaging, etc.) cannot exceed 2,500 square feet, and a microbusiness cannot produce, possess, acquire or sell more than 1,000 plants and/or 1,000 pounds of usable cannabis each month. And while a microbusiness cannot sell or transfer its license, it can convert to an annual non-microbusiness license after one year of operations.
Many people do not realize that a microbusiness application is just as much, and often more, work than a full annual license application. Applying as a microbusiness was beneficial when there was a limit of 37 cannabis cultivator licenses, and microbusinesses were not limited by this cap; however, today there is not much advantage — except for priority review.
Defining “Diversely Owned”
Of all the applications submitted to the Cannabis Regulatory Commission, more than 70% fall into the “diversely owned” category, meaning the applicants are owned and controlled by disabled veterans, minorities, women or a combination thereof. According to the agency, about 75% of annual and conversion approvals went to diversely owned applicants, with 30% of successful applicants being Black-owned and 24% Asian-owned.
Nearly 60% of applicants are located in an “impact zone,” or plan to hire a substantial portion of their workforce from local impact zones. Of the 565 municipalities in New Jersey, 87 qualify as impact zones based on population, unemployment rates, marijuana-related arrests and crime index.
Only 25% of applicants have qualified as “social equity.” This means that the applicant is owned and controlled by people who: a) have lived in an economically disadvantaged area for five of the past 10 years; b) are members of a household with a household income lower than $66,000 per year; or c) have been convicted of at least two marijuana-related offenses (except for offenses related to the distribution of marijuana to minors or using minors).
Social equity applicants secured about 28% of annual and conversion approvals, which is a healthy statistic that ostensibly supports New Jersey’s social equity initiatives.
One important disclaimer: application approval does not mean licensure. Approved applicants must still occupy their real estate, build out their facility, acquire equipment, hire staff and prepare to operate. Only then will the Cannabis Regulatory Commission conduct a final site inspection to confirm compliance and issue a license allowing the applicant to handle cannabis inside the state.
Because of that, only time will tell how many priority category applicants make it to the finish line to secure a license win.