N.J. cannabis board: ‘There’s promise’ in legal weed market after historic 1st year | Q&A

EDITOR’S NOTE: NJ Cannabis Insider, NJ.com’s B2B cannabis industry trade journal and events vertical, is hosting a business meetup Jan. 18 in Jersey City. Tickets are limited.

In this exclusive hour-long conversation with the state’s Cannabis Regulator Commission Chairwoman Dianna Houenou and Executive Director Jeff Brown for NJ Cannabis Insider, they offered insight into what it took to launch the state’s adult-use market. Houenou and Brown shared some of the challenges their state agency has faced as well as the challenges they see from operators — town approvals, real estate and raising capital. They addressed the need to keep the medicinal program robust for patients, working on ensuring a diverse and equitable market, and some of the surprises they’ve seen since the marketplace opened. This transcript, which focuses on 2022, has been edited for clarity.

Q: Why don’t we start with what you’d consider highlights of 2022 from your vantage point.

Houenou: The CRC is less than two years old. And in that time, we’ve been able to stand up a brand new agency, finish up old applications from the Department of Health, extending the medicinal program and start issuing awards for the adult-use industry. Our second quarter of recreational sales we saw $116.5 million in gross revenue.

Those numbers show there’s promise in the market that we’re establishing. There are 21 medical dispensaries that are also selling personal-use cannabis to adults, but we still have a lot of room to grow. And we have a lot of room for new cannabis entrepreneurs and also the ancillary businesses that support the cannabis industry.

Brown: This year marks a continuation and then an acceleration of our work on these fronts, as our chair mentioned: shoring up medical access; we’ve grown to 30 medicinal dispensaries overall. That market continues to expand. Thanks to the work that the Commission did to wrap up the 2019 RFA. Looking at recreational licensing remains a focal point.

As of December, over 900 conditional licenses have been issued, with 36 annual awards. When you think about the number of medical entities approved for recreational sales, it’s nine, and we’ve now issued annual awards to, I believe, 32 or 33 different new businesses to get into the market — some received both cultivation and manufacturing, so hence the difference in those numbers.

Looking ahead, of those 900 conditionals, over 100 have applied to convert to annual licenses. So, we’re seeing more businesses able to take that leap. A third of those we’ve received are from social equity. That is very promising. And it’s something that gives me confidence in in the system — the fact that we continue to move these applications forward via our process that prioritizes social equity businesses, minority-owned, women-owned disabled veteran-owned businesses. It’s starting to really bear fruit in the form of those annual licenses.

Additionally, we’re continuing to propose and enact policies that will underpin this industry. We’ve worked on and proposed new rules, improving upon them to make them permanent going forward.

Q: Thank you for that overview. Let’s rewind to the work you did leading up to 4/21 — a historic day for all of us in the state.

Brown: I’ll start by saying, 4/21 was a was a big milestone, an important one. But as we’ve said before, it was really only the beginning of what’s a multi-year project to get this market to where it needs to be both as far as competitiveness, but also, as far as equity.

Coming out of March, you know, we had identified some additional concerns that needed to be addressed with the medical providers in order to get them across the finish line. A lot of those were around patient access. What we did is put together a team at the CRC — Wesley McWhite, our director of Diversity and Inclusion, Chris Riggs, our chief counsel; Kelly Anderson, deputy executive director; and compliance led by Paul Thomas Urbish, as well as various members of the compliance team.

We did site visits with that whole team at each ATC that was up for consideration. We sat with them; we walked through patient access plans, and plans for equity. We walked through cultivation. We were on the road, going from facility to facility for a whole week. What came out of there was a firm commitment from the industry to enact really strong patient access provisions — which we led by proposing patient-only hours, making sure they’re educating patients before opening up, ensuring that they have continued consultation services for patients that are done in a private manner [to protect patient privacy]. And, also provisions to ensure they have adequate supply for medical patients.

Based on those meetings, we were able to recommend seven of the eight alternative treatment centers for approval at that special meeting on April 11. After that it was really a matter of working with the industry to figure out when could open. Because 4/20 is the is the biggest day of the year for sales in medical, to add the first day of recreational sales on top of that would have negatively impacted patients. But we wanted to get sales started ASAP so we landed on April 21.

Houenou: I’ll just add, the lead up to April 21 really was eye opening and illustrated that everybody was not as ready as they had said they’d hoped they would be. As you know, Enrique a lot of the operators even before April 2021, had long been pushing to have the ability to move forward. But it took a lot of extra work to get them to a place where they actually were ready to serve the public.

And we did a lot of work to make sure that there was intentional collaboration and communication, not just between the CRC and the ATCs, but also between the ATCs and the municipality, the ATCs and the public, so that the public understands what to expect. We invited the ATCs to our board meeting, so that they could talk about their patient access plans, so patients could hear directly from them. We were able to make April 21 happen without any major issues on that day and even in the days and weeks afterwards.

Q: You mentioned milestones. Could you underline a few others? Reaching just above 900 conditional license approvals, I’m sure is one of them.

Houenou: With the the number of conditional licenses that has been up for consideration has really demonstrated this mountain that we as a CRC had to overcome to get to a place where we can finally see a significant portion converting to an annual license. Our first conditional licenses were awarded in March of this year. Our first annuals were awarded in October. We are making significant progress in helping the conditional licensees get what they need to submit an application to convert. The numbers really goes to show that our prioritization structure is working and that the that we really are seeing a diverse and inclusive recreational market start to take shape.

Brown: The large number of applications that have been approved come from an extremely large applicant pool. And I know there’s been frustration from applicants for how long some had been pending — and we’ve actually been through all of them; except for the new ones that are coming in. We’ve received over 1500 applications total. All this while, we have also been staffing up an agency. That meant that earlier this year, we put all hands on deck to review those license applications.

We did what we needed to do to get through that mountain of applications. We wanted to make sure that we got to conversions so that they could then go lock up municipal support, lock up their site and then come back to try to convert annuals. The goal was to get through everything we had by the fall and we did.

Now conditionals are being moved quickly. Annuals still take more time. But we are becoming more and more a well-oiled machine. One of the challenges is that it is a complex application — some of that comes from the fact that we asked for a lot of transparency on financial agreements, financial terms, because we want to make sure that people aren’t being taken advantage of. Some of the more established companies are using financial terms to increase their market share, in violation of our regs.

Because of that, it’s important for applicants to really spend the time to watch the pre-application webinar. Go to our website, look at the FAQs that Communications Director Toni-Anne Blake has developed with our legal team. Look at all the guidance there. That reduces the need for cures to amend their application and go forward. We have seen a lot of cures. You know there’s a lot of eagerness among applicants, understandably, to get into this industry. We see people you know, submitting and resubmitting, sometimes not addressing the issues.

The good news is that we’ve moved away from the RFA process where if have an incomplete application, you’re not out of the process. There’s light at the end of the tunnel.

Q: You said you’re making sure that people aren’t getting taken advantage of. Could you tell us more about that?

Brown: It’s around the financial agreements and management services agreements. We have some of the strongest regulations in the country when it comes to those things. But they’re things that are outside of our control. Some of that is at the municipal levels that you brought up — real estate. There’s a lot of really challenging conditions there. But overall, when you’re looking at agreements in the cannabis industry, they’re different than other industries because of the federal prohibition: capital is not accessible.

It’s important for us to work with our state partners to try and address that. I think a big part of that is seeing what happens federally to open access to capital. We make sure we review those financial agreements, those management services agreements, so that they don’t have terms that are overly predatory, so that they don’t have hidden owners or a hidden entity that is controlling the operations behind the scenes. Those are the things that we want to prevent against.

Houenou: We make sure that people understand what the restrictions are in our rules. What they should be seeing as a red flag, when they are presented with these kinds of agreements or structures. One of our strongest tools is to make sure that people feel empowered and informed so that they can make the business decisions that are right for them.

Now, we have to acknowledge that some people are comfortable stepping into a space where they might be giving away much more of the equity in their business than they would like or otherwise be part of a team that might not embody all of their values. But we just hope that people can make informed business decisions. So while we at the CRC do everything that we can to make sure that people aren’t being unwittingly taken advantage of, at the end of the day, there is a limit to what we as a government agency can do about private business decision making.

Q: I’d love to hear if there were any surprises after the market opened, things that you had to pivot on or the like?

Brown: I’ll say on the compliance front, I was surprised when the team brought to my attention that a number of the medical facilities were serving recreational patients during their patient-only hours. That was that was early on, resulting in over $300,000 in fines. There were certainly some other infractions, but that was certainly disconcerting. We moved quickly on enforcement action there, and thankfully, things have been relatively good on that front. There were some other issues, but we were able to move quickly on those.

Q: How about loose interpretations of the law? We saw a lot of cookie companies selling cookies and gifting weed. We knew was happening in other states, but it came up fairly fast here.

Houenou: I don’t think it was so much as a surprise. Many of the issues there were expected. And especially as we are as an industry fairly young, we’re still getting new people into the application process and getting moving them forward so that they can become operational. I think it was expected that that there would be some of these gray market operations happening. However, what has added an interesting twist is just how the locals are taking different approaches to tackling that issue. We have seen news reports of law enforcement taking action against free market operators. We’ve seen some municipalities take a different approach in issuing civil penalties. We leave much of that enforcement decision making up to the local officials. It’s just been interesting to see them take different approaches.

For us at the CRC, we try to emphasize that we want people who have been operating in the legacy market to become part of our regulated industry. We know that there are legacy operators who want to become a regulated entity who want to be legal and legit. Some might not want to be and that’s all right. We knew long ago that we would not eliminate the unregulated market 100% But I think it is important for us as a state to make concerted efforts to bring people from the unregulated side and onto the regulated side. We want people to understand that this door is wide open and we want them to be a part of.

Q: Anything you’d like to emphasize to the business community that you see it needs to keep in mind?

Brown: This is a hard industry to be in everywhere, right now. The challenges that are happening in New Jersey are not unique to New Jersey. What is unique to New Jersey are some of those programs like our chair just mentioned: We’ve been working on addressing some of those things are going to stay outside of our control, like real estate. We only have limited authority over municipalities, but we’ve been focusing on education with them to make sure they know what we’re doing, what our processes are and how they can conform with that. I would just emphasize that. I think 2023 is definitely going to be a year of new opportunities in the in cannabis in New Jersey.

Enrique Lavin is publisher and editor of NJ Cannabis Insider, a weekly subscriber-based online trade journal and events group produced by NJ Advance Media, which also publishes NJ.com, The Star-Ledger and other affiliated papers. Follow him on LinkedIn.