Karl Piirimae Explores the New Jersey Green Rush in Guest Column for NJ Cannabis Insider

Thursday, August 30, 2018

Notes from the NJ Green Rush: (Not Quite) Ready, Set, Go

This article was first printed in NJ Cannabis Insider

The New Jersey green rush is well underway and lately driven to heightened intensity by the explosive growth in registrants in the state medical marijuana program, the current RFA process for the issuance of up to 6 new ATC permits and the imminent passage of the legalization of recreational marijuana, perhaps as early as next month.  While there is enormous interest and opportunity in being awarded one of the new ATC permits, there are at least two key takeaways from DOH’s mandatory pre-application conference on August 8th in Trenton that suggest that a potential applicant wait for the next rounds of RFA’s currently planned for Fall 2018 and Winter 2019.

First, New Jersey has waived the residency requirement for applicants in this round. The waiver of the residency requirement makes the current RFA process even more competitive because factors relating to operational experience are among the major scoring criteria applied by the Department of Health in evaluating applications. This would appear to give out-of state applicants with operating history in the cannabis industry a significant advantage in this round. Based on published and anecdotal reports of requests for support for cannabis operations being made to municipalities around the state major out of state players are very much in the game.

The second key takeaway from the pre-application meeting is that the real estate component of the application will be the tie-breaker between applications that achieve the same score in the application evaluation process. The first tie-breaker will assess the strength of the applicants control of the actual ATC site, including the indicia of support from the host municipality. The second tie-breaker will be an evaluation of whether the location enhances access to medical marijuana for patients. It appears that not having a location under lease or contract would be a serious impediment to a successful ATC permit application.

The bottom line is that if you were not prepared to apply for a license when the new RFA round was announced on July 16th, then you are probably not going to make a competitive application by August 31 due date.  This is especially the case if you have not secured site control of your potential ATC location, including a letter of support from the host community.  At this point, if you are not a current operator or have a site ready to go, the best course is to use the current application process as a dress rehearsal for a future application.

There are a few strategic advantages to sitting out this round.  All of the current applications will be available online after the selection of the approved applicants is announced on November 1st so those having an interest in making an application in future rounds will be able to assess the characteristics of a successful application.  The rules of future rounds may impose the residency requirements or establish set-asides for disadvantaged applicants that would enhance the opportunities to enter the industry under a state permit.

The time can also be used to scout potential locations. When doing so, the potential applicant should keep in mind that the New Jersey is moving away from the vertically integrated licensing scheme of the medical marijuana program under which cultivation, processing and retail operations are conducted under one permit.  Future applicants will be able to obtain separate permits for cultivation, processing and retail. This segregation will create separate and less capital-intensive business opportunities because the operator will not need to make the upfront capital investment in both the cultivation and retail components of the cannabis business operation.

There are tremendous and plentiful opportunities in the emerging cannabis industry in New Jersey.  There is much to be learned from the current RFA round without necessarily participating in it directly.

Karl Piirimae advises clients in the pharmaceutical, consumer packaged goods and telecommunications industry on real estate and transactional matters.