Is It Time to Apply for a Recreational Cannabis License in New Jersey?

After years of debate and delay, recreational cannabis is finally legal in New Jersey...

After years of debate and delay, recreational cannabis is finally legal in New Jersey. On February 22, 2021, Gov. Phil Murphy signed “The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act” (“the Act”) into law, which legalizes and regulates cannabis use and possession for adults 21 years and older. Gov. Murphy also signed legislation decriminalizing possession of small amounts of marijuana and hashish and clarifying marijuana and cannabis use and possession penalties for individuals younger than 21 years old.  

“Our current marijuana prohibition laws have failed every test of social justice, which is why for years I’ve strongly supported the legalization of adult-use cannabis. Maintaining a status quo that allows tens of thousands, disproportionately people of color, to be arrested in New Jersey each year for low-level drug offenses is unjust and indefensible,” Gov. Murphy said in a press statement. “This November, New Jerseyans voted overwhelmingly in support of creating a well-regulated adult-use cannabis market. Although this process has taken longer than anticipated, I believe it is ending in the right place and will ultimately serve as a national model.” 

Gov. Murphy’s enactment of the Act sets the recreational cannabis licensing process in motion.  Pursuant to the Act, the Cannabis Regulatory Commission (CRC) must approve implementing regulations within 180 days or within 45 days of all five members of the CRC being appointed, whichever is later.  (Three of the five members of the CRC have been appointed, and the remaining two will likely be appointed soon.)  The regulations will contain more detailed information regarding the application process, and the CRC will simultaneously develop the applications themselves and likely issue them when the regulations are adopted.  Existing medical cannabis dispensaries will have the first opportunity to obtain recreational dispensary licenses, but will only be able to do so after certifying to the State that they can fulfill the product demand of their medical cannabis patients.

Here are other important elements of the licensing provisions of the Act:

• There Will Be Six Classes of Licenses: The Act creates six “marketplace” classes of licensed businesses: a Class 1 Cannabis Grower license, for facilities involved in growing and cultivating cannabis; a Class 2 Cannabis Processor license, for facilities involved in the manufacturing, preparation, and packaging of cannabis items; a Class 3 Cannabis Wholesaler license, for facilities involved in obtaining and selling cannabis items for later resale by other licensees; a Class 4 Cannabis Distributor license, for businesses involved in transporting cannabis items in bulk intrastate, from one licensed cannabis establishment to another; a Class 5 Cannabis Retailer license, for locations at which cannabis items and paraphernalia are sold to consumers; and a Class 6 Cannabis Delivery license, for business providing courier services for a licensed cannabis retailer in order to make deliveries of cannabis items and related supplies to a consumer.
• The Number of Available Licenses: The Act limits the number of cultivation licenses at 37 for the first 24 months of the recreational cannabis program.  No caps for other types of licenses are included in the Act.  The CRC may set caps regarding the other licenses when it develops regulations to implement the new laws, but for now, the number of these licenses will be determined by market demand.  The CRC will be authorized to make requests for new license applications as it deems necessary to meet demand.
• Applications Will Be Reviewed on a Point Scale: The CRC will score applications based upon a point scale, with the CRC determining the number of points available, the point categories, and the system of point distribution.  Certain required criteria will be included in the point system, such as an analysis of an applicant’s operating plan, environmental plan, and safety and security plans.  The point system will also provide greater credit to applications that include an in-State resident of at least five years who is a “Significantly Involved Person,” who is someone that holds at least a five percent investment interest or is a member of a group who holds at least a 20 percent investment interest and would have authority to make controlling decisions about the cannabis business.
• Conditional and Microbusiness Licenses Will Be Available: At least 35 percent of the total licenses issued for each class must be conditional licenses.  Applicants need not be in compliance with every aspect of the regulatory requirements expected for full licensure in order to obtain a conditional license, but will need to provide sufficient plans for actions to be taken to eventually achieve compliance for full licensure by a certain deadline. Notably, applicants seeking a conditional license must demonstrate that the Significantly Involved Person and any other person with a financial interest in the business and decision making authority have an adjusted gross income for the immediately preceding taxable year of no more than $200,000 or no more than $400,000 if filing jointly with another.  In addition, at least 10 percent of the total licenses issued for each license class and at least 25 percent of the overall total number of licenses issued will be designated for and only issued to small-scale operations known as “microbusinesses.”
• Impact Zones Will Be Prioritized: In addition to the awarding of points, the CRC will rank applications for licensure using several other factors.  Priority will be given to applicants who intend to locate their operations in “Impact Zones,” which are municipalities that have been disproportionately impacted by law enforcement activity, unemployment, and poverty-related to the former illegality of cannabis. The CRC will seek to prioritize at least two applications in each Impact Zone, and will particularly focus on applications that include a person who is a current resident of an impact zone and had resided therein for three or more consecutive years or that include plans to constitute 25 percent of its employee workforce of individuals who reside in an impact zone.
• Licenses Must Be Distributed Equitably: When processing applications, the CRC must incorporate the licensing efforts developed by the Office of Minority, Disabled Veterans, and Women Cannabis Business Development designed to promote the formulation and participation in the lawful operation of cannabis businesses by persons from socially and economically disadvantaged communities. In addition, 15 percent of licenses must be reserved for minority-owned businesses, and an additional 15 percent must go to businesses owned by women or veterans. 

Next Steps in Recreational Cannabis Licensing Process

Given the delays that have plagued the cannabis legalization process, there is hope that the CRC will act expeditiously to set up the required regulatory framework. In the meantime, the Act is a good start point for assessing the requirements for cannabis license holders. For entities that are interested in entering the New Jersey cannabis industry, there are numerous legal, logistical and operational issues that must be addressed, and it is never too early to start your preparations.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

• Change of Administration Delaying CBD and Hemp Regulations
• USDA Unveils Final Hemp Rule – Key Takeaways for the Cannabis Industry
• New York Publishes Comprehensive Hemp Regulations

Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.