The Cannabis Regulatory Commission’s Initial Rules Are Here, Now What?

The New Jersey Cannabis Regulatory Commission released its much-anticipated initial rules, which will govern the cultivation, manufacture, and sale of recreational cannabis in the state...

On August 20, 2021, the New Jersey Cannabis Regulatory Commission (CRC or Commission) released its much-anticipated initial rules, which will govern the cultivation, manufacture, and sale of recreational cannabis in the state. The rules became effective upon filing with the Office of Administrative Law and will be in effect for up to one year.

“We were ambitious with our timeline to make personal-use cannabis available, and I am pleased the Commission was able to create these regulations in record time,” Governor Phil Murphy said in a press statement. “The regulations adopted today reflect the CRC’s commitment to transparency and social equity. Prioritizing applications from women and minority entrepreneurs, from business owners living in economically disadvantaged communities, and from small business owners will ensure the market grows the way we envisioned—in a way that is socially equitable and reflective of our state’s diversity.”

Initial Rules for the Personal-Use of Cannabis

As discussed in prior articles, the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (Act) tasks the CRC with promulgating regulations to govern the medical and adult-use industries. The CRC is also responsible for licensing cannabis businesses.

The CRC’s initial rules span more than 160 pages and, therefore, can’t be adequately summarized in this brief article. Therefore, we encourage businesses interested in entering the New Jersey adult-use market to thoroughly review them with experienced counsel. Below are some key highlights to get started:

• Licensing priority/caps: The CRC’s licensing process will be market-based, tethered to the actual market demands of the state, and will prioritize access to the market for Social Equity Business applicants, Diversely Owned Business applicants, and Impact Zone Business applicants. Conditional licenses and microbusinesses will also be prioritized. The only statewide cap on licenses is the cap on 37 cultivators for two years after February 22, 2021.
• Conditional licenses: Conditional applicants will only need to submit background disclosure information to the CRC, along with a business plan and a regulatory compliance plan. At the time of application, all owners with decision-making authority of the conditional license applicant will need to prove that they made less than $200,000 in the preceding tax year, or $400,000 if filing jointly. If approved, conditional applicants will then be given 120 days to find an appropriate site, secure municipal approval, and apply for conversion to an annual license. Conditional license-holders that convert to an annual license will not have to submit the sections of the application that, under statute, require applicants to demonstrate past experience in a regulated cannabis industry. Conditional license-holders can add new owners in the conditional license phase, provided that the majority of the equity in the business remains with the persons or entities that can qualify for the conditional license. Once ready, the license-holders can then submit a conversion application, which includes submitting standard operating procedures for the business, an environmental impact plan, a workforce development plan, and a security plan.
• Annual licenses: Applicants for annual licenses will be required to submit a detailed application that includes details for the proposed site for the business, which must be owned or leased, municipal approval, zoning approval, and Applicants must also submit an operating summary plan in which applicants detail their experience, history, and knowledge of critical pieces of operating a cannabis business.
• Expanded ATCs: Existing Alternative Treatment Centers will be able to expand their operations to include personal use cannabis by submitting municipal approval and a certification that they have adequate supply for their patients, and that engaging in personal use cannabis sales will not impact access for those patients. In determining whether to accept the certification, the Commission will look at not only the supply of the specific ATC, but also statewide supply to ensure that the issuance of licenses does not have an adverse impact on the medical cannabis market.
• Municipal oversight: Cannabis businesses will only be licensed by the CRC if they have demonstrated support from the municipality, zoning approval, and have been verified to operate in compliance with any municipal restrictions. Municipalities can determine hours of operation, the number and kinds of licensed businesses operating within their borders, and whether to enact a 2% transfer tax on any sales between cannabis businesses. They can also enact any requirement or restrictions on cannabis businesses that would apply for other business types, such as requiring compliance with all relevant codes and ordinances. Municipalities can’t restrict delivery of cannabis items to consumers within their jurisdiction or restrict transports of cannabis that are routed through their jurisdiction.
• Cannabis Business IDs: Every individual who works in or works with cannabis on behalf of a licensed cannabis business will need to register with the CRC and will be issued a Cannabis Business ID Card. The annual fee for the ID card will be $25, and prospective employees will need to complete a brief training course in order to be approved by the Commission.
• License Holder Requirements: The rules outline several requirements and ongoing conditions applicable to all cannabis businesses. Notably, for the first two years of operation, the majority ownership in a cannabis business will be required to remain the same as on the application, but new owners and passive investors can be brought in, allowing them to raise capital if necessary.
• Cannabis Manufacturer Authorized Conduct: The rules proactively ban additives that have been determined to be potentially harmful and restrict the percentages of other additives for which safety data is insufficient. Terpenes are allowed to be added in to vape formulations, but only in concentrations that are consistent with how they occur naturally. The rules also outline the types of products initially authorized by the Commission, which include: cannabis concentrates including extracts and resins; vaporized formulations; drops, tinctures, and other sublabial and sublingual forms; oral lozenges and other buccal forms; edibles that can only be in the form of syrups, pills, tablets, capsules, and chewables; and topical formulations and transdermal forms.
• Cannabis retailer authorized conduct: Cannabis retailers will be required to have strict age verification protocols in place to ensure no one under the age of 21 is able to purchase cannabis, and consistent with the Act, can only sell up to one ounce at a time to any individual consumer. Retailers will also be required to have protocols in place to help educate consumers about safe consumption and the risks associated with cannabis and make efforts to ensure consumers aren’t able to purchase more than the legal limit. Home delivery is allowed under the rules and, pursuant to the law, can be done by cannabis delivery services or delivery personnel hired by the retailer. Delivery vehicles will need to have GPS tracking and secure lockboxes and not be easily recognizable as cannabis delivery vehicles.
• Packaging and Labeling: All cannabis items must be packaged in fully enclosed child-resistant packaging and labeled with information and any warnings required by law, a summary of the product testing results, any ingredients used in cultivation or production of the cannabis item, and the serving size. For cannabis flower, in addition to the potency from the test results, labels will note whether the flower is high-, moderate-, or low-THC, and whether it is high-, moderate-, or low-CBD, consistent with its chemotype. Labels must contain health warnings for consumers urging them to avoid driving or operating heavy machinery while using cannabis, potentially avoid use altogether when pregnant or breastfeeding, and will note that high potency products may present risks to mental health. Packaging and labeling is prohibited from containing any false or misleading statements, or any imagery that could be attractive to kids, and once established, will contain a universal warning symbol designated by the Commission.
• Advertising: Advertising will be restricted to mediums where the audience is determined to be primarily over the age of 21. TV and radio ads will only be allowed between 10:00 PM and 6:00 AM, and advertisers will be restricted from promoting overconsumption or making any claims not supported by credible research.
• Cannabis Product Testing: Every batch and lot will be required to be tested prior to packaging, labeling and distribution, or sale to consumers. Labs will need to have strict chain of custody protocols for samples and will be required to retain a portion for quality control testing.

Fee Schedule for Cannabis Licenses

The CRC has also published a Fee Schedule, which lists the fees for applications, certifications, and licenses.  The application submission fees are intentionally low, with the cost of applying for a standard license set at $400. Microbusinesses are eligible for a lesser fee of $200. The fees for businesses applying for a conditional license are $200 for a standard business and $100 for a microbusiness. For existing ATCs seeking to expand to recreational cannabis, the fee for a Medical Cannabis Cultivator Expansion is $400,000, the fee for a Medical Cannabis Manufacturer Expansion is $300,000, and the fee for a Medical Cannabis Dispensary Expansion is $100,000.

Cultivator licensing fees are dependent upon the mature cannabis plant grow canopy area and start at $5,000. The Manufacturer Licensing Fee is $20,000 for premises of up to 10,000 square feet and $30,000 for more than 10,000 square feet. Retail licensees must pay $10,000, while testing laboratories must pay $4,000. For microbusinesses, the license fee for a cultivator, manufacturer, or retail license is $1,000.

What’s Next?

While the initial rules are an important first step, the CRC still has a lot of work to do. It must still promulgate rules for delivery, distribution and wholesaling, which were not addressed in the initial rules. It must also release applications for all of the licenses categories.

The Act provides that within 30 days of the rules and regulations being adopted, or September 21, 2021, the CRC must begin processing licensing applications. The legalization statute also establishes timelines for approving licenses. The CRC must make decisions on conditional licenses by October 21, 2021. Decisions on other licenses must be made by December 20, 2021. Finally, adult-use sales must begin within six months of the CRC adopting rules and regulations, making February 22, 2022 the latest date sales can begin.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact 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:

• Breaking Down the New Federal Cannabis Legalization Bill
• Cannabis Industry Finds Unlikely Ally in Justice Clarence Thomas
• Candy Brands Filing Trademark Suits Over Cannabis Copycats

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.