The New Jersey Cannabis Regulatory Commission (“CRC”) – ahead of schedule – just released its adult-use regulations, thereby taking the first step towards opening up its adult-use marketplace. While there is a tremendous amount of information to digest in the 160 pages of regulations, and the myriad implications and questions flowing from it, our cannabis team wanted to provide a brief overview of the relevant implications.
In short, there are no substantial deviations from the expectations of the statute, i.e., the same license limitations and anticipated scope remain the same. What was fleshed out in painstaking detail, however, are certain details related to the application process, scoring, priority and the likely roll-out of the industry. We are anxiously awaiting the critical details that will be supplied by the Notice of Application, but at the moment the regulations establish a structure where to win, an applicant may have to both qualify under one of the ‘social equity priority’ criteria and submit the application as quick as possible under the CRC’s rolling review. So let’s dive in!
Number of Licenses
No surprise – the statutory cap of 37 cultivators for the first two years of the program is in the regulations, with no corresponding cap on other classes other than the generic requirement of meeting patient demand. However, the regulations do concede that the notice of applications will ultimately identify how many licenses and what classes are solicited.
The application process starts with notice of the initial acceptance of license applications (the “Notice”). The statute identifies that the CRC must begin accepting applications within thirty (30) days of rule adoption (August 19). Applications may be accepted on a rolling basis.
Not more than 90 days after the submission of the application, the CRC must make a determination on the application (though the CRC may simply request more time at that deadline).
The regulations discuss winning applications as receiving “a full score or greater.” In particular, the regulations identify that the CRC must “review, score, and approve conditional and annual cannabis business license applications and issue licenses to applicants that receive a full score or greater, and shall have the full authority to establish the priority by which conditional and annual cannabis business license applications are reviewed, scored, approved, and issued.”
That being said, the regulations also identify what priority means, which is as follows:
- Social Equity, Diversely Owned, and Impact Zones have primary authority.
- Conditional license applicants have priority over annual license applicants.
- Microbusiness applicant shave priority over standard cannabis business license applicants.
- Those with bonus point priority have priority over license applicants with no bonus points.
The regulations identify that “[w]here the number of applicants with the same number of points in a cannabis business license class or group is greater than the remaining number of licenses available from the Commission, the Commission may conduct a public lottery among the eligible license applicants in such class or group.” The CRC will stop accepting applications for the license class at least 90 days prior to the lottery. The CRC shall also use the lottery to select a waitlist containing the same number of license applicants as there are licenses available, but at least three applicants for the waitlist.
The CRC must submit all received applications for a license seeking to locate in a specific municipality to the municipality after receipt. The municipality may submit to the CRC its preferences for the issuance of licenses to cannabis businesses by writing to the CRC, which must be received by the CRC within 28 days of an application and shall not conflict with any letter of support issued to a license applicant.
The adult use rules generally define lenders as “financial sources,” defined as any entity that is not an owner, passive investor, or principal of a cannabis business that lends any amount of capital to a cannabis business pursuant to a secured or unsecured financial agreement and that does not receive an ownership interest.
The rules identify that such financial source agreements must include interest rates, returns, and fees, which must be commercially reasonable and consistent with the fair market value for the terms generally applicable to agreements of a comparable nature. The rules concede that a financial source agreement may grant a future or contingent right to obtain an ownership interest, provided that the financial source is otherwise qualified (i.e., background checks, etc.).
Prior to any financial source agreement taking effect, it must be submitted to the Commission, specifically:
- Copy of the financial course agreement and any related agreements between the parties.
- Information detailing any remuneration and interest rate paid or to be paid to the financial source by the license holder in exchange for the bond, loan, mortgage, trust deed, note, debenture, or other form of indebtedness.
An application process that will open quickly, involve priority for certain types of applicants, and be reviewed and scored on a rolling basis means that entities interested in New Jersey must get to work as soon as possible. While the regulations do not answer all the questions, they certainly are the start. Foley Hoag’s cannabis team is here to answer any New Jersey regulatory and/or applications questions that anyone may have.