By: Dustin Robinson

On February 22, 2021, Governor Phil Murphy signed into law “The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act” (“CREAMMA”) which established New Jersey’s adult-use marijuana industry. Under the act, the Cannabis Regulatory Commission (“CRC”) will oversee the state’s adult-use marijuana industry and expand upon the 240 pages of legislation passed. The CRC met for the first time on April 12, 2021. The purpose of the CRC is to decide the start date of adult-use sales, establish the licensing process and the number of licenses to be awarded, and determine how tax dollars generated from adult-use marijuana sales are spent.

The CRC is mandated to adopt rules within 180 days after enactment of CREAMMA. The rules are expected to be released at the end of August or early September 2021. The initial rules and regulations adopted by the CRC will be in effect for a period not longer than one year.  The CRC will begin accepting and processing applications for licenses within 30 days after the CRC’s initial rules and regulations have been adopted. Licenses will need to be renewed annually.

There are several different types of adult-use licenses available, which include:

  • Class 1 Cultivator License – A cultivator grows, cultivates, and produces marijuana plants and raw materials. Cultivator licenses are capped at 37 for the first 24 months.
  • Class 2 Manufacturer License – A manufacturer manufactures, prepares, and packages marijuana items.
  • Class 3 Wholesaler License – A wholesaler stores, sells, and transfers marijuana items for resale to cannabis retailers or other wholesalers, but not to consumers.
  • Class 4 Distributor License – A distributor transports bulk amounts of marijuana between licensed facilities.
  • Class 5 Retailer License – A retailer sells adult-use marijuana to consumers from a retail store.
  • Class 6 Delivery Service License – Delivery service is a business authorized to deliver cannabis products from cannabis retailers to customers’ homes.
  • Microbusiness License – There is no cap on the number of licenses issued to microbusinesses. Furthermore, microbusinesses must account for at least 10% of each category of license issued and 25% of total licenses issued. To qualify as a microbusiness, (1) all the owners must be New Jersey residents who have resided in the state the last two consecutive years and (2) more than 51% of the owners, officers, directors, or employers live in the municipality that the microbusiness is located, (3) there are no more than 10 employees. If the microbusiness is a cultivator, the microbusiness is limited to no more than 2,500 square feet of grow space. If the microbusiness is a manufacturer, the microbusiness is limited to acquire no more than 1,000 pounds of cannabis per month to create products. If the microbusiness is a retailer, the microbusiness is limited to acquire no more than 1,000 pounds of cannabis per month to sell.
  • Testing Facility License – A testing facility analyzes and certifies cannabis items and medical cannabis for compliance with applicable health, safety, and potency standards.

During the initial 24-month period following enactment of CREAMMA, there are limitations on the number and classes of licenses any one licensee which include:

  • A licensed cultivator, manufacturer, wholesaler, distributor or delivery service cannot also be a licensed retailer and vice versa;
  • A cultivator or manufacturer may only hold two licenses at the same time; and
  • A wholesaler could not hold any other license besides distributor.

All adult-use cannabis applicants (except microbusiness applicants) must submit an attestation signed by a bona fide labor organization stating that the applicant has entered into a labor peace agreement with such bona fide labor organization. Maintenance of a labor peace agreement with a bona fide labor organization is an ongoing material condition of maintaining a license. Additionally, priority for business licenses will be given to:

  • Applicants that are party to a collective bargaining agreement with a bona fide labor organization that currently represents, or is actively seeking to represent cannabis workers in New Jersey;
  • Applicants that are party to a collective bargaining agreement with a bona fide labor organization that currently represents cannabis workers in another state;
  • Applicants that submit an attestation affirming that they will use best efforts to utilize a signed project labor agreement with a bona fide building trades labor organization; and
  • Applicants that submit a signed project labor agreement.

Licensed cannabis retailers are granted the exclusive opportunity to offer one social space for patrons to consume marijuana on the same premises as the retail location. These areas are considered “cannabis consumption areas” (“CCAs”). Licensed cannabis retailers will need to obtain state and local government cannabis consumption area endorsement before allowing consumption of marijuana on the premises. A local governmental entity (i.e., “a municipality”) may authorize the operation of a CCA for the personal use, medical use, or both personal use and medical use of cannabis within its jurisdiction through the adoption of an ordinance. A CCA may be either indoors or outdoors.

An indoor CCA is an enclosed area of the cannabis retailer that is separate from the retail sales area. The indoor CCA must be separated by solid walls or windows from the retail sales area, can only be accessed through an interior door after first entering the retailer, and must comply with all ventilation requirements applicable to cigar lounges. An outdoor CCA is an exterior structure on the same premises as the cannabis retailer, that is separate from or connected to the facility. It is not required to be completely enclosed, but it needs to have sufficient walls, fences, or other barriers to prevent any view of persons consuming cannabis items within the CCA from any persons outside the cannabis facility.

At least 70% of tax revenues generated from retail sales of cannabis products will be appropriated for investments to municipalities defined as “impact zones.” Specifically, impact zones are defined as any municipality, based on past criminal marijuana enterprises contributing to higher concentrations of law enforcement activity, unemployment and poverty within parts of or throughout the municipality, that:

  • Has a population of 120,000 or more according to the most recent census; or
  • Ranks in the top 40% of municipalities in the state for minor marijuana possession arrests; has a crime index of 825 or higher based upon the latest Uniform Crime Report of the Division of State Police; and has an annual average unemployment rate that ranks in the top 15% of all municipalities in the state.

New Jersey has reserved several applications for social equity applicants. Specifically, at least 15% of marijuana licenses are reserved for minority-owned business, at least 15% of marijuana licenses are reserved for women-owned and disabled-veteran-owned businesses, and at least 25% of marijuana licenses are reserved for applicants who have resided in an impact zone for three or more consecutive years at the time of making the application. In addition, priority is given to applicants who: (i) are located in an impact zone that has less than two licensees, (ii) are current residents of an impact zone and have resided there for three or more consecutive years before making the application, and (iii) presents a plan to employ at least 25% of its employees who reside in an impact zone.

Local government can impact cannabis business operations. Municipalities have 180 days from the enactment of CREAMMA to enact ordinances prohibiting adult-use cannabis businesses from operating within the municipality. If a municipality does not enact an ordinance prohibiting cannabis operations within 180 days, cannabis businesses will be permitted to operate in the municipality for a period of 5 years. Once cannabis businesses are permitted, each municipality has the authority to determine the number of cannabis businesses allowed to operate. In addition, municipalities can regulate where cannabis businesses operate, the manner in which they operate, and place restrictions on the times of operation. Yet, the local government cannot regulate delivery service operations. Only the CRC has authority over marijuana delivery to consumers.

There is a lot of excitement surrounding New Jersey’s adult-use cannabis market. The state’s medical market is already strong, paving the way for a successful roll-out of an adult-use framework. We look forward to the end of August or early September 2021 for the state’s regulations to be published and applications available for cannabis businesses.