The Struggle Continues for Recipients of a New Jersey Conditional Cannabis License
New Jersey began accepting cannabis license applications for its adult use market back in December of 2021 and started issuing the first of its many conditional licenses in March of 2022. Conditional licenses issued in the state were given first to those who qualify for priority status (i.e. due to their social equity, veteran status, or other related circumstance), and require recipients to convert to an annual license within 120 days of the initial receipt. As a result, despite the successful license application, which those who succeeded in obtaining likely poured countless hours of work into, in addition to limited monetary resources, these fortunate individuals are now faced with a quickly approaching deadline in order to capitalize on this once in a lifetime opportunity.
For those out of touch with the realities of this nascent market, the assumption is that a license acts as a golden ticket leading to a life of wealth and prosperity. However, in truth this is not so auspicious. Firstly, in order for a conditional license recipient to obtain an annual license within this tight 120-day window, they must establish control of a proposed real estate site of operation, receive municipal approval to operate (which is a separately lengthy and time-consuming process), create a detailed business plan, develop a conditional conversion application and get the same approved, all in order to begin operations. These requirements are costly and require substantial committed capital to meet. While upfront investments and future profits are standard principals of a successful startup model, the reality of the conditional cannabis license model in the State of New Jersey is that in order for a recipient to successfully convert to an annual license, they need to obtain financial third-party backing in an abnormally short time-frame, while also addressing all of their other requirements and needs. As a result, conditional license recipients are often met with a very difficult decision – accept a predatory investment and lose control over their dream, or risk missing out on the deadline to convert and thereby missing out on the opportunity altogether. Secondly, and to make matters more difficult, in order to even apply for a conditional license in the first place, all owners of the business must prove they made less than $200,000 in the previous year, or $400,000 if filing jointly. When you put these two facts together, it’s very clear that this is an uphill battle that very few will successfully pass.
In addition to the foregoing issues surrounding the timeline for conversion and its relation to capital investments, another daunting issue facing many of these conditional license recipients is the simple fact that real estate available for operation in the State is quite limited. As of August 2022, only 78 of the State’s 564 municipalities allow for adult use retailers. As a result, the ability to convert within this 120-day timeframe suddenly looks much more limited, and in effect, creates a disadvantaged bargaining position for these license holders.
All of this is to say that, if you are one of the lucky few who obtained a conditional license, regardless of the successful application, the time for calculated planning and immediate action has just begun. It’s more imperative now than ever to obtain qualified legal representation and business advisors in order to meet the State’s requirements and deadlines without losing control or substantial equity from your venture. It’s no secret that starting and growing a business is a difficult task, however, when discussed in the realm of the cannabis industry, this fact often gets lost due to the misnomer of the “golden ticket” viewpoint. The reality is that a cannabis startup requires more planning and work given the constant deadlines, highly competitive market, and need for immediate capital costs. One must simultaneously pass the constant hurdles posed by local municipalities and the State while addressing all normal tasks required to get a successful business off the ground.
From fundraising strategies to employee hiring practices, to understanding your target market vs. ancillary customers, The Anderson Firm, P.C. is uniquely focused on integrating legal guidance, business advisory and performance coaching into a single platform for these very situations. The attorneys at The Anderson Firm, Trevor Anderson and Zach Levy, represent a variety of clientele in the cannabis industry on a diverse range of issues from base-level corporate structuring and governance decisions, Series A and B fundraising, commercial real estate acquisitions and financing, M&A analyses, to groundwork business decisions involving customers, clientele, employees and internal corporate books. If you’re one of the lucky individuals who is holding a cannabis license, whether conditional or permanent, reach out today for a free consultation. We’d love discuss your goals and aspirations in order to understand how we can help you cultivate your dream.