A special session called by New Jersey state regulators last week resulted in a slew of license approvals that will kick-start New Jersey’s recreational marijuana market and clear away a logjam of applications that have been lingering since voters approved adult recreational use nearly two years ago.
Responding to scrutiny from the president of the state senate, New Jersey’s Cannabis Regulatory Commission (CRC) hastily convened a meeting where they granted the necessary licenses allowing seven current medicinal marijuana operations, known as alternative treatment centers (ATC), to expand into the adult-use market later this year. The agency also approved another 34 conditional license applications for individual cultivators and manufacturers.
“We are getting closer to the opening of the market,” said CRC Executive Director Jeff Brown. “We are approving applications for new applicants and have now made way for the ATCs to expand.”
The CRC issued the approvals Monday with the state legislature looking over its shoulder after New Jersey missed the planned start date for recreational sales due to a lack of cannabis supply while appeals by some prospective cultivators work their way through the court system.
Still, by its own admission, the number of licenses approved by the CRC to date lags far behind the total amount of “canopy” – the square footage of cannabis cultivation space – needed to satisfy both the state’s 128,000 medicinal marijuana patients and an even larger adult recreational market. (In making the recommendation for board action, Brown advised the commissioners that “the analysis projects a deficit between 116,000 pounds and 208,000 pounds versus projected demand – a shortfall that will fall on recreational consumers for the foreseeable future).
The state also remains dogged by critiques that it has failed to create a reliable and fair system for allocating scarce medicinal and recreational cannabis licenses. More than a dozen applicants have already taken the CRC to court, and in 2020 the state’s Appellate Division ruled that the 2018 ATC selection process had been so “arbitrary and capricious” that it sent the commission back for a second look at some applicants’ submissions.
Pangaea was the lead appellant in that case and, along with seven other unsuccessful 2018 applicants, showed how a lack of internal controls resulted in arbitrary decisions being made by seemingly overworked agency staff. The state had applied a complicated scoring system with six reviewers from various state government offices assigning 1,000 possible points across 60 different evaluative measures from horticulture to financing to building security.
Pangaea’s experience received perfect scores and zero scores from different reviewers in eight categories, and widely divergent scores in still more categories, which turned out to be a typical experience for other applicants as well.
The appellate court sent the applicants back to the CRC and gave them a chance to show regulators where they had erred. The court even offered a less-than-subtle suggestion in the conclusion of its 75-page ruling: Resolve the case by issuing licenses to the appellants.
The Court pointed out that by granting just two more licenses in each region of the state, the CRC would satisfy all the appellants, increase the availability of medicinal cannabis statewide, and still be within its legal authority.
Fourteen months later, however, the CRC instead issued a new round of denials. The original process, it concluded, “was reasonably designed and executed” and, contrary to the court’s ruling, was “not the result of an arbitrary, capricious, or unreasonable process.” The CRC admitted that it “may have ranked the responses slightly differently in retrospect” but declined to change any scores.
Since recreational sales were approved by New Jersey voters in 2020, the expansion of the cannabis industry has been bogged down in a knotty approval process that had multiple applicants forced to turn to the slowly grinding wheels of the justice system as their only avenue of appeal. At the same time, the lack of newly licensed growers, processors and dispensaries left New Jersey without adequate production capacity to supply both current medical marijuana patients and an anticipated boom in recreational users.
The CRC did not issue its first batch of various licenses for the new market until late last month. In the meantime, existing operators have been juggling staffing and inventory while also seeing neighboring New York in the rearview mirror and about a year away from opening its own massive recreational pot system.
The missed deadline and the glacial pace of the approval process drew the attention of the New Jersey Senate President Nick Scutari, one of the prime movers of the creation of the state’s medical-marijuana market. Scutari earlier this month announced plans for a special committee in the legislature to investigate the delays, with the CRC leadership topping the marquee of what would likely be a high-profile hearing.
“We need to get the legal marijuana market up and running in New Jersey,” Scutari said at the time. “This has become a failure to follow through on the public mandate and to meet the expectations for new businesses and consumers.”
The senator said Monday he was happy to see the logjam reduced but intended to forge ahead with the formation of the committee, possibly a joint Senate and Assembly panel, to conduct further fact-finding on all aspects of the pending roll-out. “I am happy to see that progress has been made, but we need to find ways to do better and in a timely way,” he said. “I will move forward with legislative oversight hearings so we can get an understanding of the delays, the uncertainties and any obstacles that hinder the full implementation of the cannabis law.”
Cannabis insiders in the Garden State, however, see long-standing flaws in the system that creates red tape and maddening bureaucratic shortfalls.
“There is little the CRC couldn’t have fixed earlier by issuing additional licenses and better communicating with applicants and licensees,” said John W. Bartlett, an attorney at Murphy Orlando LLC, who represented Pangaea Health and Wellness in its 2018 appeal and also represents other applicants for medicinal and recreational cannabis licenses.
Bartlett told Financial Regulation News the CRC had, for whatever reason, refused to consider any appeal unless it was in front of a judge. The result has been slow-moving court cases involving batteries of lawyers that left the market undersupplied with both participants and supplies when the voter-approved 2022 start date came and went.
“There never has been a (licensing) cycle where there hasn’t been an appeal,” Bartlett said. “But there is the CRC’s refusal to do anything outside the courts.”
Financier David Frascella, one Pangaea’s principals, said the CRC’s position is still at odds with its legislative mandate: “One of the most important things the legislature did when it created the New Jersey market was to set ambitious social equity goals; to make sure that women- and minority-owned businesses, communities historically targeted by the ‘war on drugs,’ and small businesses get their fair share of the opportunity.
“Pangaea has set aside $20 million in financing, facility space, and technical support to incubate cannabis microbusinesses in our first five years of operation,” Frascella added. “But without that license, which the court said the CRC could and should give us, we can’t even get started.”
One view of the licensing environment is that New Jersey, and some other states, launched their medicinal marijuana programs at a time when its approval was not politically unanimous, and rather than implement systems that encouraged the industry’s development, state regulators instead slow-walked the creation of an administrative minefield with of scarce licensing opportunities and restrictive standards. Some see those same attitudes in the more than 100 New Jersey municipalities that have adopted local NIMBY laws to ban local manufacture or sale of cannabis, which remains an illegal drug under federal law.
However, the public in New Jersey and 17 other states have approved the idea of recreational marijuana and it is up to the state governments to make it happen, even if it means a change of not only mindset but also the official rulebook for participating companies. And the CRC’s chair, former ACLU attorney Dianna Houenou, made clear Monday that the new licenses did not mean New Jersey was abandoning regulations in favor of “anything goes.”
“Expansion into the adult-use market – with a substantial advantageous start ahead of new applicants – is a privilege that must not be taken lightly,” said Houenou, who was appointed to lead the CRC just last year by Gov. Phil Murphy. “We expect these ATCs to uphold their promises to patients and communities, and that recreational customers will also be adequately served.”
It was not clear how much Scutari’s scrutiny influenced the CRC in the granting of the additional licenses this week, but the industry considers it a step in the right direction toward a policy that will assist the fledgling recreational industry get up and running rather than continuing with a grudging acceptance and restrictive rules limiting expansion and market efficiency.
Bartlett said New Jersey, like other newly christened recreational states, needed the market to function smoothly from the start rather than laboring under outdated regulations that make it difficult to serve and supply both casual users and those who rely on cannabis for their health and well-being.
“Everyone says we’ve got to ‘get cannabis right,’” Bartlett said. “That can only happen with a two-way dialogue between regulators and the industry, and with transparent processes that create faith in the system for all participants.”