Initial Rules for the New Jersey Adult-Use Cannabis Market

EisnerAmper: Thanks for tuning into this episode of CannaCast. I'm your host, EisnerAmper's national cannabis and hemp practice leader. Today, we're going to discuss the New Jersey market for cannabis with Chirali Patel. Chirali is an associate with Pashman Stein Walder Hayden PC, is also the founder Blaze Responsibly, and the managing partner of Digital Venture Partners. In addition, she is the co-chair of the New Jersey state bar Social Justice and Equity sub-committee and an executive member of the Cannabis Law Committee of the New Jersey State Bar Association. She's also a regular contributor to the New Jersey Law Journal. With all this going on, I'm not sure how she even had the time to join us today. Chirali, thanks for joining me here today.
Chirali Patel: Thanks for having me. I really appreciate it.

EA: Chirali, how did you get into the cannabis space?
CP: So I kind of just decided that this was an industry I wanted to be involved in due to just personal passions. And I took a trip out to Colorado, late 2016, and I kind of just started networking and learning what the opportunities were like. And the more educated I got and the more I networked, I realized that this is the place for me. And I genuinely believe in the medical value of this plant and the future of the medical side, truly. So that's really where it started though.
EA: And how important is social equity in the New Jersey adult-use recreational industry?
CP: Very important. And I think a lot of states have tried to get social equity programs up and running with good intentions, but when it comes to the execution, that's when we tend to see some issues. So in a state like New Jersey, where the arrests for cannabis have been four times higher for African Americans versus white counterparts, despite cannabis usage being the same for both race says a lot about making sure social equity is a priority in New Jersey.
EA: What is Blaze Responsibly about, and how and why did you start it?
CP: So, Blaze Responsibly is a brainchild of my combination of business and legal experience. And it really came about after I went through the vertical application process back in 2019, and I decided that it needs to become something more. And so it stands for educating and empowering the new generation of cannabis leaders through advocacy and education.
EA: You were recently named to the Cannabis Power List by Insider New Jersey as one of their top 100 influential voices. How exciting was that?
CP: Very exciting, definitely feels like an accomplishment. I'm proud to be on the list and I will add a caveat that I've learned. Just because you're on a list, doesn't mean that you're potentially qualified or credible. I think it just means that you know people.
EA: Well based on your accomplishments, we think it's just more than knowing people.
CP: Thank you.
EA: New Jersey just recently released rules and regulations. Were there any surprises in the New Jersey rules and regulations?
CP: Well I think for me, personally, it was the addition of a social equity applicant status. Individuals who live in economically disadvantaged zones for a certain amount of years or those that had prior cannabis convictions. So it's amazing that the state is recognizing these individuals and giving them priority in the application process.
CP: And another thing was the fact that it's clarified that the micro-business licenses, which are reserved for smaller players traditionally, is they're going to be eligible for conditional licenses if they have less than a certain income. And a conditional license means that you don't necessarily have to have all your ducks in a row before actually submitting the physical application. You have a time period to secure your real estate and funding sources after actually being awarded a conditional license, which is amazing. And I give a lot of credit to the state for actually doing that.
EA: So when can we actually expect to see sales in New Jersey.
CP: Ah, that's the million dollar question. Everybody wants to know about adult-use sales. Well, the state's made it clear that as of today, the existing medical operators, they're eligible or permitted to start selling adult-use cannabis if they can certify and prove to the CRC that they can meet the existing demand for the current patients. And I don't know what the certification process is going to look like, but as of today, September 1st, we don't have any ATCs that have met that certification to be able to start adult-use sales. So I would think we're at least a couple months away.
EA: Okay. And what impact will New Jersey legalizing adult-use recreational cannabis have on New Jersey?
CP: Oh, I think it's going to be a huge economic boom, and it's going to create a ton of opportunities, not just for the cannabis industry, but for all of the ancillary support services that go into supporting an entire industry. And so you're going to have a lot of job creation, tax revenue that's generated that can go back to the communities. It's like the start of a new industry in a state that needs tax revenue, in my opinion.
EA: The political landscape in New York has undergone a lot of change, of late, with Andrew Cuomo stepping down as governor. What impact does his leaving office have on the future of the laws in New York?
CP: Well, I think that was pretty sudden and, kind of, unexpected for the cannabis industry, at least. But I think that it's going to actually have a positive impact on the industry now, because the new governor, she held a special session today, afternoon, where they are going to hopefully pick the executive director and the chair for their cannabis commission or their cannabis board. And so I think that it's actually a signal that New York's going to start picking up with adult-use. Because Cuomo was kind of sitting on it. It was kind of on the sidelines. So now I think it's going to be ramping up.
EA: New York and New Jersey is a strange situation because we're right next to each other. There's obviously no borders between states, and states' laws are so different from state to state. How different are the New York and the New Jersey laws? How different are they expected to be?
CP: They're quite different. There's some similarities as far as social equity, but the programs themselves, New York has a ton more licenses. They even have a caterer's permit, I believe, that you can apply for a nursery permit. So they have the gamut of opportunities, I think. Some of the similarities; They both have local control. Municipalities have to have a say, opting in opting out of whether they want the businesses in the first place. But I think, from an opportunity standpoint, they're pretty different, with the caveat that both states do care about social equity.
EA:And what trends can we expect to see in the coming year or so?
CP: If we want to talk about the plant touching side, I think we're going to see a lot of craft cannabis curators, whether it's bubble hash resin, or the best new edible, but I think we're going to start to see a lot of more of the mom and pops for the adult-use side, which I think is excellent. And on the medical side, I think we're going to see a lot more research and development, more pharma-grade formulas coming out or products coming out on the market. And so I think that the medical side, I'm hoping at least, that we have a boom in R&D there for products and for patients.
EA: I believe both New York and New Jersey are working on getting more minorities and small businesses into the market. Do you see that policy sustainable?
CP: I think so. In New Jersey, it used to be called the Office of Women Minority and Disabled Veterans in Cannabis Development. They've now shortened the name, but for the state to have an entire office dedicated to support minority applicants, diverse applicants says a lot. I think that the bill also has tax revenue that's going to be set aside to help social equity applicants, to be able to administer potentially zero to low interest loans, grant opportunities. And so I think it's sustainable if you provide the resources of ongoing support, just like we have for small businesses with the development centers. So I think there is the opportunity for it to get right if we keep on the right track.
EA: We've recently seen a few cannabis companies breaking through the SEC wall and going effective. And there's a number of cannabis companies that are currently talking about potentially merging with SPACs. Will we start to see a flood of cannabis companies trying to go public either through a SPAC merger or a more typical IPO?
CP: Yeah. I mean, the numbers are pretty crazy. I think in 2019, the last time I read, there was maybe 40 or less companies that went through a SPAC process. And then last year there was over 200. So I think definitely more companies are going towards a SPAC route because it's saying that we have the potential to acquire another company or get acquired by a larger company. It's a lower rate, lower risk that you enter into versus the IPO. And so I think we are going to see a lot more activity in that space and in M&A in general.
EA: And here's where I think of the big question is. Will we see the federal government legalize adult-use recreational cannabis anytime soon? Or will we see it?
CP: My opinion, I don't think it's going to happen anytime soon, despite what people may think. Because it takes time and you can't just do legalization without either descheduling, rescheduling, without DCrim dealing with the thousands or maybe even more people sitting behind bars for cannabis related offenses. I think there's so many layers of issues that need to be resolved before we even get to full legalization. And that's probably going to take a couple of years, especially in a pandemic where the administration's priorities are different. I would love to see it, but I don't think it's going to happen, at least, for another couple years.
EA: And I would have to agree with you. I think you said the exact right word. I think as far as priorities go, I think government has a lot of other things on its table that it has prioritized at a higher level than this right now.
CP: Yes. Exactly.
EA: All right. Well, thank you. Thank you for joining me today, Chirali. I appreciate that. And thanks for listening to CannaCast, as part of the EisnerAmper podcast series. Visit EisnerAmper.com/CANNABIS for more information and podcasts. Join us for our next CannaCast podcast where we'll discuss other budding issues. Thank you.