Top New Jersey Marijuana Regulator Says Rushing Adult-Use Licensing Will Imperil Small Businesses
“The reality is if we were to open the adult-use market right now with the existing businesses that are online right now, it would be dominated by MSOs.”
By Dana DiFilippo and Sophie Nieto-Muñoz, New Jersey Monitor
Jersey City plant shop owner Shayla Cabrera has eyed the cannabis industry for years, dreaming of growing and selling her own cannabis crop in a market where sales are expected to top one billion dollars the first year.
As a Black woman, Cabrera has an edge in the highly competitive race to snag the limited number of cultivator licenses. New Jersey has pledged to prioritize applicants from marginalized populations, as it looks to atone for a war on drugs that ravaged communities of color.
That laudable goal has created a problem: Some established operators are trying to enter the industry through the diversity door. A California cultivator found Cabrera on a directory of diverse business owners and wooed her with a flight to their West Coast farm and an attractive business deal.
Cabrera turned them down.
“It’s a predatory practice that’s happening in multiple states, under the guise of social equity,” she said. “The government says they’re encouraging social equity, but straight up, Black people are being left out.”
The regulators tasked with launching New Jersey’s recreational marijuana market say they’re working to ensure multi-state operators and deep-pocketed out-of-towners don’t corner the cannabis market here.
Dianna Houenou chairs the New Jersey Cannabis Regulatory Commission (CRC), a state agency created to establish industry standards after voters gave lawmakers the go-ahead to legalize recreational weed last February.
“These practices are happening all across the country. We know it’s happening here in New Jersey as well,” Houenou said. “There are a lot of fears being expressed about New Jersey’s adult-use industry being dominated by multi-state operators, boxing out New Jerseyans and tokenizing people just for a leg up into the industry and then siphoning all the economic value away from those tokenized people of color or women or veterans.”
She added: “It’s something that we at the CRC have done a lot of thinking around, about how we can help mitigate that.”
As the Garden State’s marijuana market ramps up, Cabrera and other minority applicants are feeling frustrated and excluded from the process. Beyond feeling like an underdog beside corporate competitors, these “canna-preneurs” say plenty of obstacles block their business dreams, from jockeying for a limited number of cultivator licenses to losing money on overhead costs as the start of the state’s recreational sales continually gets postponed.
There are even barriers built into the application itself, with applicants asked to show financial capacity or prior experience selling marijuana in a retail environment—qualifications few applicants besides already-established businesses would have.
An uphill battle
Black-owned marijuana businesses remain a rarity in many states, despite diversity efforts, according to the Pew Charitable Trusts.
In New Jersey, legislators wrote into the law a requirement that 30 percent of recreational marijuana licenses be awarded to businesses owned by women, minorities or disabled veterans.
John Harmon sounded an alarm last month after the commission approved 44 additional medical marijuana licensees to expand the state’s 10-year-old medical marijuana market. Harmon, who heads the African American Chamber of Commerce of New Jersey, griped that none were Black. At least one is—Woah Flow, based in Trenton—but cannabis commission leaders won’t reveal how many of the 44 are Black-owned businesses.
“On the number of Black-owned awardees, I cannot say how many, other than it’s more than zero,” commission spokeswoman Toni-Anne Blake said.
Under state law, Blake and Houenou said, license applications are not public record. But they should be, Harmon said, because secrecy sows distrust.
“Transparency is a choice,” Harmon said. “This was a public process that led to people being awarded a public opportunity. Therefore, the public stakeholders should have information on it. It’s a simple question. This is not a long conversation. The lack of transparency makes no sense and is insulting, frankly.”
The owners of Woah Flow claim they’ll be the first Black-owned dispensary in the state after they received their medical license in December. Woah Flow is on target to open in Trenton before the end of this year, said Safeer Quraishi, the dispensary’s director of government affairs.
When he and his partners applied in 2019, Quraishi said, social equity wasn’t a key part of the application, so they competed with well-established, large corporations. But they believe they got an edge by emphasizing the diverse demographics of their staff and their commitment to the community, like hosting education sessions on cannabis and legalization.
“It was where the rubber met the road a bit. Throughout the entire legalization, they realized you can’t talk about cannabis without talking about social justice,” he said. “So having an application that gives some kind of favor to social justice, it’s progress. But we’re not all the way there yet.”
The 44 recently approved medical marijuana licensees applied long before the CRC existed, under a different state law that encouraged but did not mandate diversity for recipients of the licenses, Houenou said. Former Gov. Jon Corzine (D) signed a medical marijuana law in 2010, and the first dispensary opened in Montclair in 2012.
“The CRC inherited two- and three-year-old applications that we had to act on,” she said. “They’re all pretty much multi-state operators.”
For the recreational market, the CRC has hired a director of diversity and inclusion to recruit minority applicants and educate residents, especially those in communities disproportionately impacted by drug over-policing.
Wesley McWhite, who took on the role in August, said he has met with chambers of commerce, nonprofits and community members to learn about obstacles they might encounter and help applicants navigate around them.
He said he also aims to find funding to defray costs for applicants facing financial barriers. The CRC intentionally kept application and annual licensing fees low, McWhite added. Most fees range from $100 to $1,600, according to the CRC website.
Only 37 cultivator licenses will be awarded in the industry’s first year, and those are in hot demand. More than 200 of the 365 applications the cannabis commission has received are for cultivator licenses, according to the CRC. The other applications are from entrepreneurs who want to operate marijuana processing plants and testing labs. Applications open March 15 for people who want to operate dispensaries.
Houenou said the CRC hasn’t limited how many licenses it will give to other kinds of cannabis purveyors, which include retailers, wholesalers and distributors.
“Moving forward, the CRC is absolutely committed to keeping that door as wide open as possible,” she said.
The CRC has put some rules in place to prevent predatory partnerships in the industry, such as requiring minority applicants to hold a majority stake in a business, Houenoe said. Licenses must be renewed annually, and business owners who entered the industry through the diversity door must continue to demonstrate they qualify.
She added the CRC can’t tell applicants who they can partner with.
“We have in place regulations that prohibit management services agreements that are exploitative, that box out the true owners from the operations and the decisions that affect the business,” she said. “While you and I may find tokenism morally abhorrent, we as a government agency can’t prevent people from making their own business decisions and operating their businesses the way they want to.”
For some applicants, there are upsides to such partnerships.
“They might be using me to get in the door, but I’m using them right back,” said one entrepreneur who goes by the name Liad-DJ Put On and has agreed to partner with an out-of-state operator in Trenton. “They have the expertise and the money that I don’t have. If you want to get in on the first round, you have to get in with the right team. It’s positioning.”
No start in sight
It remains unclear how soon New Jersey residents will legally be able to buy weed for recreational use. Insiders expected dispensaries would have opened by mid-February. But the CRC hasn’t set a date for sales to start.
The legislation passed in February 2021 legalizing the market did not specify a date, but directed the CRC to launch sales six months after setting rules and regulations—a deadline that wasn’t met.
Many applicants haven’t submitted all the required information, including proof the towns they want to operate in will allow them to do so, the CRC’s executive director Jeff Brown said at the CRC’s meeting last month. More than 400 towns—about 71 percent of the state’s municipalities—have passed ordinances prohibiting cannabis cultivation, manufacturing, wholesale distribution, delivery and dispensing, according to a USA Today Network analysis of municipal marijuana ordinances. Trenton and Jersey City are not among them.
In an interview earlier this month, Houenou said rushing to open the market would lock out local entrepreneurs and imperil supply because smaller applicants aren’t ready.
“The reality is if we were to open the adult-use market right now with the existing businesses that are online right now, it would be dominated by MSOs,” she said, referring to multi-state operators. “We need to make sure we’re ready to open to the public, because if we don’t do that and we rush into opening the market, there’s a substantial risk that patients will lose access, there will be long lines and wait times, and that could lead to an immediate supply crisis.”
The CRC’s “unjustifiably protracted process” represents a barrier for applicants, Harmon said. The CRC requires applicants to secure a site first, leaving many struggling to pay mounting monthly lease payments as the agency considers their application.
“It’s a costly proposition for Black license applicants to wait indefinitely while the CRC drags its feet in awarding licenses,” Harmon said. “These folks from out of state, Colorado and California and wherever else, they have the staying power. They can afford to hang in there until the state gives them an answer. But for the local folks, this is starting to look like a pipe dream.”
Gov. Phil Murphy (D) last month on WNYC defended the pace of setting up the state’s recreational marijuana market by saying “we want to get this right.”
“They’re doing an outstanding job. I know it’s taking longer, people are getting impatient, but we’re in a matter of months here,” he said. “It’s going to be, at this point, sooner rather than later.”
Last February, Murphy predicted the process would take six months.
Quraishi noted the biggest obstacle for securing the medical license was accessing the capital. Pitching the business with just a piece of paper in hand and no industry actually set up yet is “incredibly difficult,” he said. “Doubly so when you’re not already steeped in a network of individuals who are wealthy.”
Eventually, more and more people started hearing about their venture and threw their funds behind Woah Flow. They leased a building in the city, ready to get rolling.
But once the pandemic hit and the industry remained in limbo, they again had to weigh the cost of the venture. It was something other, more established applicants probably didn’t have to think about, he said. They terminated the lease and ended up securing a new location in Trenton’s Mill Hill Historic District.
Cabrera, 33, who runs a plant shop in Jersey City’s McGinley Square neighborhood, echoed the concerns of paying for overhead without knowing when the market will launch. Partnering with a well-known brand would have given her some flexibility—and alleviated a lot of stress—but she ultimately valued being the face of her own brand without being used by a big corporation.
For some people, she said, there’s no other way to get a foot in the door without partnering, but she is urging the CRC to take a step back and “give social equity and small business applicants a fair chance at this market.”
“Every month this is delayed, it edges more people out of the market who are the little guys. And as Black people, as the underdog, we’re really bootstrapping this already,” she said.
This story was first published by New Jersey Monitor.
Maryland House Debates Bill To Put Marijuana Legalization Referendum On November Ballot