New Jersey’s Cannabis Business Is Booming—But It Sure Isn’t Easy Money

The Garden State's legalization of pot had entrepreneurs and town leaders envisioning heady profits. The reality hasn't been quite so uplifting.

Illustration by Ale + Ale

When adult-use cannabis sales were legalized in New Jersey in February of 2021, it wasn’t just pot smokers who celebrated. Town leaders saw tax dollars and tenants for empty storefronts, and entrepreneurs saw a chance to get in on the ground floor of a lucrative new industry. Since then, business has indeed boomed: 219 operating licenses have been issued, and 110 dispensaries have opened in 20 of the Garden State’s 21 counties. (58 are recreational only, 12 are medical, and 40 are both.) Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission, says he expects weed sales in New Jersey to top $1 billion dollars this year. According to some estimates, at least one cannabis business will open in the Garden State every week for the next two years.

But breaking into the brave new world of adult-use cannabis has been anything but easy money for towns or business owners. Would-be owners must fulfill arduous application and licensing requirements and pay hefty fees at the state level, and then again at the local level, while laws are still evolving. Applications, regulations and fees vary for each of the six recreational weed licenses–dispensary, wholesale, cultivation, delivery, distribution and manufacturing—and applications for conditional licenses and then annual licenses must wend their way through town councils and planning boards. (Medical sales, legalized in 2012, require a separate license.)

For cannabis entrepreneurs, the odds are doubly daunting. Unlike multistate corporate operators with deep pockets, experience and in-house lawyers, mom-and-pop owners are on their own, navigating the legal hurdles and delays while paying for their buildings, sometimes for years, with no revenue coming in.

Corporate operators have a big leg up. They were first to open adult-use dispensaries because they’d been first to open and dominate medical sales, and it’s a relatively painless process to switch from medical to adult-use. In fact, the first 12 recreational-weed stores to open in New Jersey were all multistate operators who converted their medical licenses to recreational. These corporate operators were also well established as growers and suppliers of marijuana to the medical market, so they were able to control the wholesale recreational market from the get-go.

CORNERING THE MARKET

The dominance of corporate wholesalers like Ascend, Curaleaf, Columbia Care, Terrascend and Verano is the reason New Jersey has the highest prices for the lowest-quality marijuana anywhere in the country, says Chris Goldstein, an activist with the cannabis lobbying group NORML. “Prices are insane even for low-end products,” he says. “You’ll see shake, which is basically the trimmings off the floor, for $10 a gram. For that amount of money, the marijuana should clean my bathroom and shovel my snow.” High prices push consumers away from dispensaries and back to dealers, he says.

The poor quality of Garden State weed is also due to a virtual corporate monopoly, Goldstein says. Right now, there is only one non-corporate grower supplying the state’s cannabis market, Brute’s Roots of Egg Harbor. “Corporate cannabis is typically grown under electric lights in an industrial setting; they use approved pesticides and chlorophyll enhancers, and the product is homogenized and irradiated,” he says. “Craft cannabis is usually sun-grown in greenhouses in smaller batches. There’s a huge difference in look, taste, smell and effect—the difference between produce grown by Monsanto and produce from your local organic farm.”

The dominance of multistate operators in the Garden State has also created a predatory market, say cannabis activists. “The large corporations try and monopolize and eat up the smaller guys by making repeated, aggressive offers to buy their businesses, and they buy up the supply of popular products,” says Jesse Marie Villars, co-owner of Baked by the River dispensary in Lambertville, which has been a victim of such practices. “They’re making it hard for microbusinesses to even exist,” Villars adds.

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“The deck is stacked against small operators,” says Goldstein. Peter Yacobellis, a former Montclair councilor who was a small business expert at American Express, says that’s an understatement. “The odds are already against small business owners, most of which fail within a few years of opening,” he says. “Make that a cannabis business, and the odds are that much longer.”

Bringing dispensaries to Main Street is no cakewalk for local governments, either. Because of home rule, each of the state’s 564 municipalities has seemingly endless decisions to make and laws to create. Each has the right to prohibit cannabis businesses within their borders, despite weed’s legalization statewide, even if their residents have voted to allow it. Town leaders must decide which types of licenses to allow and how many, and where in town they’ll be allowed, and then must craft regulations for everything from where people can congregate to HVAC systems for odor control. “It’s a paperwork nightmare,” says Yacobellis.

RIGHTING WRONGS

In legalizing pot, state leaders were attempting to reverse some of the damage that criminalization had inflicted on the tens of thousands arrested for marijuana offenses in New Jersey every year, disproportionately people of color. The resulting social-equity parameters make cannabis regulations even knottier, but they do give give smaller operators a much-needed boost.

The state prioritizes the applications of operators from the pre-legalization legacy market who had cannabis convictions or were otherwise harmed during the war on drugs. Also prioritized are those who have lived in economically disadvantaged zip codes or who pledge to hire 25 percent of their workforce from these zip codes. Minorities, women, disabled veterans and owners of microbusinesses, which are limited to 10 employees and 2,500 square feet, are also given preference.

Many municipalities that decide to allow adult-use cannabis also prioritize legacy, minority and female applicants.

The system is working, according to Brown. “Twenty percent of the state’s cannabis licenses have gone to social-equity businesses, and we’re beating the census population when it comes to Black ownership,” he says. These incentives give smaller operators an edge over multistate operators who dominate the retail and wholesale markets.

But a bias against marijuana dating back to the war on drugs and earlier isn’t easily erased and contributes to the Byzantine regulation landscape, according to cannabis advocates.”There’s I.D. verification, distances from schools and churches, so many stringent regulations that make this business highly regulated compared to other types of industries that we see on Main Street,” says Chiral Patel, an attorney with the cannabis-advocacy group Blaze Responsibly. “It’s antiquated thoughts. Certain council members who’ve been there for 30 years don’t want change and don’t understand what this business is. This is a plant that hasn’t killed anybody. It’s better than your local liquor store.”

Even in an ostensibly progressive town like Montclair, where well over 80 percent approved recreational adult-use marijuana, among the highest in the statewide ballot question in 2020, leaders can be resistant. Little more than a year after opening the town’s first retail cannabis dispensary in 2022, Ascend is leaving. Though corporate officials blame parking problems and competition, a conservative bias against cannabis played a role, says former councilor Yacobellis. “The town government was almost hostile toward Ascend,” he says, keeping the company waiting for months while they crafted the application, then shutting them down and fining them when they opened a day early. “The council’s all-powerful finance committee is arch-conservative and against anything cannabis related,” says Yacobellis. “They created roadblocks every step of the way. It wasn’t a friendly climate.”

Town leaders also have to deal with their constituents’ sometimes shifting views on recreational-weed sales. Public meetings can be raucous. Last year, the Paterson city council twice blocked efforts by Mayor Andre Sayegh to increase the number of stores that sell cannabis, which would bring in much-needed revenue for the cash-strapped city. Vocal members of Paterson’s Islamic community, who feared that dispensaries would attract an unsavory element, protested so vocally that a town meeting had to be temporarily adjourned.

Two-thirds of New Jersey towns prohibit cannabis businesses, according to Brown. They are opting out of significant revenue; towns can charge up to 2 percent tax on all marijuana sales. “Of 564 or 565 municipalities in New Jersey, there were less than 10 where residents didn’t vote 50 percent or more in favor of legalizing cannabis,” says Patel. “Yet 60 to 65 percent do not allow any type of cannabis business. They are not listening to their constituents.”

With so many levels of bureaucracy, the complications can be Kafkaesque. Kelly Gatto, owner of Brute’s Roots dispensary in Egg Harbor, waited more than two years to find out if her application with the state was approved. Finally green-lit in October 2021, the state took another 18 months to vet the application. “We had an empty building that sat there ready to go for 3-1/2 years, our point-of-sale machines gathering dust,” she says. “We had to hire a lawyer. We were bleeding money.”

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The couple survived the process largely because they own their property and didn’t have to pay rent for 3.5 years without any revenue. Even so, Gatto almost gave up, but she and her partner/fiancé, Jim DiNatale, didn’t want to lose what they had already paid Egg Harbor and the state toward their licenses, which totaled $800,000. “Each use–cultivation, manufacturing, dispensary and delivery–has separate paperwork and a huge fee,” she says. (Application fees have since gone down, but Gatto and DiNatale are still on the hook for the original amount.)

LOCATION, LOCATION, LOCATION

Securing a storefront is typically the biggest obstacle to prospective cannabis-business owners. Few own buildings in a sections of town approved for marijuana sales, and even if they do, they probably can’t be used to sell cannabis if there’s a mortgage on the property. That’s because most mortgage agreements stipulate that the property can’t be used for an illegal business—and cannabis is still illegal on the federal level.

For the same reason, landlords who hold mortgages are unlikely to be able to rent to dispensary owners. Exempting New Jersey cannabis businesses from this mortgage prohibition can be done, but it is a “heavy lift, which is why so many banks choose not to deal with it,” says Max Thompson, an attorney and co-owner of Hoboken’s Blue Violets dispensary.

Then there are the sky-high rents, especially in northern New Jersey towns like Jersey City, Hoboken and Montclair, which issue the most licenses.

“If you’re a small cannabis operator and you get a conditional license, you’re like, ‘hooray,’” says Goldstein. “But then they cattle-chute you into this one area, and all of a sudden you’re paying an inflated price for rent while waiting on your application.”

Thompson and his wife, Lauren Chang Thompson, spent eight months looking for a North Jersey location for their Blue Violets dispensary. Hoboken rents were daunting, and Jersey City was “saturated” with weed shops. Then, miraculously, they found a storefront in Hoboken, in a cannabis-approved zone, within their budget. Even luckier: The landlords, two retired teachers, are “very supportive of small businesses,” says Thompson.

That became crucial when, during their long wait for town approval after they’d submitted their application, the Hoboken planning board decided that dispensaries couldn’t be located within 600 feet of a school. The Thompsons, whose shop would be on the same block as a school, thought they were grandfathered in, and so did town officials, who approved their application. But the approval triggered a lawsuit by a cannabis watchdog group. “It’s been a circus,” says Thompson. “The combination of Hoboken’s size, the number of schools and daycare centers, and the 600-feet buffer zone makes it nearly impossible to find a viable location.”

Recently, a judge ruled that Blue Violets could open while the case goes through the courts, and an opening is imminent. It helped that Thompson, a corporate attorney, was able to do some of the legal work. Another lifesaver: Their landlords halved the rent during the first six months of their legal delays.

Even so, their business’s future hangs in the balance until the judge makes a ruling.

CONFLICTING INTERESTS 

When politicians try to cash in on the cannabis gold rush, things can get messy. Take Hoboken. Despite the town’s size and strong support for cannabis, there’s  only one dispensary there, The Station. Another dispensary, Story, settled a 17-month legal battle with residents of the condo building above it in September. They allege that the owners of the storefront, Jaclyn Fulop, wife of Jersey City Mayor Steven Fulop, and Drew Nussbaum, who runs a superPAC linked to Fulop, led them to believe that they intended to install a physical therapy practice there. Story has yet to open. Hoboken city councilwoman Tiffanie Fisher has vowed to continue fighting the business, which, she says, has “sham ownership going to enrich a gubernatorial candidate.” (Mayor Fulop declined to speak about the case on the record.)

And that’s not all. Hoboken’s state senator, former assemblyman Raj Mukherji, is a corporate cannabis owner who helped connect Fulop and Nussbaum with Story’s owners. At the time, he was running for state senate, endorsed by Mayor Fulop, who is now running for governor. In neighboring Jersey City, council president Joyce Watterman voted to approve the Butler and Baldwin dispensary, which is co-owned by her daughter. (She later apologized for not recusing herself.) That council also approved a dispensary co-owned by Hudson County commissioner Jerry Walker and Tuesday Caldwell, wife of state senator Sandra Cunningham’s top aide.

Advocates say that the cannabis industry in New Jersey is rife with these conflicts. “It’s not just Mayor Fulop’s wife,” says Goldstein. “It’s state legislators, city counselors, appointed officials, land-use and zoning officials, judges, union folks, up and down the state. Everybody wants in on this.”

When recreational weed was legalized in 2021, state government officials wrote ethics rules into the legislation prohibiting elected or appointed officials from being financially involved in the cannabis industry in New Jersey. But in a January lame-duck session, state legislators walked those rules back, NORML’s Goldstein says, making it easier for officials to have a stake in cannabis businesses. “Officials at every level are toeing the ethical line,” he says. “There can be an illegal conflict of interest simply because there appears to be a conflict of interest. If it looks like corruption, it probably is.”

THE FUTURE OF NEW JERSEY CANNABIS

Though it’s been a bumpy rollout, there are signs that the road to opening a cannabis business in New Jersey is getting smoother.

The application process is a heavy slog, but much of that is to the good, boosting small owners and the disadvantaged, says Brown. And the waits are getting shorter: Conditional licenses are now approved within 90 days, and annual licenses, which require criminal background checks and financial investigation, within six months, he says.

Even critics like Goldstein admit that state officials “did some things right,” stopping arrests cold and formulating strong social-equity incentives. “It’s going to take awhile to work out the business and tax angles,” he says. “But police aren’t using marijuana as a premise to terrorize communities of color anymore.”

Another positive is that more small growers are poised to start supplying the market, which will help bring down prices and improve quality.

The state is trying to helping cannabis entrepreneurs access capital through a partnership with the New Jersey Economic Development Authority, which gives grants to social-equity businesses, Brown says. The Cannabis Regulatory Commission also launched a Business Action Center this year, which will provide free courses and technical assistance to those in impact zones.

“I think we’ve been pretty successful in establishing a safe, sensible framework for regulating cannabis, one that prioritizes both social equity as well as consumer safety,” says Brown of the CRC.

Access to capital will continue to be a problem as long as marijuana is illegal federally, which prevents institutional investors from lending to cannabis startups, he points out. Fortunately, there are “a couple of banks” in New Jersey that will issue loans to cannabis companies, he says.

When it comes to the state’s role, he says, “obviously, there’s room to improve. But overall, the future for cannabis in New Jersey is bright. We’re starting to see a competitive market where small businesses can flourish. Having a consumer-driven market with equity at its core is going to make New Jersey successful.”


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