The Cannabis Store Expansion
Arnold Korotkin
The Cannabis Store Expansion: An Industry Insider’s Perspective
By Sarah Trent
In November 2020 New Jerseyans voted overwhelmingly to pass Public Question Number 1, legalizing adult use of cannabis in the state. A few months later, the legislature passed the Cannabis Regulatory Enforcement and Marketplace Modernization Act, also known as the CREAMM Act, laying the framework for the industry.
The CREAMM Act gave municipalities the power to determine whether to allow cannabis businesses within their borders, and it gave them six months to enact ordinances, permitting or prohibiting the use. Nearly all of the 565 municipalities moved quickly to pass laws, with most towns opting out – and prohibiting the use all together. Many municipalities that did not approve the use within their borders (including some where the local constituents overwhelmingly voted in favor of Public Question Number 1) wanted to wait and see what happened in the towns that opted in, before enacting their own rules.
After a bit more than three years, here is what it looks like in general.
While many dispensaries are thriving, that is not always the case. Some, despite solid growth of the industry statewide, are already on their way out of business. So, what makes one store succeed and another fail? Towns like West Milford, Atlantic City, and the Plainfields which opted in early with liberal granting of dispensary licensees have witnessed the proliferation of dispensaries. Driving along Route 22 in Union County, one passes multiple dispensaries with empty parking lots.
Other towns that decided to allow fewer dispensaries, find most of those dispensaries are generally thriving. So, the first thing is simply supply and demand. Too many dispensaries in an area to share a finite customer base means not enough business to go around; the better ones survive. This attrition is good for the industry and the customer, and not unique to the cannabis industry.
There are, of course, many things that differentiate a successful business from a bust, but we see here how municipal action can help make or break a cannabis business.
Municipalities like the ones above who granted lots of licenses did so, in part, because they believed that more tax dollars would flow if there were more dispensaries generating revenue. The CREAMM Act allows municipalities to impose up to 2% transfer tax on sales occurring within the municipality. However, we have seen that is not the case as more outlets do not always mean more sales (or tax revenues).
Tax revenues are only one of the things for municipalities to consider when considering whether to license business within their borders or not.
Both municipalities and legal cannabis businesses are struggling with unlicensed and unregulated stores that sell hemp derived products, including Delta-8. These products can produce a similar psychoactive effect as cannabis and most of the time there is little information about where the product came from and what ingredients might be in it. Furthermore, unlike licensed and highly regulated cannabis businesses that must adhere to strict advertising and labeling requirements under the law, many of the products in unregulated stores are packaged in a way to appeal to children, and the stores lack policies to ensure that customers are over at the age of 21. Making the issue more complicated – enforcement around illegal shops is largely left up to the local officials to enforce zoning laws, and some towns have few resources for this.
With all of this said, over the past three years we have witnessed more municipalities choose to opt in – now with approximately one-third of all municipalities allowing some type of cannabis business. The towns that took this “wait and see” approach have the benefit of seeing the good and the bad to help guide their decisions.
Overwhelmingly, the track record of the dispensaries has been excellent. The fear of seedy shops has not materialized. Rather we find upscale, attractive, well managed storefronts. Products sold at a licensed dispensary must be accompanied by a Certificate of Analysis and must pass testing standards imposed by the Cannabis Regulatory Commission (“CRC”). Towns also see the reality of substantial tax revenue being generated.
There is some urgency for towns to make decisions about allowing cannabis sales.
The CRC, the body that licenses and regulates cannabis businesses, continues to issue licenses. At any time, the CRC could decide that there are enough businesses open to support the industry and could close, or limit licenses issued within the state. This has not happened yet, but municipalities that might still be on the fence about opting in, could see the opportunity pass them by.
Businesses already licensed and open worry about how many licenses is too many? Not only on the retail front, but in terms of the amount of cannabis cultivated within the state. Will there come a time in New Jersey when there is too much cannabis that cannot be sold at a price that will support legal dispensaries? The CRC will factor this into their licensing plans and while the result is not known, it tilts towards fewer new licenses, and if not acted on, some really missed opportunities for towns who may wait too long to act.