Business
Supply concerns overhang New Jersey recreational cannabis market
Despite a relatively smooth start to recreational cannabis sales in April, industry officials in New Jersey continue to fret over possible supply shortfalls that could disrupt the East Coast’s newest adult-use market.
Some, in fact, argue the supply crunch has arrived. Industry officials have already reported long lines at dispensaries and low supplies of concentrate-infused products.
“At this point, New Jersey has been rapidly depleted, and I don’t see a whole lot of other grows,” said Steve Schain, a New Jersey-based cannabis attorney with Smart Counsel.
“Opening a dispensary is one thing, but opening a grow is quite another, which is what we need to have.”
According to industry officials, prospective growers face a host of obstacles that are crimping the flow of marijuana to retailers, including:
- Pandemic-related delays in the licensing process.
- Resistance to the industry at the local level.
- Difficulties securing real estate.
- The months it takes to plant and grow cannabis.
- Global economic issues such as inflation and supply-chain problems that are slowing construction of new cultivation facilities – and making them more expensive.
“We are going to be in a bottleneck anywhere from the next maybe six to 12 months, maybe even longer,” said Robert DiPisa, co-chair of the cannabis practice at New Jersey-based law firm Cole Schotz.
The prediction comes as the state’s marijuana supply chain ramps up to meet strong consumer demand in what is forecast to become one of the nation’s largest adult-use markets.
The 2022 MJBiz Factbook projects the New Jersey adult-use cannabis market will generate $625 million-$775 million in retail sales this year and will grow to $2 billion-$2.4 billion by 2026.
Small number of cultivators
Seven of New Jersey’s 13 existing medical marijuana cultivators were permitted to sell adult-use products on the promise that MMJ patients would be prioritized if supply runs low.
Regulators, however, believe that promise hasn’t always been kept.
Five of the seven were recently fined for selling adult-use products during hours reserved for MMJ patients.
From the start, the market has faced concerns over whether growers could serve the state’s 127,708 medical cannabis patients (as of April) without disrupting recreational supplies.
The seven licensees – operating out of 13 retail storefronts – continue to account for all the state’s adult-use sales.
At the same time, legal wrangling has contributed to concerns over the ability of adult-use growers to meet demand.
In February 2021, a New Jersey appellate court lifted a 2019 order that had prevented the state from issuing additional medical cannabis licenses.
But that 1½-year delay threw a wrench into plans to expand the state’s supply of medical cannabis.
According to DiPisa, many would-be cultivators lost or sold their properties when the court order was in place.
“We were supposed to have all these other medicinal cultivators online that would have been contributing to the supply chain for the medicinal market, which would free up more breathing room for the existing (cultivators) to supply more to the adult-use market,” DiPisa said.
Edmund DeVeaux, president of the New Jersey CannaBusiness Association, told MJBizDaily that options are available to get more cultivators online if need be.
“We are definitely moving towards making sure that there are cultivators that are up and running sooner rather than later,” DeVeaux said.
According to DeVeaux, the New Jersey Cannabis Regulatory Commission (CRC) can get creative with licensing to prevent supply shortages, if necessary, by issuing conditional or annual licenses.
“I would hope that the CRC would take steps if need be to make sure that maybe not just conditional licenses are awarded, but that conventional or annual licenses are awarded, in order to address what could happen,” DeVeaux said.
But Schain contends that many of those conditional licenses were issued to businesses that do not have a realistic possibility of becoming operational.
“The Cannabis Regulatory Commission dawdled in trying to please everyone. Between October 2021 and the present, a shocking number of licenses were issued to grow, process and dispense cannabis,” Schain said.
“Many of these are conditional. The provisional licensees lack financing and industry know-how to put product on shelves.”
As of June, 148 conditional licenses had been issued, according to the latest state data.
Existing cultivators have also expanded to meet demand, including Verano Holdings, an Illinois-based multistate operator that owns three medical marijuana dispensaries and a cultivation facility in New Jersey. (In New Jersey, MMJ dispensaries are called alternative treatment centers, or ATCs.)
“After we acquired our 120,000 square foot New Jersey cultivation and processing facility several years ago, we immediately began construction to turn the formerly vacant retail superstore into a state-of-the-art operation that has enabled Verano to expand capacity, streamline operations, and increase our output in anticipation of the initiation of adult-use sales in the state,” Aaron Miles, Verano’s chief investment officer, told MJBizDaily via email.
Property problems
On top of the limited number of operational growers, municipalities in New Jersey can choose to opt out of allowing cultivation sites within their borders, making it difficult to secure a grow property.
In April, MJBizDaily reported that roughly 70% of municipalities initially opted out of recreational marijuana sales and those that are participating will decide where and how many local licenses to award.
Existing medicinal cultivators can convert their businesses to sell for the adult-use market as well, but such a move requires going through additional red tape.
“They have to go through an approval process with the municipality and make sure the municipality is OK with them selling adult-use (products) as well,” DiPisa said.
“That has delayed a number of the ATCs from converting to the adult-use market.”
Source: https://mjbizdaily.com/new-jersey-recreational-marijuana-retailers-fear-supply-shortages/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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