With cannabis cultivator cap lifted, growers face New Jersey’s challenges

New Jersey is no longer limiting the number of cannabis cultivation licenses, and entrepreneurs are looking forward to supplying the East Coast marijuana market as production ramps up.

However, up-and-coming growers in New Jersey face significant obstacles, including:

• A majority of municipalities that have opted out of permitting cannabis businesses.
• A competitive market for limited, expensive industrial real estate.
• Challenges raising capital in a tough lending environment.

For cultivators who can overcome those headwinds, an attractive market awaits.

Will Perry, CEO of Oregon cultivator Magic Hour Cannabis, is working to launch production in New Jersey, teaming up with local partner Jersey Shore Ventures Group, which has access to the necessary real estate.

Oregon marijuana prices have crashed, with the median wholesale price hitting $599 per pound in February.

In New Jersey, however, Perry expects premium marijuana could earn at least $4,500 per pound.

“I don’t know anywhere else where there’s such a high population,” he said, “and also factoring in people from New York, also bordering states like Pennsylvania, there’s 30-plus million (people).

“And these are all people that have more expendable income than the average person in Oregon.”

Cultivator cap dropped

New Jersey’s two-year cap that limited cultivation licenses to 37 was included in legislation enacted in 2021, although the restriction didn’t apply to micro-cultivators.

The state’s adult-use cannabis market launched in April 2022 with only seven cultivators supplying 13 adult-use retailers.

Amid industry concerns over limited supply, the New Jersey Cannabis Regulatory Commission (CRC) decided not to renew the cap when it expired in February.

CRC Executive Director Jeff Brown told MJBizDaily that decision was made, in part, “because there’s plenty of room in the market for more cultivation.”

Brown said New Jersey has far fewer than the average number of cultivation licenses found in other states where adult-use marijuana is legal.

“The market has a long way to grow here; all indicators show that we need more cultivation here,” he said.

The CRC reported 415 cultivation license applications as of Feb. 13, according to information posted for the agency’s March public meeting.

As of March 14, New Jersey had 17 operational cultivators and 25 annual licensees “on their way to becoming operational,” according to a CRC spokesperson.

‘Everything just gets better with more competition’

New Jersey CannaBusiness Association President Edmund DeVeaux said the state’s medical marijuana patients already expressed “concerns, if not complaints, about quantity and quality.”

“So now that we have an adult-use industry on top of our medical industry, those concerns, those criticisms continue,” he said.

DeVeaux is hopeful that new cultivation facilities will come online this year, especially with the availability of microbusiness licenses for smaller growers.

“It might be a little bit easier and a quicker time from seed to sale, by using the micro-licensing category,” he said.

Darrin Chandler Jr., co-founder and president of conditionally licensed New Jersey cultivator and manufacturer Premium Genetics, said retailers tend to have the same products from the same small group of operational growers.

“By us getting more cultivators online, we’re going to get a robust market, you’re going to have more competition, you’re going to have a better quality,” he said.

“Everything just gets better with more competition coming to the market.”

Difficult business conditions

Would-be cultivators face several converging business challenges in New Jersey.

Raising capital for marijuana is tough there, just as in other states.

On top of that, New Jersey’s local governments have significant powers, and many municipalities have opted out of hosting cannabis businesses: According to the CRC, 179 municipalities had opted in and 380 had opted out as of March 14.

That complicates the search for cultivation and manufacturing space in New Jersey’s tight industrial real estate market.

Premium Genetics’ Chandler said finding industrial real estate is “almost impossible,” and prices are “astronomical.”

Some property owners don’t want to work with the marijuana industry “simply because of the federal laws, (and) that makes the available real estate even slimmer,” said Brown, the state cannabis chief.

“We are seeing conditional license holders who are having trouble converting to annual licenses for that simple fact.”

Shergoh Alkilani, co-founder and chief operating officer of cultivation annual licensee ElevenEleven Wellness, believes there’s lots of room for new cultivators in New Jersey.

However, he believes that even with a conditional license, a secured property and local approval, some aspiring cultivators will “still have to come up with another $15 million or $20 million … I feel that what’s going to happen is that there’s going to be a flood of licenses issued, and then there’s going to be many that don’t open.”

Lifting the cultivation license cap “is good for the New Jersey cannabis economy,” Alkilani said.

“I think there’s just an incredible amount of demand, consumers are feeling like they’re stuck with somewhat secondary product because all the real top-tier stuff gets sold out so quickly …

“I just hope that the state could really help people get open and be able to survive long term.”

John Ng, president of conditional cultivation licensee Aeterna, also expects that not all of New Jersey’s up-and-coming cultivators will actually be able to turn their conditional licenses into the annual licenses needed to start operations.

“It’s going to be entirely the availability of industrial real estate in friendly towns,” he said.

Aeterna owns its property, but Ng said obtaining local approvals and zoning has been challenging.

“I think that the CRC is doing as best as they can – they can’t magically make real estate appear out of nowhere,” he said.

Avoiding the oversupply trap

It’s not unusual for new adult-use marijuana jurisdictions to face production shortfalls.

But as more cultivators rush to come online, New Jersey could eventually face the dilemma seen in some other, more mature state marijuana markets: Too much cannabis supply puts downward pressure on prices, especially without the release valve of interstate commerce.

For New Jersey, that risk looks far off.

“I’m not saying that going at a deliberate pace doesn’t come with its challenges,” the CannaBusiness Association’s DeVeaux said.

“But the one thing that we haven’t seen is the boom and bust.”

The CRC’s Brown said that “New Jersey is a long way away from having to worry about oversupply.”

Considering the situation in terms of access to capital, New Jersey’s commercial real estate market and municipal opt-outs, he added, “the market’s developing at a much more measured pace here than in some other states.

“But we do see it continuing to expand; in every meeting, our commission is issuing new annual licenses for retail, manufacturing, and cultivation.”

Source: https://mjbizdaily.com/with-cannabis-cultivator-cap-lifted-growers-face-new-jersey-challenges/