CBD OIL

On February 22, 2021, New Jersey Governor Phil Murphy signed three bills into law, all of which legalize adult use cannabis in the state. A21 is the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act. A1897 is the accompanying decriminalization legislation and A5342 addresses discrepancies between the bills referencing underage possession.

Back in November 2020, voters in New Jersey overwhelmingly approved Question 1 by a 66% to 33% margin. That ballot measure made it to voters by way of the legislature, after New jersey lawmakers failed to pass a legalization bill in 2019. The legislation that Governor Murphy signed yesterday essentially put the will of the voters into law.

The legislation becomes effective immediately upon the Governor signing the bills, but New Jersey residents won’t see legal adult use cannabis until June 2021, the deadline for the five-member Cannabis Regulatory Commission to establish detailed regulations. Possession of cannabis will also not be legal until sales are underway.

The license application window will open 30 days prior to the regulatory deadline. The legislation provides for licenses in cultivation, manufacturing, wholesale, distribution, retail, delivery and testing labs. Until 2023, cultivator licenses will be capped at 37. 25% of all of the licenses are earmarked for microbusinesses that are owned locally and have less than ten employees.

According to New Jersey-based cannabis lawyer Jennifer Cabrera of Vicente Sederberg LLP, the bills include a number of provisions aimed at promoting social equity in the cannabis industry and repairing damage caused by prohibition. The language mandates that 30% of licenses must go to businesses owned by women, minorities or disabled veterans. At least 25% should be allocated to residents of impact zones, which are municipalities that have more than 120,000 residents that: rank in the top 40% of municipalities in the state for cannabis-related arrests; have a crime index of 825 or higher; and have a local average annual unemployment rate that ranks in the top 15% of municipalities.

Advocates across the state are applauding the government’s work to include social equity provisions in the bills. States like Illinois and Massachusetts initially received a lot of praise for including a number of social equity provisions in their legalization plans, but the rollout has left a lot to be desired. Social equity applicants in Illinois are still waiting on licensing as lawsuits play out in court following allegations of corruption and ineffective distribution.

However, it looks like New Jersey is taking a much more thorough approach to social equity issues than other states. “New Jersey has adopted some of the strongest social equity provisions we’ve seen,” says Cabrera. “Contemplating these issues at the outset of the process will likely prove to be a big advantage for the state. It is much easier to build these considerations into the system than it is to go back and incorporate them later.” In other words, there is still a lot of work to be done to ensure an equitable regulatory framework is established.

Amol Sinha, executive director of the American Civil Liberties Union (ACLU) of New Jersey says the state’s laws can set a new standard for what justice can look like. “This is a new beginning – and the culmination of years of advocacy – and we must keep in mind that it is only the start,” says Sinha. “Signing these laws puts in motion the next phase of this effort: to work relentlessly to transform the principles of legalization into greater racial and social justice in New Jersey.”

It is estimated that New Jersey’s adult use cannabis market could be worth more than a billion dollars. As the state begins their rollout and implementation, all eyes are on New York and Pennsylvania, which are both expected to legalize adult use cannabis within the next two years. Both Governor Cuomo of New York and Governor Wolf of Pennsylvania have been clamoring for adult use legalization in recent months.

Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis.

---

If you are considering getting involved in California cannabis, imagine the following sentence in ten-foot-tall letters made out of recently ignited $20 bills:

Before you put any money down on property, carefully examine the local cannabis ordinance and tax rates. 

This article is written in the form of advice to a newbie cannabis entrepreneur in California, but it will discuss issues that are also of significance to investors, as well as (to various degrees) cannabis entrepreneurs in other states.

Here are seven basic questions that you need to ask about local regulations (in order, except for Number 7).

1. What’s Your Jurisdiction?

If you’re in city limits, it’s the city. If you’re outside city limits, it’s the county.

2. Does the Jurisdiction Allow Cannabis Activities?

If the answer is yes, go to the next question. If the answer is no, pick another jurisdiction.

3. Where Does the Jurisdiction Allow Cannabis Activities?

A zoning ordinance will limit where you can set up shop. The limitation will probably vary by license type.

4. How Does the Local Ordinance Affect Facility Costs?

The short answer is: in many ways. Your local ordinance is a Pandora’s box of legal requirements, especially facility-related requirements.¹ Read your local cannabis ordinance very carefully.

Generally speaking, the cannabis ordinance will set out two types of requirements – those that are specific to cannabis and those that apply generally to any business.

Cannabis-specific requirements:

• Typically incorporate state cannabis laws by reference.
• Have significant overlaps with state cannabis laws. For example, the state requires commercial-grade locks and security cameras everywhere cannabis may be found on a given premises. Local ordinances generally include similar requirements – keep in mind that you will need to comply with a combined standard that satisfies both state and local requirements.²
• Vary greatly according to type of activity. For example, manufacturers will need to comply with Health & Safety Code requirements that can have a major impact on construction costs.
• Vary greatly by jurisdiction when it comes to equity programs.

General requirements:

• Include by reference building and fire codes, which can require very expensive improvements. Note that this means your facility will be inspected by the building department and the fire department.
• Can include anything from Americans with Disabilities Act (ADA) requirements to city-specific requirements, such as Design Guidelines.
• Will be zealously enforced because you’re a cannabis business.

5. What is the Enforcement Policy?

It may be that your local jurisdiction will give you temporary local authorization after meeting some, but not all, of the requirements. For example, you may be able to begin operations once you’ve provided your city or county with your cannabis permit application, a zoning clearance and a business permit. In this jurisdiction, you would be able to bring your building up to code sometime after you begin operations.

On the other hand, your local jurisdiction may require you to meet every requirement – from cannabis-specific security requirements to general building code and ADA requirements – before you can begin operations. Depending on the type of cannabis business (and facility condition), this might be inconsequential. Or it might mean that you will have to pay more than a year’s worth of rent (or mortgage) before you can start making money.

6. Can You Choose a Facility That Saves You Time and Money?

Of course, you won’t have to spend much time or money bringing your facility up to code if it’s already up to code. How likely it is that you will find such a facility varies wildly according to the type of cannabis activity in question. In general:

• Service-side activities (delivery retail, storefront retail, distribution) are in many respects similar to their non-cannabis counterparts. From a facilities standpoint, the major differences come from security requirements. So, it may be possible to save time and money by choosing a facility that is already up to code for a similar use.
• Manufacturing activities are trickier, since you will need food-grade facilities and equipment. You may be able to save money by setting up shop in a commercial kitchen.
• Extraction with volatile solvents is a special (and particularly expensive) case, since it is inherently dangerous and requires special facilities.
• Outdoor cultivation may be relatively unproblematic if it has an appropriate water source.
• Indoor cultivation is expensive because of climate-control and lighting requirements. Buildings potentially suitable for large-scale indoor grows frequently come with significant problems. Former warehouses will typically require major power upgrades, while former factories may have inconvenient architecture and/or hidden toxic waste. In all cases, internal reconstruction is likely to be necessary, and will trigger all sorts of building and fire code requirements.

7. What Are the Local Cannabis Taxes?

Cannabis tax rates may be determinative. For example, Oakland imposes a 6.5% gross receipts tax on manufacturers that have gross receipts of less than $5M, and 9.5% on manufacturers that have gross receipts over $5M. In comparison, Santa Rosa only imposes a 1% gross receipts tax on manufacturers.

Local cannabis ordinances and taxes can make or break your business, so you need to understand them before you commit to a location. The seven basic questions listed above are designed to get you started.

This article is the opinion of the author and is not intended to be legal or other advice.

---

References

1. For example, see Part II of the City of Oakland’s Administrative Regulations and Performance Standards, and The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 3 (A)(14).
2. For example, compare 16 CCR § 5044 (“Video Surveillance System”) with The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 10 (A)(7).

Despite operational hiccups stemming from the COVID-19 pandemic and supply chain shortages, Missouri Health & Wellness is working quickly to open five dispensary locations in the state’s medical cannabis market, which officially launched its first sales in October.

The company holds five retail licenses, which is the maximum number of licenses that any one company can have in Missouri’s market. Missouri Health & Wellness opened its first location in Washington at the end of November, and its second location in Sedalia just before Christmas. The company then opened a third dispensary in the state’s capital, Jefferson City, on Jan. 25. Now, Missouri Health & Wellness has its sights set on its final two stores in Kirksville and Belton, which will open by the end of the winter.

Photos courtesy of Missouri Health & Wellness

The company is standing up its locations quickly, despite Missouri’s medical program experiencing delays due to the COVID-19 pandemic. Missouri Health & Wellness HR Director and Regional Manager Kathleen Beebe says it took a year and a half for the state’s first dispensaries to open after the state began issuing patient ID cards, but there has been a steady increase in the number of patients enrolling in the program.

“What’s most exciting is when you have patients walking in the door for the first time and you hear about … what they’ve been dealing with, and they’re so excited to have another option,” Beebe tells Cannabis Business Times and Cannabis Dispensary.

Most of Missouri Health & Wellness’ patients are 60 years old and older, she says, and many are first-time cannabis consumers who are frustrated with the results of traditional medicine.

“I think that’s the No. 1 thing that excites me most about this industry, is that we are bringing some relief to people,” Beebe says.

The company also strives to create a diverse and inclusive culture, she adds, where employees feel valued and can make meaningful contributions to the company and the patients they serve.

Missouri Health & Wellness’ budtenders (called “wellness specialists”) go through a robust training program to ensure they can have educated conversations with patients about cannabis, Beebe says.

As with many new markets, Missouri’s medical cannabis industry is currently experiencing supply chain shortages, especially in the wake of the ongoing pandemic, which Beebe says has delayed the launch of many cultivators and manufacturers.

“They’re still under construction,” she says. “We’re starting to now see more and more of them entering the market, but we just had our first manufacturer pass their final inspection maybe a few weeks ago now. Obviously, it takes a little while for them to ramp up their production.”

The COVID-19 pandemic has also further restricted Missouri Health & Wellness’ ability to promote itself within the communities it serves, as in-person, patient-facing events have been on hold. Traditional marketing channels, such as social media, are also challenging for the industry due to the various platforms’ restrictions on cannabis.

“Social media doesn’t really like us to talk too much about cannabis, so it limits what we’re able to do,” Beebe says. “We’re really trying to get creative, using our website more and texting. We do have a text service, but … the carriers will block certain messages. … We’ve hired a new marketing agency to help us start thinking outside the box to look at those ways that we can get out there, despite COVID and the marketing challenges that the industry has probably always had to face.”

To keep its staff and patients safe during the ongoing pandemic, Missouri Health & Wellness checks the temperatures of everyone upon entering the store, and provides hand sanitizer to its employees and customers.

Patients are asked to complete paperwork upon entering the store for the first time, and the staff sanitizes the clipboards and pens after each use. The dispensary’s registers are also sanitized in between each customer, and staff and patients are asked to wear masks while inside the store.

Photos courtesy of Missouri Health & Wellness

Missouri Health & Wellness’ dispensaries sell flower packaged in eighths, as well as pre-rolls and edibles. The company started selling gummies and cannabis-infused beverages on New Year’s Eve, and Beebe says the dispensaries have seen an increase in business just by offering these two new product lines.

“We’re hearing that there are going to be some vape cartridges coming, and of course, there have been a lot of questions about concentrates,” she says. “I expect where we are today and where we’re going to be in two or three months is going to be dramatically different.”

Missouri issued 192 total dispensary licenses, and Beebe estimates that there are roughly 30 dispensaries currently open in the state.

“I expect that is also dramatically going to change in the next couple of months,” she says. “We’ll probably see the majority of them coming online, so what you see in this market today is going to look dramatically different in the next few months, between an increase in supply and an increase in the number of dispensaries that are open.”

Missouri Health & Wellness will continue to differentiate itself in the rapidly growing market through its friendly and supportive wellness specialists, Beebe says.

“I really stress to the team that it’s important to be respectful to each other,” she says. “Obviously, when that patient walks through the door, be mindful that they are dealing with something. They may be cranky because they’re not feeling well, and they need some help. That’s where we come in to support them, whether that’s sitting down and helping them figure out how to find their patient card online because it can be a little tricky to do that, or just having a conversation with them that you can relate [to]. … Customer service, to me, is going to be what really helps us stand out.”

Patient education is also a key differentiator for the company, Beebe adds. Many of Missouri Health & Wellness’ team members come from working in other states’ cannabis programs, which provides them with diverse cannabis knowledge to help support the company’s patients.

“We’re hearing a lot that we have a little bit of an uphill battle with breaking the stigma,” Beebe says. “It’s not like it’s unique to Missouri, but the fact that we’re a little bit more conservative state, we do know there are people who don’t support cannabis, so we’re helping to bring a professional tone to the industry. … You’re going to walk in and be treated like a patient, and your privacy is important. Having that professional customer service and taking care of the patient is ultimately where I see us focusing our attentions and breaking that stigma.”

SLANG Worldwide is bringing its suite of cannabis brands to Missouri and Virginia, two newly legalized medical cannabis markets that offer a lot of promise to the business. In the same stroke, SLANG is expanding its presence in Michigan’s retail sector.

This all came about through SLANG’s new strategic partnership with Merida Capital Holdings, a private equity firm that touts a deep portfolio—both plant-touching and ancillary. For SLANG, the move allows the business to place its proprietary brands (O.pen, Bakked, District, Pressies, Lunchbox Alchemy and Firefly) in front of new patient and customer bases.

As CEO Chris Driessen said, “Integrating our brands in emerging markets through strategic partnership is core to our growth strategy.” Here, we caught up with Driessen to learn more about the partnership and about the inherent attraction of newly legal markets in the U.S.

Eric Sandy: In terms of Missouri and Virginia, how do you view the opportunities in these two emerging markets

Chris Driessen: As emerging markets, these are markets where you work with a strategic partner—in this case, Merida and their affiliates—to bring products to market. It’s similar to what we’ve done in Florida with Trulieve or Michigan with Gage. This fits that model perfectly. What’s really interesting about both of these states, from my point of view—one, Missouri’s regulations, the way they’re rolling out the program, it’s a pretty wide open market. It’s a state with a good population. Certainly on their southern border with Oklahoma, there’s massive access for patients there. So, as far as the model itself, the way they’ve drawn up the program bodes very well for a business like ours. And then you turn to Virginia, which is a little different—more limited, a little more restricted, but with all the recent regulation with what the governor is trying to do there, it could come on really quick. Obviously, we want to skate to where the puck is going, not to where it’s at. So, two separate markets, but we’re excited about both for two different reasons. 

ES: As you step into a new market like these two states, what are some of the keys to bringing your brand to a marketplace with patients or even consumers who may not yet be familiar with your brand?

CD: First and foremost, you always want to align yourself someone that has a similar vision and a similar culture, that has the infrastructure, the leadership, the capital to be able to execute on the plan. And certainly we have that with Merida. Whenever we enter a new market—we’re big data guys, so we always want to know all of the analytical data that we can have around the population, the consumption habits, the preferences and products. That’s a little tricky in some of these newer markets, because the data just doesn’t exist. Fortunately for SLANG, these two markets made No. 15 and 16 for us. That’s 14 states, Canada and Puerto Rico. So, we’ve got a really large sample size of what people like, whether that’s edibles, concentrates, vape, flower, pills, we really kind of run the gamut with our product portfolio.

“For the past 11 years, we’ve been preaching brands and CPG, really, since we’ve been in the game. Now, all of a sudden, that’s become very in vogue—and rightfully so.”

– Chris Driessen, CEO, SLANG Worldwide

 

We’re able to take a much larger sample size data than most folks and we’re able to say, “These are likely going to be the things that consumers in those two emerging markets are going to want most.” And then of course you have to pair that with the infrastructure in both states, with the partners you’re working with, what does [the state] allow for—you know, different equipment has different lead times. There are different regulations sometimes—maybe it’s a potency restriction, or maybe they don’t allow flower, all of those kinds of things. You put all of that data into what we call a complexity matrix, and it spits out lead times and it prioritizes those by what is going to be the best bang for our buck. Now, certainly in time, we want to bring all of our products in all six of our brands—almost 100 different products—to market, but of course you can’t do everything at once.

We plugged all the data into the complexity matrix and worked with our product team. We work in-market, of course, with the partners there. And we both devise a game plan: Here’s what we’re going to do first, second, third. We continue to put those things into the market and then devise a go-to-market strategy of how we’re going to move them through the market with our different sales and marketing tactics. It’s a long, involved process. If you’ve been following us, we’ll announce a market and then you’ve got sometimes months and months before the product’s actually available. It really is customized to the specific market and the specific partner, but we let the data be our guide.

ES: I wanted to ask about brand affinity. How has that evolved in the cannabis space? Is a market like Colorado all that different from Missouri in this matter?

CD: You know, strangely enough, you don’t see huge variations there. There’s certainly some nuances, and we’ve cut our teeth in Colorado. We’ve been doing it in Colorado since 2010. We learned a few things along the way over that 11-year journey, but largely most of the new markets that open up generally follow the same series of events. The consumers go on the same journey when a medical market opens. Generally, it’s, “Hey, what’s the strongest thing for the cheapest amount of money?”

Certainly, we have value products that are part of our O.pen line and our District line that fit that bill. But then you start to see the consumer mature and understand things like terpenes or things like live resin—a more educated consumer emerges. The more they’ve been around the plant, their tastes change over time. The beauty of what we do with SLANG is, we’ve got six brands, almost 100 products, and not only do those cover all the best categories, we also are able to segment our product offering within a category. What that means is we’ve got value products, we’ve got premium products and everything in between. For me, brand affinity is really driven by a couple of things.

One, did I enjoy the product? Is it high-quality or is it at a fair price? And did I have a good experience, a good “branded moment,” as we call them, when I consumed the product? And if you do, then generally those consumers are going to want to repeat that experience. The holy grail for us in infused products is repeatable experience. You get that from proven processes, from very tight SOPs, from working very closely with the folks who are making these products in their states to ensure that the quality is there to ensure that that branded moment is going to be similar, whether you’re in Portland, Maine, or Portland, Ore., and, by the way, we have products in both.

ES: When you were looking for a strategic partnership, what were some of the qualities that you needed to be on the table to work with Merida?

CD: Much like we have our complexity matrix for our products, we also have a priority matrix—or, “Where are the places you want to be? Where’s the next big place that cannabis is going to show up in a big way?” We were already in 14 points before we were talking to Merida. So, our list is maybe a little thinner than some, just because we are so widely distributed, but anytime we look for a new strategic partnership, we’re looking at a few things.

One: What’s the infrastructure and the ability to execute on this plan that we’re going to devise? Two: What’s the fit? And when I say “fit,” this is all the things around culture, vision. As you know, it’s always easier to work with people you like. It’s always easier to work with people that you have something in common with. When you find those two things, that’s generally a really good sign that we’re going to be able to do some really good things. We certainly have that with Merida. There’s no doubt about that.

As you know, there’s a ton of capital that’s available right now. We weren’t really looking for capital. So that, wasn’t a pretty interesting thing to us, just because it’s pretty readily available in a lot of places. The key point of this deal was, “Hey, going into these couple other markets, getting this retail placement with [Merida’s] dispensaries in 3Fifteen, which is one of the largest retail footprints in Michigan, those were the really attractive pieces.” As we got to know each other a little better, they’re like, “Hey, wow, we want in on this too.” That’s how you saw this deal come full circle. It included Merida Capital’s strategic markets and retail placement. It was more than just money. When you have that fit and the ability on top of that, it just made all the sense in the world.

ES: As 2021 gets under way, what sort of trends are you watching in the market?

CD: We’re getting a lot of inbound inquiry from MSOs. And I don’t think a lot of people look at Merida as an MSO, but they certainly are. Look at how many fingers they have in how many pies in how many states. It’s really interesting that now that our story and what we do—and our ability to work with these MSOs and really drive performance for them—now, people are really finding value. We’ve known that all along. For the past 11 years, we’ve been preaching brands and CPG, really, since we’ve been in the game. Now, all of a sudden, that’s become very in vogue—and rightfully so. Consumers want choice, consumers want preference, and they want brands.