Recreational markets on the East Coast have been slow to open. The first adult-use market didn’t open until 2020 – in Maine. But cannabis consumers in New Jersey can finally purchase cannabis in a controlled and safe environment without being punished for consuming it in the privacy of their homes.
On day one of New Jersey’s adult use opening, relatively few patient-access shortages occurred. But with New York and Pennsylvania both adding to the influx of recreational consumers, there’s growing pressure on the supply chain – a precarious position to keep up with demand. Will empty shelves at dispensaries tempt buyers to return to the unregulated market?
Mike Siebold, Advisor at Flowerhire sat down with Beau Whitney, Portland-based business operations and supply chain expert and economist to discuss market insights after opening day. David Belsky, CEO at FlowerHire shares cannabis job insights. But first, an overview of the New Jersey adult-use opening day.
The 2022 MJBiz Factbook projects New Jersey will generate $625 million to $775 million in sales this year. It’s expected to grow to $2 billion-$2.4 billion a year by 2026. New Jersey subjects recreational cannabis to the state’s 6.625% sales tax as well as additional local and excise taxes. This means that in 2022 alone, New Jersey is expected to make a minimum of $41 million in tax revenue. By 2026, the state has projected a minimum of $132 million in tax revenue. And that’s before calculating the additional income from local and excise taxes.
Ed DeVeaux, a Rutgers University graduate and a commissioned Army officer with extensive experience in New Jersey government and budget analysis, as well having been a New Brunswick mayoral aide and special assistant to U.S. Sen. Bill Bradley, was the second person to purchase recreational cannabis at The Botanist retail store in Williamstown, 40 minutes southeast of Philadelphia. He told MJBizDaily that cars were taking up a lane of the highway waiting to get to the dispensary.
The multi-state operator of cannabis cultivation and retailing facilities Acreage is among the inaugural group of New Jersey cannabis operators. Acreage mid-Atlantic regional general manager, Sharon Ali, told MJBizDaily that customer lines wrapped around the block at Williamstown and Egg Harbor Township stores. Knowing the demand would spike on opening day, the company hired more employees, incorporated more point-of-sale (POS) terminals, increased parking, reconfigured lobbies, expanded hours, and hired 25 additional employees. To ensure that medical patients are receiving priority access, the dispensary also provides them with a separate line.
New Jersey cannabis market insights
Mike Siebold, Advisor at FlowerHire, sat down with Beau Whitney, Portland-based business operations and supply chain expert and economist. The following are insights from the conversation:
Opt-out leads to unbalanced supply chain
As in other states, New Jersey communities had to determine if they wanted to opt-in or out of recreational cannabis. Since the rules had not been promulgated, many communities opted out knowing they could opt back in. Some communities succumbed to extreme pressure and made the choice to opt-out. And with approximately 70% of municipalities currently opting out of recreational cannabis, access is limited, creating unbalanced supply and demand, as well as high prices.
This April, Whitney wrote in Benzinga, “New Jersey will require just over 300,000 pounds of cultivated output to support their demand in 2022.” But currently, New Jersey does not have the canopy (grow areas where mature flowering plants are grown) licensed nor the number of growers to support the adult-use demand. By 2023, New Jersey will require 620,000 pounds of cannabis output.
Converting consumers to the regulated market
The biggest risk for the NJ market is that these distribution complexities will turn the consumer off and they’ll revert to the unregulated market. Consumer conversion from the illegal legacy market to the legal space is paramount. The emerging legal market can only succeed by offering access and reasonable prices. Whitney says some consumers are willing to pay a premium above and beyond unregulated pricing, as long as it’s not perceived as extreme. If you entice them with low prices, low taxes, and access, they’ll overwhelmingly convert.
But the supply and demand creates a challenge in providing product options to the consumer. Whitney observes, “I did a series of dispensary tours and there were only about 5-6 strains and even fewer cartridge options. Eighths of flower were 5-6 times higher than West Coast prices. I don’t expect there will be any relief over the next year because there’s not enough cultivation capacity to authorize. And even if locations are found and licenses are issued, it takes time to get the plants in the ground and to grow them.” It’s worth adding that New Jersey is the only state with a recreation market that does not allow patients to grow at home – it is a third-degree crime.
Addressing the unregulated market
The real difficulty will be how to address the emboldened unregulated market. It’s so entrenched. Displacing the unregulated market, which still leads to incarcerations, will take effort and carefully-considered supply chain and economic strategic implementation.
Overall, the market faces more positives than negatives. Regulators in the state are demonstrating a willingness to learn and are flexible. Regulators just have to learn how to regulate a new and extremely fast-expanding demand. Operators have to learn how to proactively take action and be regulated. So far, NJ regulators overall appear to be open-minded and exemplified by knowing what key questions to ask.
The coexistence of MSOs and small businesses
There’s still an outstanding question as to whether NJ will be overwhelmingly dominated by MSOs, or if there will be market access for minority-owned and small businesses. There’s a concerted intention to mindfully provide inclusion and social equity opportunities to people who would otherwise be left behind. They’re really trying, even though the market is slow out of the gate with both supply and retail capacity.
Cannabis attorney Steve Schain, who practices in PA and NJ at Hoban Law Group describes that since capital is slim, social equity license holders face a challenge developing cultivation, manufacturing, and retail. And then, of course, companies need to make ends meet.
Bill Caruso, a cannabis law attorney with Archer in New Jersey (who helped write the state’s first medical marijuana legislation), says that New Jersey is an experiment in how large cannabis companies and social equity and craft operators can coexist – he believes it’s promising.
With the 70% of municipalities that have opted out of recreational cannabis, participating communities are making decisions on where and how many local licenses to award. Joshua Horn is co-chair of Pennsylvania’s Fox Rothschild LLP’s nationwide Cannabis Law Group, which has for the third year been honored as a Law360 Practice Group of the Year. Horn tells MJBizDaily that he thinks communities that opted out will regret their choice and miss out on tax dollars and job creation.
There’s currently no established limit on the number of cannabis business licenses available statewide, and the number of Class 1 Cultivators will be held to 37 licenses until February 22, 2023.
New Jersey cannabis jobs insights
Whitney recently explained to the Urban Mayors Conference, “You’ve got a potential for 49,000 jobs. That’s the total market. In February 2022, Leafly Jobs Report stated there are 3,147 jobs. That will expand as more rollout occurs. There’s a huge opportunity for living-wage jobs in NJ to support the cannabis industry.” Beau said it was an “Aha!” moment among mayors and “it looked like lightbulbs were going off.”
David Belsky says, “So now, the focus is on getting retail and operations facilities staffed and ready. When a company makes an offer, it takes a month to onboard, perform background checks, and get fingerprinted. So New Jersey needs to hire thousands of frontline workers, immediately.”
Belsky continues, “There are thousands of jobs open for retail associates, cultivation technicians, and packaging associates. Many require previous skills in operations, including manufacturing, agriculture, operations managers, supply chain, quality, and compliance. There’s also a demand for employees with experience in retail and hospitality.”
Key takeaways
- New Jersey will need to ramp up employment, point-of-sale (POS) terminals, parking, lobby layout, and store hours.
- Social equity license holders may have a challenge developing in the space due to the strong presence of existing MSOs.
- Pricing may be higher because 70% of communities opted out of adult-use sales making the supply chain imbalance and prices high.
- New Jersey does not have the canopy licensed nor the number of growers to support the adult-use demand.
- New Jersey risks turning the consumer off the regulated market, forcing them to retreat to all the problems of the unregulated legacy market.
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