September 19, 2023

In the nearly 18 months since New Jersey’s recreational cannabis market opened, the state’s Cannabis Regulatory Commission (CRC) has been getting mixed reviews about how it has handled the Garden State’s young adult use industry.

In August, the New Jersey Cannabis Trade Association (NJCTA) issued a memo that outlined what it described as “significant issues that are hindering the market’s potential.” The memo noted only 37 recreational cannabis dispensaries were operating in New Jersey by the end of July. Additionally, during the first nine months of adult use sales the state generated only $20.1 million in tax revenue.

“New Jersey’s cannabis industry is being willfully held back and it is inhibiting the fulfillment of promises made to residents and taxpayers, including generating increased tax revenue to support critical social programs,” the memo continued. “Additionally, the CRC is falling short in its obligations to support social equity entrepreneurs and cannabis businesses of all sizes who desire an efficient regulatory process that effectively addresses illicit market competitors.”

Local Cannabis Business Bans Limiting New Jersey Market – For Now

Scott Rudder, President and founder of the non-profit New Jersey CannaBusiness Association, disagrees with the NJCTA’s assessment of the state’s cannabis sector. The issues brought up in the memo, he told Cannabis Benchmarks, “are predominantly past tense.”

Rudder said New Jersey faces the same regulatory and legal challenges confronted by every state that has legalized cannabis. “There are thousands of applicants going through the [licensing] process,” he pointed out. “Certainly it took a long time, but [CRC] has increased resources and speed for approval.”

The former mayor of Medford, New Jersey, Rudder believes it will take some time before most of the state’s municipalities become comfortable with having cannabis dispensaries and grow operations as neighbors. He noted that about 70% of New Jersey towns have opted out of having cannabis businesses in their communities. However, he added, “that makes those remaining 30% very competitive.”

Rudder added that New Jersey consumers and voters are ready for a legal, accessible cannabis market. Of the state’s 500-plus towns, he said, all but three had majority approval of cannabis in their communities. The major obstacle, he observed, appears to be the continuing stigma surrounding the plant and products made from it, as well as “the safety concerns of legal cannabis drifting into the black market.”

“Although more and more people are picking up cannabis and putting down alcohol,” Rudder continued, “a lot of people still feel very closeted about it, which surprises me. … Some towns are a little slow getting to the mark. But some towns are also looking to opt back in [to having cannabis businesses], due to the tax benefits and job creation. I’m a former mayor, father of three. I understand those concerns.”

New Jersey Cannabis Well-Situated Regionally

According to Rudder, New Jersey cannabis businesses – especially dispensaries – are dealing with many regulatory challenges in his state, such as access to real estate and complex local zoning laws.

That said, he remains bullish about New Jersey’s still-developing cannabis sector. “Look at surrounding states,” Rudder pointed out. “New York is struggling; Pennsylvania is also about three or four years away from legalization, based on their political dynamics. Our industry is up and running. There are dispensaries and other facilities opening up [in New Jersey] almost on a weekly basis. The market will never [again] be this small.”

Indeed, while the pace of New Jersey’s adult use cannabis market rollout has frustrated some, there has been undeniable growth. Recreational cannabis sales in New Jersey came in at over $160 million in Q2 2023, more than double the $79.7 million in sales tallied in Q2 2022, when the market opened.

New Jersey’s adult use market is on pace to generate roughly $700 – $800 million in sales this year. Although far from the ultimate potential of legal cannabis in New Jersey, the only other recently-opened adult use market set to surpass that sales total for 2023 is Missouri. Maryland’s recreational market has also opened to higher sales figures. However, Missouri and Maryland had significantly more retailers in their medical programs that opened to adult use consumers on day one of sales – at about 200 and 100, respectively – compared to 24 at the start of New Jersey’s recreational market.

Obtaining Investment Challenging, but Rescheduling Could Unlock More Funding

Another major issue slowing market development, Rudder noted, is that cannabis license holders in New Jersey are facing a challenging landscape in seeking investment funding for their businesses. “That’s by far the biggest challenge,” he said.

“There are about 280 approved licenses [including cultivators, manufacturers, and dispensary operators], Rudder pointed out. Early movers in a high-population legal cannabis state may seem like good investments. Unfortunately, “the market dynamics have changed,” he noted. “Interest rates and inflation have gone up. Investment into anything risky is a challenge for anybody right now. If you look at a startup with no track record, and are looking [for investors], that’s a challenge.”

Given the recent recommendation from the U.S. Department of Health and Human Services that cannabis be moved from a Schedule I to a Schedule III controlled substance, obtaining investment may become easier for state-licensed cannabis businesses. If cannabis is moved to Schedule III, then licensed businesses would no longer be subject to Section 280E of the federal Internal Revenue Code, which would significantly improve balance sheets and make such operations appear more appealing to investors.

Market Forces, Regulatory Changes Will Improve Cannabis Product Prices, Variety

As New Jersey’s cannabis market matures, Rudder expects the state’s supply chain for cannabis will normalize, which in turn will bring down wholesale and retail price points. “As more cultivators, more manufacturers stand up, we’re going to see greater competition – and competition does two things,” he said. “It will improve products and it will decrease prices.”

Rudder also expects the portfolio of cannabis products available in New Jersey to expand dramatically. “The CRC, for example, is broadening their category for edibles, so we’re going to see in the future beverages and other types of edibles that are really not on the market,” he said. “That’s an exciting thing. Once we see more of these products out there, and more purveyors of these products, we’ll start to see the prices decline as the years progress.”

Banking on Increasing Cannabis Consumer Sophistication

Rudder acknowledges that while New Jersey may not be able to compete with the volume of cannabis being grown and manufactured in Colorado, California, and elsewhere, he does expect his state’s industry to develop its own distinct branding.

“The quality is great,” he said. “Not everybody needs massive operations for cultivation. We can have a lot of boutiques with high-quality products. It’s like craft beer; we’re starting to see those guys pop up. I think that is what will differentiate us. As consumers become more knowledgeable about cannabinoids, they will become more discerning. Like your first beer was a Bud Light, but your palate gets more sophisticated.”