Positioned for Success

by Madeleine Maccar | Feb 21, 2023
Positioned for Success
Even though the national news is filled with stories of other states’ growing pains, New Jersey’s legal cannabis industry is already proving to be a profitable addition to the state’s business landscape less than a year after recreational adult-use marijuana burst onto the scene.

From July through September 2022, the first fiscal quarter where marijuana was fully legal in The Garden State, the New Jersey Cannabis Regulatory Commission (CRC) reported that adult-use sales reached $116,572,533, indicating a 46% increase from the previous quarter’s $79,698,831; furthermore, during the Feb. 13 Assembly Oversight, Reform and Federal Relations hearing, CRC Executive Director Jeff Brown announced that Q4 earnings rose to $127 million.

Industry insiders say they are diligently endeavoring to uphold that growth trend to remain a model of how to best position a new market for optimal success. And while the time between November 2020’s adult-use voter approval and April 2022’s rollout was an interminable wait for many, those working behind the scenes feel differently.

“I didn’t think that this industry would see the first adult-use sales until June or July of 2022—since it ended up happening in April, they actually beat my expectations,” notes Todd Johnson, executive director of the New Jersey Cannabis Trade Association (NJCTA), a unified voice for industry operators that also educates legislators, regulators and the public. “I expected it to be just like Massachusetts: Massachusetts voted for legalization in November of 2016 and the first doors opened in [the second half] of 2018.”

Part of what informed Johnson’s anticipated timeline is the awareness that standing up a brand-new industry for long-term viability “sounds a lot easier than it is,” especially when operational standards and regulatory framework need to be established right alongside it. That all takes time, and “it takes time to do things right.”

Johnson continues: “Compliance is the foundation of this entire industry. You can’t just start selling it: You’ve got to get all of the systems working together, you had to separate medical from adult-use sales in your POS systems, all of that had to be troubleshot and tested to make sure that it’s working properly. … You don’t want a ton of mishaps happening at first because of a lack of planning.”

A lack of planning is what Hugh Giordano, director of organizing for UFCW Local 360, the union representing industry workers, says has been plaguing other states, pointing to Nevada and Colorado selling out of product and Oregon and Oklahoma having such an oversaturated market after offering unlimited licenses that cannabis sells for unheard-of lows—and ”buying an ounce for, like, 60 bucks is great for the consumer, but it’s terrible for a business.”

“If you tried to just pump it out quickly, you could end up like some of these other markets that couldn’t provide for the amount needed,” he says. “It sounds great in theory to sell out of your supply, but you can’t go one week making money and the next week, or the next couple weeks, making nothing.”

Besides, meeting and managing supply demands is an imperative for both the adult-use and medical segments to coexist without compromising the latter.

“That was one of the big requirements of the CRC, that each individual company had to prove they had enough inventory to more than adequately supply their existing patient population and the increased demand that would come from the adult-use market,” Johnson says. “That is a priority for every operator in the state, the focus on patient access and making sure that patients never feel as though they are second-fiddle to the adult-use market. That’s why we continue to have patient-only hours at dispensaries.”

As the president-elect of the New Jersey Pharmacists Association (NJPhA) and owner of Camden’s Bell Pharmacy, which is poised to begin dispensing cannabis through its Camden Apothecary storefront, Anthony Minniti, RPh, has spoken about how to shape operational models that meld both markets without compromising patient access.

“The state approached the NJPhA for recommendations about the new special pharmacy permit … and my idea was, why don’t we take the old medical [alternative treatment center] regulations, make some changes and make that the new special pharmacy permit,” he explains. “They might need some tailoring here or there to be specific for pharmacies, but why not reuse those so medical patients aren’t denied access? … With our model, we’re doing it a bit differently by integrating a medical component to our recreational business.”

In addition to advantageously positioning a new industry for the best future possible, a number of unique challenges also arise from launching an industry that’s state-legal but centered on a substance that federally remains a Schedule 1 narcotic—a designation that advocates say unhelpfully negates marijuana’s obvious medicinal benefits and adds to the stigma preventing prospective patients from exploring a more natural avenue. 

Chuck Romanoli, who’s been licensed to sell hemp and CBD medical products since 2016 through Country Roads Health & Wellness, quickly saw the benefit of providing alternative relief options to patients that sidestep the addictive potential, side effects and potential complications of mixing medications that more pharmaceutical treatments often come with. But, he notes that not everyone sees it that way.

“We had finally found a bank that took our account, and that bank was bought out by another bank that said, ‘Yeah, we don’t want to carry your account anymore and we’re going to shut you down in 30 days,’” he recounts. “I finally found First Harvest [Credit Union], but now I’ve just been kicked out of my payroll-processing company for the same reason.”

It’s a story that the industry has gotten to know well, illustrating the difficulty of securing banking partners, rented space or credit-card processors. Johnson also points to the necessity of tax reform regarding U.S. Tax Code’s Section 280E, “which, at the federal level, says that if you are involved in the sale of illicit products, then you aren’t allowed to deduct normal business expenses.”

“Our businesses are still being treated, from a tax perspective, both at the state and the federal level, as though we are illegal businesses,” he says. “Take a store that does a million dollars in revenue: Their effective tax rate might be something like 15 or 20%. But if you take a dispensary that does a million dollars in revenue, because the dispensary is not allowed to deduct normal business expenses, that effective tax rate can go up as high as 50, 60, sometimes even 70%. It is absolutely killing the industry right now.”

It’s not just a future of challenges, though, as we’re just starting to realize the vast potential of medical marijuana.

“We need more research into the specific cannabinoids because there’s a huge variety out there and everybody’s endocannabinoid systems react differently to the products,” Romanoli says. “Education is key, and research into these cannabinoids is critical to our being able to say, ‘Here’s the product that will help you sleep’ or ‘Here’s a product with CBG in it if you have neurological problems.’”

Education is not only key for the NJCTA, too, but also baked directly into its mission.

“Our priorities are to help build the foundation of this industry so operators can be successful and be profitable,” says Johnson. “One [of our goals] is to continue educating the legislature, the CRC, the public about cannabis and regulations that will help the industry grow.”

Minniti, having spent his entire professional career in Camden, emphasizes the importance of incorporating social-equity and justice practices to make sure the industry is the rising tide that raises all ships.

“The state is really concerned about social justice and equal access—that’s something that Bell Pharmacy has always done since we employ Camden residents first,” he says. “We developed The Second Chancers Program for those who have received convictions or have a record of some sort based on a cannabis offense. They’re incentivized to come and work on our dispensary side. We’re going to put them through a bona-fide cannabis-training course that’s actually available at most colleges. The goal is to provide them with a formal certificate and their first work experience so they have the tools to enter this new marketplace.”

Growing the industry also means overseeing the quality of not only its product but also its services—which Giordano says is why industry workers need to have a voice and a say, too.

“If you’re looking at consumer safety, patient safety and even the safety of the industry as a whole, the workers are there every day dealing with this,” he explains. “That’s why we have to protect them, allow them to speak out when things aren’t right. Protecting the workers protects us all.”

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Author: Madeleine Maccar

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