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As we move further along into 2019, the stage is set for what I expect to be a critical year in the trajectory of New Jersey’s cannabis sector. While specifics remain to be seen, there is little doubt that it will continue to flourish – whether through the passage of recreational legislation, a further expansion of ATCs by the Department of Health (“DOH”) or some combination of the two.

In the spirit of New Year’s predictions, I offered my own in a guest column that appeared in last week’s issue of NJ Cannabis Insider. Among them, I predict that:

  • Recreational legislation will pass in 2019, and within the first few months of the year.
  • A new commission will be assembled to regulate recreational licensees; while oversight of the state’s medical program will remain with the DOH.
  • The DOH will soon announce another Request for Applications (“RFA”) for vertically-integrated licenses, and geography will play a critical role for successful applicants.

I encourage you to read the full article for a closer look at the factors I considered in reaching these predictions.

The next few months will see a flurry of activity in New Jersey’s marijuana industry, whether that is medical, recreational, or both.

Please stay tuned for more updates from CSG’s Cannabis Law Group.

Inspired by the NJ Cannabis Insider Q&A with Satya Capital’s Nishant Reddy, I sat with Jason Erkes, Chief Communications Officer with Cresco Labs, for a closer look at the company’s New Jersey plans.

One of the fastest-growing companies in the cannabis space, Cresco was supported by CSG’s Cannabis Law Group on its application to operate a medical marijuana dispensary in Atlantic City as part of the New Jersey Department of Health’s July 2018 RFA.

The full interview follows.

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Jason Erkes, Cresco Labs

Lee Vartan: Tell us about Cresco.

Jason Erkes: Cresco Labs is one of the fastest growing cannabis companies in the country.  We have operations in six states— Illinois, Ohio, Pennsylvania, Nevada, California, and Arizona—and are involved in nearly every aspect of the seed-to-sale process, from cultivation to processing to retailing.  We focus on entering markets with outsized demand potential, significant supply constraints, and high barriers to entry.

Our unparalleled speed-to-market—seven months from license to sale—gives us a distinct competitive advantage as we replicate our model and expand our national footprint.  Cresco’s proven ability to execute is complemented by a well-defined brand strategy that is tailored to all major consumer segments: medicinally focused, everyday cannabis, connoisseur grade, and chef inspired edibles by James Beard Award-winning pastry chef Mindy Segal.

LV: What brings you to New Jersey? Atlantic City, specifically? How did you go about securing the community’s support?

JE: We have been looking to enter the New Jersey market for some time.  With demand greatly outstripping supply and a complex regulatory environment, New Jersey is the precise type of market where Cresco Labs excels.  But we knew that the competition to enter New Jersey would be fierce, so we developed a two-pronged strategy and developed it early: (1) partner with the right local team; and (2) work with that team to tell the Cresco story to build real and deep local support.

We found the ideal local partners in Mike Brestle and Ellie Siegel and they, along with our legal team at Chiesa Shahinian & Giantomasi, helped us share our vision and build local support in Atlantic City.  Our application included letters of support from the State Senator representing Atlantic City, the County Executive, the Mayor, City Council President, community advocacy groups, and the National Action Network.  Those letters were hard won.  We spent weeks meeting with community leaders and introducing them to Cresco and our plans for Atlantic City.  Uniformly they were impressed with our market expertise and our concrete plans to re-invest in the community.

LV: Applicants have touted a range of community reinvestment and social equity programs as part of their local involvement: What are Cresco’s plans?

JE: We said “concrete” plans in response to the last question for a reason.  In every market Cresco operates in, we endeavor to become real partners with the local communities right from the start.  We took the same approach in Atlantic City.  Before any letters of support were received, Cresco organized community forums to discuss our plans for an Alternative Treatment Center in Atlantic City, and we didn’t just talk, we listened.

In response to the forums, we decided to change the proposed site of our ATC from one location in Atlantic City that the community opposed to one that the community supported.  We also built a Social Justice Steering Committee into our application that includes designated local leaders to determine how and where the dollars reinvested by Cresco in Atlantic City will be spent.

LV: One of the catalysts for the expansion of ATCs in New Jersey is the imbalance of patients and supply. How is Cresco positioned to help resolve this issue?

JE: More than anything else, we believe the State Department of Health is looking to dramatically—and quickly—increase the supply of quality medical cannabis to New Jersey’s patients in need.  That is what Cresco is known for in the industry—being able to go from license to market faster than any of our peers.  We are poised to do the same in New Jersey.  If we are awarded a license, we are prepared to begin building our ATC the next day.  There won’t be a need to discuss our plans with local or community leaders.  We have already done so, and won their support.

LV: I am sure there have been major lessons learned along the path toward becoming a bonafide national player in the cannabis industry. What single piece of advice would you give to aspiring operators?

JE: It has been said that all politics is local, well, the same is true in the cannabis industry.  Cresco has never been a cookie-cutter operation.  What worked in Illinois may not work in Pennsylvania or Nevada.  The secret to our success has been spending the time to learn the needs of the local community we are entering and then build a business that recognizes and embraces those needs.  Our goal is always the same: to seamlessly blend into the community, while bringing quality, reliable, and consistent products to provide relief to local patients.

LV: If not selected in this round, what are Cresco’s future plans in New Jersey?

JE: While we know there is no guarantee, we believe that we put forward an incredibly strong application that blends industry expertise with strong New Jersey partners and deep support from the Atlantic City community.  In short, we expect to receive a license from the State.  But if we don’t, we have every intention of re-applying in a future round.  We are committed to being a part of Atlantic City’s resurgence.

I am pleased to share with our subscribers an NJ Cannabis Insider Q&A featuring Nishant Reddy, co-founder of the California-based boutique investment firm Satya Capital. CSG supported Satya as they partnered with MedMen on a joint application to operate a medicinal marijuana dispensary in Newark, NJ as part of the New Jersey Department of Health’s July 2018 Request for Applications.

In the Q&A, Nishant touches on his deep roots in New Jersey, Satya Capital’s origins, the partnership with MedMen, the joint venture’s plans for community reinvestment and more.

The full Q&A follows.

Nishant Reddy, Satya Capital

New Jersey Cannabis Insider: How does Satya Capital fit into the mix?

Nishant Reddy: I founded Satya Capital as a way to diversify my business and to 100 percent be able to participate in the cannabis industry. I left my career in private equity and investment banking to pursue the cannabis industry early, in like 2013-2014. I started as an interim COO advising a large dispensary group here in California. From that time, I got involved with development of a cultivation in Oregon and realized to really scale the opportunity — to execute on the vision I had and to be able to bring outside capital into the industry in a way that protected my investors but also allowed me to create a business vehicle that would be successful — I had to spin off and have a vehicle 100 percent dedicated to the pursuit of opportunities within the cannabis industry.

So that led me to form Satya Capital. Satya is actually a Sanskrit word that translates to truth and honesty. From what I had learned in the years prior, that was something I felt was really missing within the cannabis industry, both from a sense of the operators in the industry as well as what was being communicated to people who wanted to participate in the industry or invest in the industry. I wanted Satya to really bridge that gap and create an environment that allowed investors to enter the market and get the level of professionalism they were used to getting in their other investment vehicles, whether private equity or hedge funds … whatever it may be. That leads us to where we are today.

NJCI: How did this partnership with MedMen come about?

NR: Satya Capital has been doing work with MedMen for quite some time in California, so when we were coming into New Jersey, we felt very comfortable from our prior working experience with MedMen. We knew they were a market leader in terms of the retail space. We knew they shared a lot of the same fundamentals we did in terms of social justice, passion for the industry and what we wanted to create. It was kind of a no-brainer that our two companies combined brought a tremendous amount of expertise all the way from cultivation, manufacturing, distribution (and) all the way down to building and operating a retail storefront. We just believed it was an absolute no-brainer, and that we would be able to create something really special.

NJCI: Why Newark?

NR: For me, I am a born and raised New Jerseyan. I really only left the East Coast when I decided to pursue the cannabis industry 100 percent, which was a little over five years ago. I was born in Bridgewater, I grew up in Warren. My mom was a dean and pediatrician at UMDNJ her entire career. She only recently retired this past August; she had a 40 year career there. For me, Newark has been a huge part of my personal upbringing and my family for a very long time. And so for me it was very personal.

For Satya Capital, we place a tremendous importance on social justice. For our California businesses, we really believe in local hiring, investment in alternative industry, things like that. So when we were coming to New Jersey, we wanted to be somewhere where we could have the biggest impact, and we thought Newark was place, combined with my personal connection I had to the city.

NJCI: Have you been able to get the support of the community? Newark’s been on the fence with the proposed legislation due to the tax rate issues.

NR: I think from the leaders we’ve spoken to, we have been able to get community support. I think the differentiating factor is Satya Capital is a minority-owned, minority-led business. It’s a little bit of a rarity in the cannabis industry. We take a lot of pride in helping the communities we work with, and we take a lot of pride in giving opportunities to inner cities, minorities, people less fortunate. So from the conversations we’ve been able to have in Newark, I think that community leaders — along with the citizens we meet — realize quickly we are 100 percent sincere. We have a deep connection to their city. We understand their problems. We understand their concerns, and we really, really care.

NJCI: If you’re successful with your application, how are you looking to reinvest in the community?

NR: We have an entire social justice program outlined, including a social justice committee where we would have three local leaders as part of that committee, with an elected board member of Satya Capital, as well as an elected board member of MedMen. We would look to do it as a team and look to the leadership of the community leaders of Newark to give us guidance of where we can re-invest in the community — whether that be public-private funding for entrepreneurship, incubator programs, local hiring programs, supporting schools and vocational programs that can create jobs for Newark residents to support the cannabis industry or work directly within the cannabis industry, creating greenspace. We really believe the social justice committee will act as a conduit to give us the guidance as to where to invest.

On July 16, 2018, the New Jersey Department of Health’s Division of Medicinal Marijuana (the “DOH”) issued a Request for Applications (“RFA”) for up to six additional Alternative Treatment Centers (“ATCs”), commonly referred to as medical marijuana dispensaries.  The DOH will award two licenses in the northern region of the state, two in the central region, and two in the southern region.  This would double the number of ATCs currently operating in New Jersey.

The six additional ATCs will be vertically integrated (similar to the current ATCs in operation), but will be allowed to operate either as non-profit or for-profit entities.  Applicants are allowed to submit an ATC permit application for more than one region, but must submit a separate application for each region and rank the priority of its applications.

The RFA process is open to all applicants with the exception of entities already holding a permit to dispense medical marijuana (including affiliates) in New Jersey and individuals/entities with a 25% stake or more in any of the currently permitted ATCs (or entities responsible for the management of such ATCs).

Those interested in submitting an application must act immediately as the DOH has set an aggressive timeline for the application process.  Instructions for the submission of applications and all necessary forms will be available on the DOH’s website on August 1, 2018 and all completed applications must be submitted no later than August 31, 2018.  Further, every applicant must attend a mandatory, pre-application conference on August 9, 2018.  The purpose of that conference is to provide a structured and formal opportunity for the DOH to respond to questions regarding the RFA process.  Applicants that fail to attend this conference will not be allowed to submit an application.

Applications will be evaluated on a 1000-point scale pursuant to three criteria, each of which has several measures.  Each applicant will also be required to provide detailed information regarding its organizational and ownership structure.

We suggest applicants work closely with their attorneys, accountants and other advisors to complete their applications timely and consistent with New Jersey law.

On June 18, 2018, the New Jersey Department of Health (the “DOH”) published for comment its proposed amendments to the administrative regulations to New Jersey’s Medical Marijuana Program (“MMP”).  These regulations establish the standards by which the DOH implements the Compassionate Use Medical Marijuana Act, codified at N.J.S.A. 24:6I-1 et. seq.

The proposed regulatory amendments are a follow up to Governor Phil Murphy’s Executive Order 6 that charged the DOH with reviewing the MMP to identify ways to expand access to marijuana for medical purposes.

The DOH’s proposed amendments include:

  • Reducing the registration fee for qualifying patients and their caregivers from $200 to $100;
  • Adding senior citizens and military veterans to those eligible for the reduced registration fee of $20;
  • Authorizing qualifying patients to designate up to two primary caregivers instead of only one;
  • Reflecting the addition of six qualifying debilitating medical conditions: PTSD, by statutory enactment; and five new conditions (anxiety, chronic pain of visceral origin, chronic pain associated with musculoskeletal disorders, migraines, and Tourette syndrome), by the State Health Commissioner’s March 22, 2018, petition decision;
  • Streamlining the petition process for the addition of qualifying debilitating medical conditions by removing the requirement that petitions must first be referred to the Medicinal Marijuana Review Panel;
  • Emphasizing the advisory role of the Medicinal Marijuana Review Panel to include the provision of guidance and recommendations to the State Health Commissioner regarding the use of marijuana for medical purposes;
  • Allowing physicians to opt out of inclusion on the public list of physicians participating in the MMP;
  • Removing the requirement of psychiatric evaluation as a condition of physician certification of minors as qualifying patients;
  • Creating an endorsement system for cultivation, manufacturing, and dispensing marijuana for medicinal purposes;
  • Authorizing the manufacturing and dispensing of medicinal marijuana in non-topical formulations;
  • Repealing the three-strain limit on authorized cultivation and dispensary activity;
  • Elevating the MMP to division status within the Department of Health;
  • Establishing an application process by which the six current alternative treatment centers can apply for satellite locations; and
  • Identifying the DOH’s criteria for evaluating applications for additional alternative treatment centers.

Interested parties have until August 17, 2018 to submit written comments to the DOH.  An unofficial copy of the DOH’s proposed amendments is available on the department’s website here.