Real Estate Tips For The New Jersey Recreational Cannabis Industry
In November 2020, New Jersey voters approved a measure that adjusted the state’s constitution to legalize cannabis. This measure led to the creation of the New Jersey Cannabis Regulatory, Enforcement Assistance and Marketplace Modernization Act (CREAMMA) by the state Legislature, which legalized recreational cannabis usage.
In August 2021, the Cannabis Regulatory Commission (CRC) — which was created to establish the groundwork, regulation and licensing requirements for a recreational cannabis industry — released its first set of regulations to permit the industry to commence operation. This included the six classifications of cannabis business licenses in New Jersey:
Class 1 - Cannabis Cultivator
Class 2 - Cannabis Manufacturer
Class 3 - Cannabis Wholesaler
Class 4 - Cannabis Distributor
Class 5 - Cannabis Retailer
Class 6 - Cannabis Delivery
The regulations will also allow for the issuance of conditional licenses in order to afford the build out operations for the licensees.
While the CRC has yet to begin accepting applications for licenses in New Jersey, advocates and business professionals predict that the commission will release details about the application process in the next several weeks in order to begin accepting, processing and issuing licenses.
With licenses potentially around the corner, many in the real estate business in New Jersey are beginning to prepare for the inevitable influx of cannabis businesses. Due to the strict regulation on cannabis businesses at the state and local levels, property owners and business owners both need to evaluate the many regulatory, zoning, operational, and financing challenges associated with utilizing properties for cannabis uses.
First and foremost, it needs to be determined whether a site is qualified as a location for a cannabis business. This eligibility alone will block a lot of property owners from renting their properties to potential cannabis businesses. Additionally due to local municipalities whom have just as much say as the state government in regards to what cannabis businesses are permitted, if at all.
This includes local zoning laws that will need to be considered, in addition to other factors such as hours of operation, the number of allowed locations and which local areas will be permitted for cannabis businesses. Over 280 municipalities in New Jersey have already enacted ordinances imposing restrictions or outright prohibitions on the operation of cannabis businesses.
So many restrictions can make it difficult to receive a state recreational cannabis license when municipal support, zoning approvals and satisfaction of local restrictions, plus a thorough understanding of all applicable local zoning laws and other ordinance requirements is essential for any potential cannabis business.
If a property were to be qualified under state and local law, recreational cannabis businesses and property owners would still need to sufficiently address the multiple legal and operational issues that typically stem from such operations. Cannabis regulations are constantly changing, even in states where cannabis has been legal for years. This creates a unique challenge for business owners to meet the various changes without violating their leases with the property owner.
A lesser known fact regards the liability that property owners may face under federal law. It is expressed in the Controlled Substances Act that those who, “lease, rent, use, or maintain any place for the purpose of manufacturing, distributing, or using marijuana” as well those who “manage … any place … either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of” carrying on a marijuana business run the risk of federal prosecution, including seizure of property.
While the current presidential administration has thus far been hands off when it comes to the ability of states to control their own legal cannabis industries, President Joe Biden has shown little support for recreational cannabis at the federal level, which will certainly concern many potential property owners when considering renting their property to a cannabis business.
Lastly, as a cannabis business renting a property in New Jersey, the leasing process will be more in depth than a traditional lease agreement for a commercial business. Legal compliance will be custom tailored for each municipality due to varying restrictions, while also staying in compliance with any applicable federal guidelines concerning cannabis uses.
Security deposits under a cannabis lease will likely be significantly greater as property owners will want to protect against the risks associated with cannabis business operations. Operational issues like odor, employee safety, water supply, fire suppression and other details may be included in the lease as well.
The legal cannabis industry is going to bring a lot of money into New Jersey, and a lot of property owners will be chomping at the bit to lease their properties to cannabis businesses in the hopes of raking in some of the money for themselves. Without proper preparation on both ends, cannabis business owners could enter into harmful agreements, and property owners could have their properties irreparably damaged by unprofessional businesses.
The importance of lease/leaser relationships in the legal cannabis industry hold more weight due to the necessary communication and constant adjustments that will need to be made on behalf of both parties. Greener Consulting Group has expertise in finding real estate for cannabis businesses, and we have been following New Jersey’s developments closely.
As the application process opens up in New Jersey, contact us to begin the process and find the right location for your cannabis business. If you are a property owners who wants to lease to a cannabis business, contact us to learn what to look for in a cannabis business, lease planning and more.