A Report Card for New Jersey’s Cannabis Markets

Between April 21 and July 31, 2022, New Jersey generated $200M in cannabis sales — a brisk, robust market outpacing other adult-use markets BDSA tracks. The market research company analyzes, forecasts and tracks trends in the global cannabinoid industry. Other key findings from its report on the NJ market include: 

  • Dollar sales experienced a compound monthly growth rate of about 10% between May and July, a full 7% higher than Illinois which saw rates of 3% during the first three months of its adult-use sales
  • A 15% increase in consumer penetration since Q2 2020, with 50% of NJ survey participants saying they are past six-month consumers
  • Flower comprised about 50% of dollar sales (a full 10% higher than the usual 40% share) and 45% of unit sales in July

One factor likely contributing to the state’s market growth? The cross-border purchasing from consumers from the tri-state metropolitan area, including New York and Connecticut. Neither state has legalized the sale of recreational cannabis.

Another possible reason for its popularity? One study found NJ residents consume cannabis for relaxing and managing anxiety at a higher rate — 50% — than other state’s adult residents. The survey did not determine whether people living in NJ are more stressed than in other states — or if they are simply more aware of cannabis’s benefits to helping with relaxation and anxiety.

Additional Permits Awarded

Earlier in October 2022, the New Jersey Cannabis Regulatory Commission (CRC) awarded 18 annual adult-use cannabis business permits, including eight new and 10 applications converting existing conditional to annual permits. Earlier this year, the CRC had approved an initial round of 68 (out of a total 675 applicants) conditional adult-use licenses. 

New applicants rely on conditional licenses to move forward with:

  • Procuring financing and real estate
  • Obtaining municipal approvals
  • Ultimately receiving full, annual licenses

These new approvals showed the CRC’s commitment to developing a diverse recreational market in the state. Of the 68 applicants, 39% are white, 28% Black, 8% Asian, 17% undisclosed, and 8% other.

Potential Cultivation Shortfalls

The eight cultivation licenses and three manufacturing licenses will help ease supply concerns. But the industry faces some uphill challenges, especially with supply. 

There’s still a relatively small number of cultivators, and while seven of the state’s 13 cultivators are allowed to sell adult-use cannabis products if supplies dwindle, regulators believe they haven’t adhered to the caveat that they must prioritize MMJ patients during low supply periods. In fact, earlier this summer, five of the seven cultivators received fines for selling recreational use products during hours reserved specifically for MMJ patients. These seven licenses, which operate from 13 retail storefronts, account for all NJ’s adult-use sales. 

A NJ appellate court lifted a 2019 order banning the state from issuing more medical cannabis licenses in February 2021, but the 18-month delay has adversely affected plans to expand the state’s medical cannabis supply. The delay also resulted in would-be cultivators losing or selling properties during the ban. 

The New Jersey CannaBusiness Association has said they’re working to get more cultivators up and running quickly and that the CRC can issue additional conditional or annual licenses to help prevent supply shortages. But others have raised the concern that some of the 148 businesses who’ve received conditional licenses since June are ill-equipped to handle the surge because they lack the financing and industry knowledge to put products on the shelves.

Some cultivators, however, continue expanding to meet demand, including one multi-state operator with a cultivation facility and three MMJ dispensaries in NJ. To help alleviate demand, the CRC has:

  • Approved 297 more conditional licenses, which now total 801 permits awarded since March 2022
  • Extended length of time for some conditional licensees to apply for converting to an annual license
  • Increased 2023’s Social Equity Excise Fee from $1.10/ounce to $1.52/ounce

Finding Property

Another challenge the cannabis industry faces is the ability of NJ municipalities to deny businesses to build new or renovate existing properties for cultivation sites within their borders. Securing properties isn’t easy — as an April report shows about 70% of municipalities initially opted out of recreational cannabis sales. While existing medical cultivators can convert for sale to the adult-use market, this pivot brings additional red tape including an approval process with the municipality which has delayed conversions.

Other Obstacles

Prospective growers continue to face other obstacles, and some industry experts predict the bottleneck will take between six to 12 months or longer to resolve, including:

  • Slow-to-resolve pandemic-related delays affecting the licensing process
  • Time needed to plant, grow, and harvest cannabis
  • Inflation and supply chain issues slowing construction of cultivation facilities — and increasing their cost

M&A Activity

2021 saw record-breaking mergers and acquisitions in the cannabis industry, with California leading the charge ($3.5B) followed by Pennsylvania and Colorado. But the M&A cooled in 2022, even with numbers 20% higher than in 2020. The numbers don’t project doom and gloom, however. Two multistate operators are nearing close, including Verano Holdings’ $400M purchase of Goodness Growth Holdings and Cresco Labs’ $1.4B acquisition of Columbia Care, for example.

High interest rates and low stock prices have contributed to the cooldown, with U.S. cannabis capital raises depressed 65% YTD and equity capital raises decreasing 97% for cannabis cultivators and retailers. The reason? Large companies have a lot of cash, but they’re waiting to see what happens with the Secure and Fair Enforcement (SAFE) Act.

Should the legislation — which enables U.S. financial institutions to serve state-legal cannabis businesses without fear of punishment — pass, the industry’s access to capital may shift radically, changing the landscape and generating higher stock prices and the potential for more institutional investment, according to MJBizdaily.

The Future Looks Good

Between April 21 and June 30, 2022, the state’s adult-use businesses recorded nearly $80M in total sales, according to the CRC. These numbers include nearly $2M in recreational sales on the first day adult-use sales launched. In Q2, MMJ sales increased to over $59M as well.

The 2022 MJBiz factbook projected that the state’s adult-use cannabis market will generate between $625M and $775M in 2022 and see explosive growth to generate $2B to $2.4B by 2026.

If you’re seeking more information specifically about the cannabis industry, we invite you to visit CREA United’s Cannabis group, spearheaded by Colby Piper, director of cannabis real estate at RIPCO.

We invite all CRE investors to talk to the professionals at CREA United: an organization of CRE professionals from 92 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more. 

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