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POT TRENDS IN NEW JERSEY


For the patient and prudent participator, New Jersey has the potential to be a significant player in the pot trade. Like anything important, focusing on what’s available now instead of the distance is merely an exercise of attitude. Case in point is what New Jersey is doing: Medical marijuana programs are the most restrictive in the United States, with only six vertically integrated license holders serving a small patient population. The state is on the cusp of significant program expansion. Gov. Phil Murphy has announced that the state will significantly increase the list of qualifying conditions. The granting of new licenses for producers, cultivators, and retailers are scheduled for early 2019. Therein, current license holders will be able to immediately expand their production and open new stores, giving them a substantial initial competitive advantage after years of taking losses in a state program the former Republican administration designed to fail. Gov. Murphy has called for New Jersey to legalize marijuana for all adults. The Subjective Probability Model SPM projects it will happen latter half of 2019. The event would trigger unlimited possibilities for businesses with medical licenses and opportunities for new players. SPM forecasts that revenue would exceed $250 million per year. In a state of 9 + million people, and bordering the major population centers of New York City and Philadelphia, marijuana license-holders are in the driver's seat. SPM also projects that after the calendar year 2019, no new pot licenses of any kind will be issued in New Jersey. Therefore, a pot license to operate in the state will be worth $5 to 7$ million for anyone desirous to enter the market. New Jersey legislators are making a bonified effort for it to happen. With the backing of Gov. Murphy to double the state’s marijuana providers to meet growing demand, six more medical centers are being authorized. The deadline for filing state applications is August 31, 2018. At present, only 10,000 patients signed up form medical marijuana in the first six months of the year of which 6,300 cited anxiety or chronic pain of visceral origin or related to the musculoskeletal disorder. These conditions are part of six-new qualifying ailments introduced by Murphy in March. Other requirements include migraines and Tourette’s syndrome. Long-term profits and sustainable are not in medical marijuana and the money poured into the state does not justify a return on capital. Like elsewhere in other approved states, committing hard dollars into medical marijuana is a fool’s game unless recreational is made part of the equitation. States that supported personal use, their operators are generating multimillions of dollars in cash flow, but modest profits. More than likely, these enterprises cannot sustain the current environment. Bankruptcies or below-market consolidation are unavoidable. Without federal sanctions to legalize marijuana, the topline enthusiasm for big money in the U.S. fray is limited. Meanwhile, major fund flows, nearly half-billion dollars poured into Canada, where recreational use is legal.

How does New Jersey fit into the mix?

Whatever money is on the table in New Jersey and other marijuana approved states, the expectations are high, and the potential rewards are even higher if marijuana can be federally approved and the label of “illegal” is removed. For now, the players currently engaged, the keyword is “infrastructure.” The ability to have boots on the ground with a viable vertical operation and the flexibility to immediately upscale. In such a scenario, a dollar committed now would be worth a thousand-fold. New Jersey and other East Coast states are under-the-radar of the medical cannabis market and poised to become the country’s most successful cannabis states. Current events will prove this statement correct: In the Western Zone licenses to operate cannabis businesses are easy to obtain, and the markets are oversaturated with retail, cultivation, and processing licenses. Meanwhile, states on the East Coast have restricted the size of their demands, limiting the total permits granted and creating very high barriers to entry. The companies winning licenses in the East Coast markets of New Jersey, New York, Pennsylvania, and Massachusetts have been competing against other professional and well-capitalized applicants in highly competitive application processes, which has mostly resulted in some of the best-capitalized players in the east. The companies that have obtained these licenses also benefit from operating in protected and limited-license markets; whereas, their western counterparts operate in much more saturated markets and face stiff competition for less market share. New Jersey and East Coast operators still have a long way to go. It is expensive to establish a medical marijuana business, capital formation inadequate and lack of flexibility in current regulations are the norm. To obtain a license in cost and time requires hundreds of thousands of dollars in these highly competitive application processes, with no guarantee that a permit will be issued. Add to the compliance mix are county and local laws, length timeframe and relate costs. Marketing can also be an issue: establishing a large patient base to develop, especially in states with more limited qualifying conditions, requiring sustainable operating capital than their west coast counterparts. In the long run, whoever can say in the game will reap the rewards. Even the license would be worth the equivalent value of the entire organization since the states will not grant any licenses in a few years, and the new participant must acquire a permit from the existing operators. The value of license guarantee is the success of the enterprise.

Future Major Play in New Jersey

A notable entry in New Jersey is Evergreen Cultivation LLC (Evergreen), which purchased a 210 acres farm in upper Passaic County. The West Milford entity plans to build a 30,000 square foot greenhouse and became a multimillion-dollar cannabis cultivation center. If approved, Evergreen could be one of the last of its kind in New Jersey. Recently proposed regulations from the Department of Health require separate licensing processes for cultivating, proceeding and sales. Evergreen has received local approve from West Milford in a 5-1 vote on August 15th with intent to sell medical marijuana from the abandoned Lakeland Banking building. Their pharmaceutical grade operation with 24 hours continues security would be linked to the Department of Health has a “test-case” platform.


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