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NEW JERSEY – FUTURE MODEL FOR USA …

December 15, 2018


 

 

cannabis industry, perhaps internationally.

 

Think big and consider the position, our overview of the Canadian Model corroborates the idea.


The Canadian model was effective October 17, 2018 when recreational marijuana use and possession became law.  It remains an experiment in progress, and likely to fail in its present form. At best, the model must be modified to accommodate supply and demand dynamics while attempting to contain the omnipresent, unregulated black market. The transition from unregulated black to a regulated market will not be easy as the “stoner culture” remains entrenched, possibility for decades. The only positive factor of the Canadian model was that it happened.  Nationalizing marijuana represents a major political and social event. Whatever materializes, the conclusions will support what works and what does not.
Understanding the subtleties from the perceptive of an informed observer, we have the bird's eye view of an insider and the algorithm to make sense of the events.  Boots on the ground are usually expensive, especially when an experiment is in process. Following the flow of billions of dollars into capital investment has given use a unique opportunity to evaluate without risking our own assets. In business as in life --- first to the party doesn’t guarantee success. Usually the “second wave” spends less and gains the most. Consider our remarks as "second wave" industrialists.
Big money jumped into Canada, plowed billions of dollars into marijuana cultivation with the promise of boundless profits. As the dust settled and a mere three months since Canada went green, the consensus business model has proven unreliable.  All the Canadian based public companies with a cannabis footprint have excessive market capitalization and are priced to fail with bloated financial statements and unrealistic earnings prospects.
We assessed specific opportunities in Canada and determined that their valuations were inconsistent with our data.  Allowing the full range of investigation expressed by our Subjective Probability – Game Theory Model (SP-GTM) algorithm, we concluded that the consensus approach (used in the Canadian model) was not intuitive or integrated enough to calculate the real risk of capital.

 

NEW JERSEY CANNABIS MODEL


To fully evaluate the proposed bill currently  before lawmakers to sanction recreational marijuana use and possession in New Jersey, we accessed all available data and obtained, when possible from the legislative process, the documents, minutes, and related papers.  Our document collection includes proposed drafts of the bill, where and how originated, committees’ notes, studies and hearings, open discussions, amendments and public statements made by legislators and commentaries from outside “experts,”   who had direct or indirect contact to the proceedings.   In essence, whatever information created internally and available externally during the legislative process was used as “base material” for our Subjective Probability- Game Theory Model (SP-GTM) algorithm.

The final bill scheduled for a vote is a 152-page document, which our algorithm reduced to its rudimentary parts and evaluated under four fields: 1 – Function of the Bill:  Examining moral standards, social justice, orderly change, and reviewing the basis for compromise and how the plan is facilitated.  2 – Tax Consequences of Bill:  This data has two subsets. Firstly, the legal rules and procedures of the state and local governments in calculating the various tax rates. Secondly, the material benefits to the state and community. 3 – Business Model of License Holders: A one-dimensional model is defined as “Cultivator of Recreational Marijuana.” 4 – Benefits to License Holder:  The resulting profile calculated what probabilities would happen upon the legalization of recreational cannabis in New Jersey and the expected path of the cannabis industry.


Salient factors from a historical perspective.
On January 18, 2010, the Compassionate Use Medical Marijuana Act, permitted the use of medical cannabis for persons with listed conditions: cancer, glaucoma, multiple sclerosis, HIV/AIDS, seizure disorder, Lou Gerhig's disease, severe muscle spasms, muscular dystrophy, inflammatory bowel disease, Crohn's disease and any terminal illness (defined as an illness for which a physician certifies that the patient will die within one year). The law allowed the New Jersey health department to create rules to add other illnesses to the list. The law did not allow patients to grow their marijuana; instead, the plant must be acquired through "alternative treatment centers" licensed by the state. Caregivers for patients are permitted to collect marijuana on behalf of the patient, but the caregiver must be designated and cleared by a criminal background check.
In 2011, New Jersey was described as having the strictest medical marijuana law among the 16 states that at the time permitted medical marijuana. Enrollment in the medical marijuana program was small, which has been attributed to costs, the rigid limitations of the program, and "the small number of doctors willing to recommend patients," and resistance  by New Jersey Governor Chris Christie, who is 2014 called the medical program a "front for legalization" of marijuana and "not worth the paper it is written on."
In 2018, after Christie left office, the Democratic-controlled state legislature and support for the new governor,  Phil Murphy,  vowed to sign a legalization bill in a bid to raise $1.3 billion in revenue.

Our Data Collection Source and Platform:
From the 2010 the Compassionate Use Medical Marijuana Act and subsequent documents, we collected enough data to confirm what not to do, and ways to improve a new marijuana law that is sensitive to the demands of the various parties.  No need to detail the mistakes or success, only that the data core is significant to our SP-GTM Model algorithm.

Now for an explanation of  the statement:


NEW JERSEY – FUTURE MODEL FOR USA CANNABIS INDUSTRY, PERHAPS INTERNATIONALLY.  


The New Jersey Cannabis Bill  S 830 1/ -- In its present form the bill represents the best of all possible scenarios. It's foundations has been  extracted from experiences in New Jersey, the states that approved marijuana use and the events in Canada.  Our SP-GTM Model algorithm has isolated four key issues to determine if a  viable business model is possible.
1.    Taxation – state and local benefits: From the outset, Governor Murphy wanted 25 percent tax on gross sales, while the consensus of the legislators wants 12 percent. The lowest is Massachusetts at 10.75 percent, and Washington is the highest at 37 percent. On a weighted average basis, 21.7 percent is the norm.  The local tax rate of 2 percent in New Jersey is featured in the algorithm, even though the rate does not justify the added expense of enforcement, etc.  From our data, we set the algorithm at 18 percent on the state level and 2 percent for local governments.   New Jersey taxable revenue was projected at  18 percent, based on money collected through taxes and license and franchise fees, and  $400 million a year from a tax on marijuana sales. To calculate these values, we used California, and Colorado as primary revenue models without the benefit of Canada’s preliminary data.  
2.    Black Market - Our SP-GTM Model algorithm estimated that when recreational cannabis is legal in New Jersey, black market purchases will represent less than 20 percent of total sales, possibly the lowest in the nation.   Currently, black market sales in California is 84 percent, Washington, 81 percent, and Canada at 80 percent – as the highest zones. The other use states average 64 percent. The low rate for New Jersey can be attributed to the state’s history of social justice issues,  spent $1.4 billion dollars in the last 12 years prosecuting and enforcing cannabis prohibition laws. With the country’s highest incarceration rates, black marketers are afraid to deal and prefer their clients to buy from New York and Pennsylvania sources.  As suggested by the algorithm, this factor should keep legal wholesale marijuana price high and create double-debit profit margins for cultivators.
3.    Language in the Bill – As bill 830 is presented for a vote by the state legislators, it contains three provisions that  are material benefits to license holders. Firstly, the New Jersey bill would allow marijuana dispensaries to set-up sections of their business, separate from the retail area, where customers could take what they buy and enjoy it. Marijuana lounges and salons would become significant profit centers and are capable of attracting other sectors of the consumer market, i.e., sports bars and eateries, multilevel adult entertainment centers and multi-functional social complexes. Secondly, the New Jersey bill would allow marijuana delivery services. Finally, the bill will not allow any backyard cultivation.
4.    State as Social and Business Center  - New Jersey is situated on the northeastern edge of the United States and is bordered to the south by the Atlantic Ocean. The current estimated population for 2018 is 9.03 million, with a growth rate of 0.41%, which ranks 37th in the country.
Statistics relating to density show that New Jersey makes excellent use of every inch of territory. Its total land mass equates to 8,721 square miles (22,608 square kilometers), making it only the 47th biggest state in the US.  Despite its lack of size, however, for every square mile of NJ territory, there is an average of 1,195.5 people, which makes it the most densely populated state in the US. New Jersey is the only state to have every single county considered "urban" by the Census Bureau  The median age was 39.0 years. Children under 18 years of age made up 23% of NJ’s population; 63% were aged 18 through 64 years; 13% were 65 years and older; the population is racially and ethnically diverse. Fifty-nine percent of the population is White, followed by 18% Hispanic or Latino (of any race), 13% Black or African American, 8% Asian, and the remaining 2% include Native American and Alaska Native, Native Hawaiians and Other Pacific Islanders, any other race, and those persons who identified two or more race; 51.3% female and 48.7% male. In age groups under 30 years of age, there are more men than women but in age groups 30 years and older, women outnumber men. Seventy percent speak only English at home, while 15% speak Spanish and the other 14% talk to Chinese, Korean, Portuguese, Italian, Gujarati, Tagalog, Polish, Hindi, Arabic, or some other language.
Whatever happens in New Jersey will be reviewed, analyzed, monitored and debated until the last second when the federal government nationalizes marijuana. By the time that event occurs, New Jersey will be the business model of choice because of the totality of its cannabis law, its demographics and unique circumstances of a limited black market presence. Tax revenue will exceed expectations, the adult consumers would have unrestricted access to the same level of alcoholic beverages and tobacco products, while license holder will reap the benefits of a viable business model.


note: Sometimes it is better and more advantageous to spend quality time and resources applying analytics instead of committing hard assets. At the moment, cannabis investments in cultivation are languishing, and prior billion-dollar commitments are being questioned. Most of the money entrusted in the first wave of the cannabis resolution will be lost, while the “second wave” participants will reap the rewards with less risk and fear.

1/ https://www.njleg.state.nj.us/2018/Bills/S1000/830_I1.HTM

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