Key Take Aways from Northern New Jersey’s April 2022 Meeting
Tony Ianuale (Dresdner Robin) opened with a brief overview of the billion-dollar cannabis industry in New Jersey. In the last year, NJ voters approved the legal use of recreational cannabis; new state and town commissions were created; towns were mandated to enact local legislation to move forward with accommodations for this new business; some towns that initially opted out are now opting back in with zoning stipulations, such as designated distance from schools, places of worship and downtown areas.
Michael Schwamm, whose law firm Duane Morris was the first in the nation to enter the cannabis business 7 years ago, provided a legal context: While recreational and/or medical cannabis is now legal in 40 states, both remain illegal at the federal level. As a result, anyone receiving money for cannabis products is technically breaking federal law (although enforcement is now rare).
- Although there is a statewide cap on cannabis cultivation, the number of retail operations is determined on a town-by-town zoning basis. New cannabis operations need to check whether a specific town has opted out of cannabis zoning before moving forward.
- Landlords need to make sure their bank and insurance company know they are leasing to a cannabis entity to avoid the risk of losing a mortgage or defaulting on a loan.
- There are a significant number of state-chartered banks and credit unions nationwide working with cannabis firms on real estate issues but virtually no other lending; the leading NJ banks in this market are Valley, Dime Savings and East/West.
- The cannabis industry is very collaborative, with competitors helping each other to grow the market.
- While the possibility of federal legislation to legalize cannabis nationally is under discussion, it is unlikely to occur this year. When it does happen, it will open the door to big players in the liquor, tobacco and food industries to change the playing field. Current cannabis entrepreneurs could be edged out with some offering “craft” cannabis to stay in business.
Colby Piper (Ripco Real Estate) dialed in with the real estate perspective on the cannabis market. His firm specializes in finding cannabis zoned properties in MA, CT, NY, NJ, and FL. In the past three years, they have completed 315K SF of cannabis sites from MSOs to smaller industrial properties. He provided an overview of the industrial and cannabis real estate markets in NJ.
- There is not enough inventory available for cannabis in NJ due to municipality zoning restrictions or opting out altogether. On the other hand, more and more towns are opting back in – three in the last three weeks.
- The NJ industrial market is very hot; a few owners like Target, Amazon and ecommerce entities are sitting on zero vacancy properties in 2.5M SF portfolios.
- Because it is so difficult to find already built space in NNJ to cultivate and manufacture cannabis product, there’s an opportunity to build 50K SF spaces with 20-foot ceilings in central and southern Jersey to fill the need.
- In the meantime, tenants are being creative – paying landlords non-refundable holding fees @ half the rent to hold a lease. Some landlords are also getting into the market by getting a percentage of rent for the first two or three years of operation.
- Cannabis REITs are buying up properties and once stabilized by a significant amount, they’re doing sale lease backs. Example: Ascend Wellness, one of the top 10 MSOs in the country, sold their cultivation facility to Innovative Industrial Property, one of the largest REITs, for $40M extra, which gave Ascend the cash to expand the building another 80K SF; they then leased it back to the REIT.
John Meyer (Valley Bank) leads Valley’s new cannabis lending division, which offers a full suite of banking products and services to large and small MSOs as well as large single state operators. Valley will make loans to sizable cultivation facilities and retailers that are owner occupied tier one operations as well as REIT opportunities looking for significant lines of credit and a history of successful operation. In addition, Valley is testing a pilot program called Valley Pay – a refillable digital wallet APP that will facilitate consumer payments for product in a dispensary. It works similar to gift cards currently in use.
Consultant Lisa Diaz provided a summary comparison of CO/NJ’s cannabis experience. In 2013/14, cannabis was not legal in CO; banks were not a financial option; warehouse space was limited; and little distribution infrastructure existed. Nevertheless, the industry grew really, really fast and tax revenue surged, initially in the town of Pueblo, the first home of the cannabis industry. In 2021, Colorado earned $420M in tax revenue from cannabis; and Denver had more dispensaries than bars. In contrast, NJ’s slower growth was partly due to initial short opt-in time frames and lack of regulations, resulting in high opt-out rates for municipalities.
Pietro Barberi (GTL Construction) summarized why the NJ industrial market is so hot – there is a growing need for more industrial space, not only for e-commerce and the growing cannabis market, but now the burgeoning NJ entertainment industry is in the mix. NJ has given a lot of tax incentives to film studios, Netflix, Amazon, and other streaming movie/TV content providers who want to convert industrial space into film studios. In addition, increased demand, and higher costs for industrial products like roofing, HVAC equipment and other supply chain materials as well as labor continue to rise
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Michael Peters (PL Risk Advisors) reported that 18 months ago, his firm transitioned to the cannabis insurance space, contracting with several carriers to offer additional risk management products for cyber security, D&O, EPLI, product liability solutions to insurance firms serving the cannabis market.
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