New Jersey's Impending Marijuana Legalization Vote Is Accelerating An Already-Hot Market
The cannabis industry is gaining traction across the country as data suggests that demand for the product has generally increased during the coronavirus pandemic. In New Jersey, the business of marijuana has even more momentum.
The state’s 2019 expansion of its list of accepted conditions to treat with medical marijuana had already given the 12 companies permitted to cultivate, process and sell cannabis the impetus to expand their operations. On Election Day, Nov. 3, voters statewide will decide on legalization for recreational use, which some recent polling suggests is likely to pass easily.
“We see tremendous growth potential in the New Jersey medical-use cannabis industry with the recent steps for expansion of the program and patient demand,” Innovative Industrial Properties President and CEO Paul Smithers said. “But [we] also see additional long-term growth potential with the prospect of the introduction of an adult-use program in the relatively near future.”
The first 12 medicinal permits, issued beginning in 2012, were for vertically integrated operations, which were later granted permission to open up retail-only, “satellite” facilities. The next 24 licenses, which have been delayed significantly by ongoing lawsuits, will be split between 15 pure retail licenses, five for cultivation and four for vertically integrated companies.
Several out-of-state parties were part of a rush for those 24 licenses, Dresdner Robin Assistant Director of Planning Services Charles Heydt told Bisnow. Dresdner Robin, a land use advisory firm, has guided several marijuana businesses through local zoning processes, which differ from township to township because of New Jersey’s Home Rule charter granting local autonomy. Most recently, the firm helped Harmony Dispensary gain approval to open a retail dispensary in Hoboken.
The lawsuit limbo in which the next wave of medical permits is stuck could be damaging to the companies involved, delaying their anticipated revenue stream and possibly imperiling pending real estate deals. Other complicating factors include Gov. Phil Murphy's delay in appointing people to sit on the New Jersey Cannabis Regulatory Commission.
If the way medical marijuana has gone in the state is any indication, it could be years before recreational permits are granted and such business can move forward. But larger operators with the capital to wait out such a process are already moving forward on projects that can accommodate the anticipated rush of demand if and when the floodgates of recreational use open.
California-based Innovative Industrial Properties is one of a host of out-of-state companies that have been pouring into New Jersey to capture some of that demand. IIP entered the market in July by purchasing a warehouse and leasing it to an operator that had been granted one of those early licenses. It purchased three cannabis-related properties in New Jersey in July, a $50M investment, including commitments for future tenant improvements.
New York-based Acreage Holdings completed a takeover of nonprofit Compassionate Care Foundation (and its license to cultivate and sell) for $10M at the end of June to obtain its own license. It now operates a facility that contains cultivation, processing and retail in the Atlantic City suburb of Egg Harbor, as well as a satellite retail facility on the Atlantic City boardwalk.
Acreage is in the process of expanding its cultivation footprint at its Egg Harbor facility to 21K SF.
A representative for another license holder, Garden State Dispensary, told Marijuana Business Daily that he estimates the 12 original licensees are building out around 2M SF of cultivation and processing space between them. There is no regulatory limit to how much a company can produce, Acreage New Jersey General Manager Brian Sickora told Bisnow — only a 3 ounce-per-month limit for patients.
If and when recreational cannabis is legalized in New Jersey, placement of cultivation and processing facilities will be more dependent on how friendly a municipality is to the business. The retail aspect of cannabis sales, whether medical or recreational, has to contend with local zoning laws and potentially hostile local governments, though there is potential opportunity for value in retail leases since retail real estate is struggling.
Cannabis cultivation and processing plants have a different set of problems. They have to contend with e-commerce demands for industrial space, further crowding the most competitive sector in commercial real estate in one of its most competitive states. Developers of distribution centers are often concerned with road access to ports and customer bases, and there is opportunity here, too — cannabis companies can target the redevelopment of older industrial buildings that may not meet modern logistics needs.
IIP has executed a deal along those lines, purchasing a 110K SF warehouse in Camden County in order to redevelop it into a cultivation facility for Curaleaf, the tenant it already had in hand to fill the property, Smithers told Bisnow.
“Most of our properties are adaptive reuse projects,” Smithers said.
