NJ marijuana legalization: Weed going mainstream, but faces legal, money hurdles

Marijuana is quickly going mainstream in New Jersey.

Newly elected Gov. Phil Murphy's support of legalizing marijuana has prompted the private sector – business consultants, lawyers, developers, investors and banks – to figure out the ground rules of a potential multimillion dollar industry.

And entrepreneurs looking to get their foot in the door of the fledgling cannabis industry are planning on getting a head start Thursday at the New Jersey Cannabis Symposium, a seminar and networking event at the New Jersey Performing Arts Center in Newark.

"This is a real business," said Scott Rudder, executive director of the New Jersey Cannabusiness Association, a sponsor of the symposium. "You’re going to need to have investors. You need to buy inventory. … You need to develop a business strategy and have the right team in place. We’re not talking rocket science, but we are talking real business.”

More: FEEDBACK: Marijuana going mainstream in N.J.

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The event is expected to shed light on the opportunities and hurdles of legal marijuana, an industry that comes with an unusual problem. It could be made legal in the state, but remains illegal under federal law, creating all sorts of headaches. Learn more about the problems facing New Jersey's cannabis industry in the video at the top of the page.

Among them: Banks won’t open accounts for cannabis industrialists, and even if they would, municipalities are banning its sale left and right – years before the first shop would even open.

Nonetheless, the interest is intense.

Pipe dream to probable

Rudder’s group was founded as a trade association in late 2016 for businesses looking to get involved in the cannabis industry – still a pipe dream at that point, he said. At the time, the choice of the next governor – and their opinions on legal marijuana – were still unknown.

Just over a year later, membership rolls have skyrocketed, with the group hosting educational seminars for entrepreneurs and government officials alike and keeping its members updated on the latest with the actual fight to legalize the drug.

And in the months since the symposium was announced, growing attendance has thrice forced organizers to book bigger meeting space at NJPAC.

It’s now sold out, with 500 registrants.

Rudder's advice? Entrepreneurs should do their homework, looking at similar businesses in one of the eight states with legal weed and getting to know officials in the town where they’re looking to sell marijuana.

“This is going to be a very quick, rapid expansion, so it’s all about developing your network and in-house relationships with the current cannabis industry,” said Rudder, a former assemblyman and mayor of Medford.

But how does a business owner get financing – or even open a bank account – for a retail store or cultivation facility when marijuana remains a Schedule 1 drug?

It’d be far easier to open a Jersey Mike’s franchise.

The Obama administration gave the fledgling cannabis industry a break and told federal prosecutors to relax enforcement of recreational marijuana use, instead focusing on preventing its distribution to minors and revenue from pot sales funneling to criminal enterprises.

MORE: Justice Department cracks down on marijuana

Even then, only a few banks were interested in doing business with cannabis enterprises. “Now, it will be little to none,” said Travis Nelson, an attorney at Reed Smith in Princeton.

Last month, Attorney General Jeff Sessions rescinded that memo, leaving it for individual U.S. attorneys to decide. Earlier this month, Sessions picked Craig Carpenito for the New Jersey post.

Finding the money

The biggest obstacle is money. Federally chartered banks can't have customers who violate the federal law, in this case, the Federal Controlled Substances Act. It means dispensaries can't take credit cards or deposit money from marijuana sales in banks.

Entrepreneurs also couldn't raise money from banks, leaving them to search for capital mainly from friends and family, they said.

“You end up having to get it financed through nontraditional sources, like private money,” said Daniel Barkin, an attorney with Mandelbaum Salsburg in Roseland.

For bankers, the issue creates all sorts of headaches. The direct sale of marijuana isn't the only issue: What if a commercial real estate customer decides to rent space to a dispensary? What if a manufacturer decides to produce equipment needed to grow marijuana? What if a farmer adds marijuana to his or her crops?

Federal banking regulators have yet to provide guidance, said John McWeeney, president and chief executive officer of the New Jersey Bankers Association, which is hosting its own seminar at Forsgate Country Club in Monroe on Jan. 31.

"Most banks are very adverse to doing it because they fear they are breaking the law, and their banks or individuals could be subject to prosecution," McWeeney said.

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One of the biggest capital outlays for someone getting involved in the cannabis industry is real estate. But how can you purchase warehouse space when it could be rendered useless by a federal decree? And why would someone sign a lease for a retail store when the landlord might change his or her mind next year?

“What we’ve got a lot of right now is scrambling,” said Marianne Bays, a cannabis industry analyst with Kalyx Properties. “It’s a lot of ‘thinking about it.’”

In other states, real estate investment trusts have been a powerful ally of cannabis business owners. REITs have the funds to build or retrofit commercial space and they’re usually catered to a specific industry.

Kalyx Properties has been involved in such projects in Colorado, Washington and Oregon. Often, the company works the cost of construction into tenants’ rental rates, analyst Marianne Bays said.

“Kalyx provides the ability for these businesses to have that capital output at the very beginning of their operation. Instead, they have a landlord who understand what they’re doing and will work with them,” Bays said.

“Large capital outlay can be a killer to a business – and we want our businesses to succeed so they can pay the rent,” she said.

Shedding the stigma

But that’s only part of the real estate problem: Picking a location for a marijuana business is purely speculative.

Elected officials in some cities, such as Asbury Park and Jersey City, have publicly said they’d welcome such businesses. But an increasing number of towns – including Point Pleasant Beach, Toms River and Old Bridge – have gone the opposite route, discussing or passing ordinances banning marijuana sales.

“People are looking for solutions now but it’s all very speculative until the cities stake their claim,” Bays said. “It could be legal today, illegal tomorrow. This is really a very fundamental part of what we need to do to create a solid industry here in New Jersey – to have these decisions made with the town really understanding what the stakes are.”

There are other pitfalls that marijuana dispensaries face. Among them, Nelson from Reed Smith said, is the perception that marijuana is a danger that also could lead people to graduate to more addictive, more harmful drugs.

Employers, for example, don't appear ready to take marijuana use off the table. Nearly 70 percent said job applicants and current employees should still be screened for marijuana use, even if they are in a state where it is legal, according to a survey released this week by Employment Background Investigations Inc., a background screening company based in Owings Mills, Maryland.

Their top concerns: Employee safety; liability and insurance issues; and employee job performance.

Until marijuana is formally legalized – and perhaps in order for it to become so – fighting against that stigma will continue to be a main goal for the cannabis industry and its biggest cheerleaders.

“For our entire lives, we’ve been told cannabis is a dangerous drug,” said Rudder of the New Jersey Cannabusiness Association. “And the reality is it’s an extraordinarily helpful medicine. And when it comes to people using it for recreational purposes or medicating purposes?

“You’re looking at something significantly safer than alcohol, tobacco or opioids,” he said.

Mike Davis; @byMikeDavis: 732-643-4223; mdavis@gannettnj.com

Michael Diamond; @mdiamondapp; 732-643-4038; mdiamond@gannettnj.com