Cannabis business licensing in New Jersey is one of the fastest-growing topics in the state. With the recent vote legalizing recreational cannabis in the Garden State, it’s safe to say ganjapreneurs are well on their way towards fulfilling their New Jersey cannabusiness dreams.
But what about the licensing? Do you need an NJ cultivation license to grow flower? And what license will you need to open recreational dispensaries in New Jersey?
We’ll answer these questions and more in this article. But let’s first discuss the history of legalization in New Jersey and the current legislation in place.
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New Jersey Cannabis Legalization: The History
Governor Jon Corzine signed the Compassionate Use Medical Marijuana Act, S. 119 into law on January 18, 2010. This was his last day in office – some might even say this was a goodbye gift.
Through the Compassionate Use Medical Marijuana Act, qualified patients were granted access to medical cannabis through six Alternative Treatment Centers (ATC). These are non-profits that hold legal cannabis licenses from the state to produce and sell medical marijuana.
However, the program’s enrollment wasn’t nearly as high as one might expect; between resistance from former Governor Chris Christie, high prices, and regulatory limitations, the program didn’t sufficiently meet the demand for an accessible way to obtain medical marijuana in New Jersey.
Then, in 2016 and 2017, the law changed to include post-traumatic stress disorder and chronic pain. As a result, 24 new medical marijuana ATC licenses were put on hold because of a lawsuit.
By December 15, 2019, adult-use legalization was put on the voters’ 2020 ballot after the state legislature passed a cannabis referendum bill. The vote amended the state constitution, thereby legalizing the cultivation, processing, and retail sale of cannabis for adults over 21 years of age. This constitutional amendment took effect on January 1, 2021.
Looking at the New Jersey Cannabis Market’s Metrics
So many people are looking into the cannabis business licensing New Jersey process, and it’s not hard to imagine why. There’s a lot of potential for the cannabis sector in this state.
New Jersey is ripe for the cannabis sector’s expansion. With an impressive population of 8.9 million and 6 licensed cannabis businesses in place, we can expect growth. At this point, the Garden State has 6 companies that are allowed to have up to 3 dispensaries operating. The state has 12 licensed dispensaries. However, only nine are currently open.
The state has around 95,000 medical marijuana patients. These products’ taxes are currently at 4% of sales until June 30, 2021, 2% from July 1, 2021 to June 20, 2022, and will drop to 0% after July 1, 2022. What’s unique about New Jersey’s adult-use cannabis market is that, so far, the state hasn’t implemented an excise tax on marijuana. Thus, regular sales tax will apply, and the local governments could demand a tax of up to 2% on retail sales.
Cannabis Business Licensing in New Jersey
At this point, cannabis Grower, Wholesaler, Distributor, Processor, Retailer, and Delivery licenses have not been made available. The state is waiting until it adopts a set of rules to govern these cannabis licensing.
For the first 18 months, the state’s restrictions against vertical integration will be established to prevent premature monopolies from developing. Thus, cannabis businesses will not obtain licenses for growing and distributing.
For the first two years of legal cannabis sales in New Jersey, the marijuana grower licenses available will be capped at 37 licenses. This limit will not apply to micro-licenses (businesses with ten or fewer team members).
At this point, the state has 12 licensed Alternative Treatment Centers (ATCs). These are all vertically-integrated non-profit medical license holders. Currently, 9 of these ATCs are in operation. The state will offer adult-use licenses to these organizations first.
A legal case is still holding up the 2019 medical licensing round. There’s a chance that these licenses will be given prior to the state adopting its final rules. If this happens, these license holders will also be given initial access to the adult-use licenses.
New Jersey is also incorporating a social equity program as part of the bill. The state will have an office within the CRC to ensure social equity. Many of these licenses will be granted to women, disabled veterans, minorities, and lower-income applicants. Once the legislation passes, the newly-formed Cannabis Regulatory Commission (CRC) has 180 days to implement its regulatory rules.
How to Start a Cannabis Business in New Jersey: Step-by-Step
You’ll need to do several things before you apply for cannabis business licensing in New Jersey. While not all are essential, they’ll make the entire process easier.
First, you’ll look over S. 21. This is the foundation of the state’s adult-use program. So, if you’re planning to participate in this program, it’s essential to understand it.
Wait for the draft rules from the CRC. Once these rules are released, we’ll have a better idea regarding what we’ll have to do to remain compliant.
Look for cannabis real estate in New Jersey. High-traffic areas that are currently zoned for medical cannabis may allow adult-use cannabis operations to operate within these borders, as well.
Work on preliminary plans comparable to medical cannabis license applications. Minimally speaking, you’ll want to have the following for your New Jersey cannabis license application, depending on which apply to your situation:
Environmental impact plan
Background of principals, board members, & owners
Quality control & quality assurance plan
Community engagement plan
Labor compliance plan
Workforce and job-creation plan
Minority-owned, veteran-owned, or women-owned business certification
Considering Cannabis Business Licensing in New Jersey?
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Wondering how to start a legal cannabis business in Michigan? You’ve come to the right place.
The Great Lake State officially legalized marijuana, and as more progress is made, entering the Michigan cannabis industry is becoming an option for many. This is one of the fastest-growing sectors in the state, so it makes sense that you want to get in on it now.
Before you begin, it’s vital to learn about the laws governing legal cannabis businesses in Michigan. At this point, we must follow three marijuana laws; the Michigan Medical Marihuana Act, or “MMMA,” the Medical Marihuana Facilities Licensing Act, or MMFLA, and the Michigan Regulation and Taxation of Marijuana Act, or “MRTMA.”
Marijuana Business Laws in Michigan
Michigan Medical Marihuana Act
The MMMA is the cannabis legislation in Michigan that permits medical marijuana use in the state. This document outlines the protections offered to medical marijuana users, as well as provides a system of registry identification cards for qualifying patients and primary caregivers.
Furthermore, this legislation allows “caregivers” to grow up to 12 plants for each registered MMJ patient. The maximum number of plants these “caregivers” can grow is 72. However, the only people allowed to purchase this marijuana are the caregiver’s registered patients.
Medical Marihuana Facilities Licensing Act
Through the MMFLA, medical marijuana businesses can become licensed. This legislation lets dispensaries sell cannabis products to registered patients. In some cases, the dispensaries can even sell to out-of-state patients.
Michigan Regulation and Taxation of Marijuana Act
The MRTMA is the adult-use cannabis licensing law. This legislation lets licensed recreational marijuana businesses operate in the state. Now that the MRTMA is in place, recreational marijuana businesses in Michigan can sell these products to anyone 21 years and older.
Interested in starting a cannabis business in Michigan? Contact us today to learn more about how we can help.
How to Start a Cannabis Business in Michigan: Step-by-Step In-Depth
Knowing how to start a marijuana company in Michigan means understanding what it takes to make it happen. Here are the steps to take and things to consider as you set out on your endeavor:
Step 1: Finding a Niche
Before establishing a cannabis business in Michigan, you’ll need to decide what you’ll do in the sector. Would you like to begin cultivating cannabis in Michigan? Or perhaps you have some other existing business or skill you’d like to pivot to support cannabusinesses. The industry opportunities include – but aren’t limited to – branding and licensing, ancillary companies, and plant-touching.
Branding & Licensing
Now that cannabis companies can operate in Michigan, you’re allowed to sell your own branded marijuana flower and infused products. If you’ve ever been to a Michigan dispensary, many of the brands you’ll observe aren’t licensed cannabis companies. Instead, these businesses have licensing/white labeling agreements with a Michigan licensed cannabis processor to manufacture these products. The majority of these brands are offering products produced by one of several cannabis processing facilities in Michigan.
This translates to the ability to start a cannabis brand without paying the costly start-up fees of getting a Michigan cannabis license under the MMFLA or MRTMA. So, suppose you’re looking to launch a brand selling flower, edibles, cartridges, or another infused product. If that’s the case, you’ll need some start-up capital, a clear business plan or pitch deck, and a legal professional who has experience negotiating cannabis licensing and white label deals.
The first businesses that come to mind when wondering how to start a cannabis business in Michigan’ are usually “plant-touching” businesses. However, some of the most profitable opportunities are in the ancillary business sector.
You might have an existing skill, business, or service that you could pivot to serve the cannabis industry. Perhaps you’re a digital marketer, real estate broker, general contractor, insurance agent, or excel in another career that could help cannabis business operators.
Regardless of whether you have a directly translatable professional skill, there are other opportunities to become involved in the cannabis ancillary services or products market. With so many ways to participate in the Michigan marijuana industry, you’ll need to choose a route to take.
For example, software developers can develop apps to serve the industry. Or manufacturers can pivot towards creating smoking accessories. As with the licensing and branding idea, you won’t have to pay licensing fees or spend time getting a cannabis license.
Plant-Touching Cannabis Businesses in Michigan
Starting a plant-touching marijuana business in Michigan involves establishing a business that actually handles the plant itself. These types of companies cultivate, dispense, process, test, and transport plant matter. Cannabis lounges and cannabis events also are included in this category because Michigan demands these businesses get an MRTMA license to operate.
Even though plant-touching cannabis businesses in the Great Lakes State are costly to start and involve an extensive and time-consuming licensing process, these can be quite profitable. If you’re considering starting a plant-touching marijuana business in Michigan, feel free to contact us for assistance at any time.
Step 2: Creating a Marijuana Business Plan, Including a Budget & Pro Forma
A solid cannabis business plan goes a long way. This should include a start-up budget and pro forma numbers. While you might self-fund your business to bypass investors or financing, a marijuana business plan will give you the framework for your business model and facilitate growth.
The Michigan cannabis industry can be cruel to business owners who don’t appropriately budget their operations. Cannabis endeavors, especially cultivation facilities, almost always go over budget. With this in mind, we suggest adding at least a 15% contingency to your budget to account for potential cost overruns.
Keep in mind; your business likely will not be profitable from the state. Most of the time, you’ll need to establish and grow your customer base. Or, if you’re a cultivator, you might need time to grow your first crop and perfect your cultivation system. Financially speaking, you’ll need to plan for the operating capital your business needs to reach profitability.
Step 3: Structuring Your Michigan Cannabis Business & Building Your Team
Once you’ve chosen your niche and created a business plan, you’ll want to form a Michigan cannabis company and build out your team. Selecting your business structure can involve forming LLCs and corporations. But choosing the right team will include finding people who bring value.
Minimally speaking, you’ll need a cannabis CPA and a cannabis business attorney. This can involve setting up several consultations with professionals specializing in cannabis to find the right fit.
As you’re choosing a cannabis business attorney, look for someone who has experience in cannabis and business law. While cannabis attorneys with criminal law backgrounds
After hiring someone for either position, you might also be able to utilize their network to find other team members. For instance, at Northstar, we’ve culminated a network of cannabis professionals to support businesses across all niches. This, of course, includes cannabis attorneys.
Professionals with expertise in cannabis will ensure your business’s structuring is right from the beginning, protecting it long-term from the industry’s most common woes. It might be worth bringing in additional partners, cannabis business consultants, and employees to complement your skills in some instances.
For example, if you’re working on a Michigan cultivation facility, you might need to find a master grower. On the other hand, if you’re in cannabis safety testing, you might need someone who has experience running a lab.
As you’re structuring your cannabis business, you’ll need to draft an operating agreement or set up your company’s bylaws. This is where you’ll determine how your business runs. Consider the following:
Will you need investors?
Who is responsible for what in the company?
How will decisions be made?
What tax status will work best for your cannabis business?
Your answers here should guide your company structuring, as well as how you’ll manage the business and which tax selections you’ll make. This step is essential as improper cannabis company structuring can cause issues, profit losses, and litigation in the future.
If you’re not operating a plant-touching company, you won’t need to think about the next few steps. Feel free to skip ahead to Step 7 as the next steps solely apply to plant-touching cannabis businesses in Michigan. But, if you’re a plant-touching company, you’ll have to use the following steps to get the right licensing with the Michigan Marijuana Regulatory Agency (MRA).
Step 4: Qualifying for a State Cannabis License in Michigan
While some states like Florida and Illinois limit the number of state cannabis licenses issued, Michigan doesn’t. If you can pass the state’s background check and get a municipally licensed property, you can obtain an MRTMA or MMFLA cannabis license.
The qualifications for owning a Michigan cannabis business are becoming more lenient. Financial statements, three years of taxes, and real estate deeds are no longer required. We’re also seeing less focus on criminal issues.
Now the MRA focuses primarily on business litigation, regulatory history, bankruptcy, and taxes. This means if you’ve been paying your taxes, don’t have outstanding tax liens or deficiencies, haven’t had problems with other governmental licenses, and haven’t been involved in unethical business practices, you should be able to acquire a cannabis business license in Michigan.
Step 5: Identifying and Municipally Licensing Your Cannabis Real Estate in Michigan
After starting your prequalification process, it’s time to begin searching for cannabis real estate in Michigan. As a plant-touching operation, you’ll need a cannabis facility under the MMFLA and MRTMA. This is also up to each individual municipality as to whether you can set up a shop in the area. Since most Michigan municipalities aren’t allowing licensed cannabis companies to operate, it can be challenging to find the right location.
Regardless of such, many Michigan municipalities allow legal cannabis business operations. These include Detroit, Lansing, Grand Rapids, Warren, Pontiac, Traverse City, Flint, and others.
If you’re looking to obtain a municipally licensed cannabis property, you have several options to consider. Will you buy the property or lease it? If you decide to buy, will you do so on a land contract? This is also known as “terms.” Land contracts are standard throughout the cannabis industry because the lack of banking and lending services for cannabis businesses makes it appealing.
In some cases, you might be able to find a property with a municipal cannabis license or existing cannabis business. There’s also the option to get your own license, of course. But if you find a property that already has a license attached, you can expect to pay a premium for it. If that’s not in your budget, the best option could be to find a property in Michigan eligible for cannabis licensure.
If the property doesn’t come with a cannabis license, you can establish a purchase agreement or contingent lease to save the property as you work on getting your municipal license. Without this action, you might be forced to pay a premium for a property that won’t work for your operation.
Keep in mind; some municipalities cap how many licenses they allow for certain types of facilities. This being the case, there could be a limited application window to obtain one of these municipal licenses. Dispensary licenses, in particular, are usually capped. But some municipalities will limit the number of processors, growers, and other license types for the area, too. This is why it’s vital to check if the municipality is accepting applications for your license type before getting a property.
Step 6: Getting a State Facility License in Michigan
Since you have your prequalification and municipal license in order, it’s time to fully build out your facility and apply for a state operating license. The MRA recommends applying once you’re sixty days from completing your operation’s build-out before applying for Step 2 cannabis facility licensing.
To apply for your final state operating license in Michigan, you’ll need to have your complete plans and submit them to the MRA. This should include your plans for recordkeeping, security, advertising, staffing, and others.
Furthermore, you’ll have to submit to an MRA inspection, along with an inspection from the Bureau of Fire Services (BFS). After you’ve gotten approval for your Step 2 packet and you’ve passed your MRA and BFS inspections, you’ll need to pay the licensing assessment fee. This will vary by license type, but once you pay this fee, you’ll receive an MMFLA or MRTMA license from the MRA – and then, you’ll be ready to start operating.
Step 7: Operating a Cannabis Business & Staying Compliant in Michigan
You’re no longer wondering about the process to legally start up a cannabis business in Michigan – and you’re ready to operate! You have a business plan, and now it’s time to put that plan to use.
At this point, you have funding and a team ready to contribute to your success in the Michigan cannabis industry. But you’ll still have some cannabis compliance-related obstacles to overcome.
Need Financial Help Starting a Cannabis Business in Michigan?
At Northstar Financial, we’re experts in cannabis. Contact us today for expert financial services and guidance.
Now that the January 31, 2021 deadline for the medical Annual Financial Statement reports (AFS) has passed, we have some additional insight for cannabis business operators in Michigan. The requirement per the AFS’s section 701 of the Medical Marihuana Facilities Licensing Act (MMFLA) has made our jobs more challenging but certainly not impossible.
Even as many licensees missed the deadline, the MRA has continued to accept reports without officially granting extensions. As such, while we believe the MRA understands the challenges, we doubt the grace period will extend for another year.
So far, many licensees have received notices regarding their adult-use licenses. They’ve been told that they will need an AFS by June 30, 2021. As the deadline for these filings grows nearer, we’re listing some of the most common deficiencies we’ve observed from the MRA that demand more clarification and/or action below.
Need assistance with your Annual Financial Statement? Contact us today to learn more about how we can help.
What is the Annual Financial Statement (AFS)?
As outlined in the AFS’s section 701, the MMFLA now requires licensees to submit to the Marijuana Regulatory Agency (MRA) financial statements outlining the licensee’s entire operations per the manner and form outlined by the MRA.
The MRA has developed its annual financial statement form report that licensees must use. The agency will not accept any other report formats. Furthermore, the Annual Financial Statement (AFS) Contact Authorization form will need to be submitted with the AFS.
Here are some links to additional essential resources for filing the Annual Financial Statement in Michigan:
Who Can Prepare the Annual Financial Statement (AFS) Report?
The AFS report must be conducted by an independent certified public accountant (CPA) licensed in Michigan. But does this CPA need to be located in Michigan to prepare the AFS report?
Can an out-of-state CPA firm registered in Michigan prepare the Annual Financial Statement report? Yes, as long as the CPA is licensed in the State of Michigan.
For CPA firms registered in Michigan, the individual CPA handling your report must be licensed in the state. If the CPA is not licensed in Michigan, this person cannot prepare the report on your behalf. This information is under Section 701 of the Medical Marijuana Facilities Licensing Act and MCL 339.722.
Requirements for the Annual Financial Statement (AFS)
Reporting periods and annual requirements are announced by bulletin like the one found here. The bulletin was issued on June 3, 2020, which announced that the Annual Financial Statements requirements for all businesses and individuals with marijuana licenses on or before December 31, 2019 include the following:
Licenses obtained prior to October 1, 2019 must deport by October 31, 2020. However, the initial licenses acquired from October 1, 2019 to December 31, 2019 should report by January 31, 2021.
Any marijuana licensee who has acquired a license on or before December 31, 2019 needs to file their report for 2020. This report should include information regarding all licenses held at any point during the applicable reporting period.
The report outlines an agreed-upon procedures engagement that has to be handled by an independent certified public accountant (CPA).
CPAs have to communicate all findings using the report structure created and implemented by the MRA designed explicitly for the marijuana industry. License holders are responsible for filing these reports with the MRA – the agency will not accept other reports.
Without compliance with these reporting requirements, licensees operating in the State of Michigan could be opening themselves up to liability. Filing a late report forwards licensee names to the MRA Enforcement Division, which could result in disciplinary action, such as potential license suspension.
Need assistance with your Annual Financial Statement? Contact us today to have a CPA handle your AFS for you.
Common Annual Financial Statement Deficiencies from the MRA
Preparing a Michigan AFS per the MRA’s demands can be challenging. Here’s a list of the most common deficiencies to consider:
Entities structured with multiple licensees and a centralized corporate management function don’t clearly outline their allocation of expenses with each corresponding license tested.
Payroll found in the general ledger isn’t reconciled with payroll tax returns.
Transactions don’t include properly-maintained supporting documentation.
Customers and vendors recorded in the general ledger don’t use the legal entity names.
Revenue found in the general ledger was not reconciled with the POS or METRC.
Individual sales transactions from METRC do not align with the underlying support observed in the general ledger.
Ownership tables are not aligned with the documents offered to the MRA.
Lease agreements are matching the information offered to the MRA.
Initial licensure dates offered were not accurate, which impacted the reporting periods.
Tips to Prepare for Michigan Marijuana Regulatory Agency Financial Report
As we prepare for the next round of adult-use AFS reports, it’s essential to prepare cannabis companies for the testing. This will involve reviewing and reconciling 2020 record keeping.
Here are some tips to ensure you’re prepared for this testing:
Properly identify your ownership structure and make sure it agrees to all underlying agreements on file with the MRA.
Maintain the right documentation for your license approval dates.
Perform wage reconciliation of the 941s to the general ledger quarterly.
Check all of the supporting documentation for revenue and expense transactions to ensure they’re all properly maintained. Include this as a component of your accounting process and controls.
Get form W-9 for every vendor and check the information recorded in the general ledger to ensure it includes the full legal entity name vendor. Maintain caregiver numbers and license numbers for all vendors where applicable.
Reconcile sales to METRC and, if applicable, to the POS, each month. Make sure to document reasons for any discrepancies.
Check all agreements to ensure they’re appropriately executed by all parties and are documented with the MRA. For revisions, regardless of whether written or verbal, must be documented.
Check all legal documents, including but not limited to licensing agreements, leases, and other agreements, to ensure they’re all readily available with all transactions in the general ledger properly recorded in accordance with the agreements.
Need an expert CPA to handle your Annual Financial Statement? Contact us today to learn more about how we can help.