On Feb. 22, 2021 Gov. Phil Murphy signed into law the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act, which established the framework for a legal, adult-use cannabis industry in New Jersey. By some estimates, recreational cannabis may grow to be a billion-dollar industry in the state over the next few years. Many have worried that much of this growing economic pie may be grabbed by large, well-capitalized cannabis companies from out of state that have already established themselves in those other markets where recreational cannabis was legalized earlier than New Jersey.

Enter the microbusiness license.

Per New Jersey’s cannabis licensing laws, a microbusiness is a cannabis business with strong established connections with New Jersey that is subject to certain size and operational limitations. A significant number of licenses to operate in the cannabis industry will be earmarked solely for such microbusinesses. As such, microbusinesses will only need to compete against one another during the application process, rather than needing to compete directly with larger, more established businesses. This potentially gives entrepreneurial start-up companies seeking to delve into the cannabis industry a path forward without getting pushed aside by multi-state operators (MSOs) in the frenzy once New Jersey begins accepting applications.

To qualify as a microbusiness, the business must meet the following criteria:

• All of the owners of the business must be current New Jersey residents, and must have resided in New Jersey for the past two consecutive years.
• At least 51% of the owners, directors, officers, and employees must be residents of the municipality where the business will be located (or at least an adjoining municipality).
• The business can have no more than 10 employees.
• The business operating space can be no more than 2,500 square feet (and in the case of cultivators, can have a height of no more than 24 feet).
• There are various limitations on the monthly volume of cannabis that the business can be involved in, which vary somewhat depending on the type of license being applied for (in some cases limits of 1,000 cannabis plants per month, or limits of 1,000 pounds of usable cannabis per month or other cannabis products or resin, or other similar restrictions).
• Conversely, no owner, director, officer, or other person with a financial interest and decision-making authority in any other cannabis business (whether that business is a microbusiness or not) is permitted to have any financial interest in a microbusiness.

These are not insignificant restrictions, but companies that can plan to fit within the regulations may ease their path to obtaining a license to operate a cannabis business. According to the law, at least 25% of all New Jersey cannabis licenses will be granted solely to microbusinesses (and at least 10% of each class of licenses must go to microbusinesses). In addition, while the legislation provides that no more than 37 cannabis cultivator licenses will be issued in New Jersey during the first two years after enactment, that cap does not apply to microbusinesses.

The law provides for six different types of licenses that businesses may seek in connection with the recreational cannabis market:

Class 1 License: Cannabis Cultivator (growing cannabis)

Class 2 License: Cannabis Manufacturer (preparing and packaging)

Class 3 License: Cannabis Wholesaler (selling to other wholesalers and retailers)

Class 4 License: Cannabis Distributor (selling between cultivators/establishments)

Class 5 License: Cannabis Retailer (selling to retail customers)

Class 6 License: Cannabis Delivery (delivery from retailers to retail customers)

Potential microbusinesses will want to consider which license class will be their focus, and then begin mapping out how they can develop their business plan within the constraints of qualifying as a microbusiness.

Although the bill was signed into law on Feb. 22, 2021, there currently are no application forms or regulations laying out the details of the license application process.

The Cannabis Regulatory Commission is given 180 days from the effective date of the law to develop and finalize these forms and regulations. Thirty days after those application forms and regulations have been finalized, the license application process can formally commence. We do not yet know what the application fee will be for any given class of license, but the Act does provide that the application fees for a microbusiness will be no more than 50% of what the fees would be for non-microbusiness applicants. Also, we know that a microbusiness will be exempt from the requirement to provide evidence that it has entered into a labor peace agreement with a bona fide organization (a requirement imposed on other license applicants).

Potential microbusinesses will want to keep carefully apprised of developments as these forms and regulations are slowly developed, since being ready to apply as soon as New Jersey will permit it is key to having a reasonable chance of approval in what is likely to be an intensely competitive process.

When a microbusiness is ultimately able to receive a cannabis license, that license will be effective for one year (subject at that point to renewal). Importantly, however, the Act provides that there will be a process for microbusinesses to later convert to an ordinary license—not subject to the various ownership and operational limitations imposed on a microbusiness. So, starting as a microbusiness will not automatically condemn the business to stay small as the years go by.

A couple of other points for potential microbusiness applicants to consider:

In evaluating applications for licenses, microbusinesses that meet the state’s criteria to qualify as being minority-owned businesses, women-owned businesses, or disabled veteran-owned businesses will receive special consideration. New Jersey is seeking to have 15% of the licenses granted to minority-owned businesses, and another 15% of the licenses go to women-owned businesses or disabled veteran-owned businesses. There is no requirement that any microbusiness must fall into one of these groups, but if your microbusiness does, you may get the benefit in the application process associated with this type of ownership preference, on top of your general benefit as a microbusiness.

Similarly, the law identifies certain municipalities as “impact zones” (those which meet specified high rankings in past small amount cannabis crimes, crime rate, and unemployment). Special priority will be granted to license applications for businesses that will operate in these impact zones. Additional priority will be granted to businesses that have a significant person in their operations who has resided in the impact zone for three or more years prior to submitting the application. Again, there is no requirement for a microbusiness that it should have such impact zone nexus, but if your microbusiness does it may enhance your license application.

All of these microbusiness and licensing arrangements are new, and the details will evolve as regulations and application forms are developed over the next few months. Now is the time to strategize and develop your business plan to qualify as a microbusiness, and develop your team of trusted advisors to get you through the process. A new industry is being born. 

Robert W. Anderson, Esq., is a partner with the law firm Lindabury, McCormick, Estabrook & Cooper, P.C., based in Westfield, N.J. Anderson's practice emphasizes the needs of fast-growing, entrepreneurial companies. He serves as co-chair of Lindabury’s Cannabis Industry Team.

On March 17, the United States Department of Agriculture National Institute of Food and Agriculture (NIFA) announced that it has invested over $8.5 million in funding for 29 research and extension grants. 

"These grants are part of NIFA's Agriculture and Food Research Initiative and include some projects co-funded by commodity boards through a Farm Bill provision by the American Pulse Association and The Cotton Board,” the organization stated in a news release. 

Out of the 29 funded projects, two of them are geared towards the hemp industry.

According to the release, nearly $300,000 will be awarded to Colorado State University for "Diversity, Distribution and Host Resistance to Emerging Viruses and Viroids of Hemp."

Additionally, the NIFA will also provide nearly $300,000 to Oregon State University for "Feeding Spent Hemp Biomass to Cattle: Cannabinoid Residuals, Animal Health, and Product Quality."

The funding will help advance and provide solutions to essential problems in U.S. agriculture, the release states.

"Critical problems impede efficient food and agricultural systems at local, regional and national scales," said NIFA Director Carrie Castille. "Work supported by this federal investment enables partnerships and close coordination across the entire food and agriculture spectrum on efforts to yield practices that meet pressing needs."

For more information click here.

DENVER, Colorado, March 22, 2021 - PRESS RELEASE - Products touting the hemp cannabinoid CBD flood the marketplace, including everything from tinctures and salves to pet treats, makeup and bottled juices.

Santa Fe Farms recently acquired Colorado-based High Grade Hemp Seed in an effort to shore up its genetics and build out a portfolio that includes consistent seed production for its network of growers in the American Southwest and elsewhere. It’s a move toward the company’s plans to develop an ecosystem, a vertical operation that operates holistically in the quickly expanding international hemp scene.

Santa Fe Farms works in the cannabinoid and fiber segments of the business, and good seed is the gateway to its broader goals of high-quality, paradigm-shifting end products for a new marketplace.  

“There are multiple benefits in becoming part of the Santa Fe Farms ecosystem,” Bodhi Urban, founder of High Grade Hemp Seed, said in a public statement. “High Grade has had a goal of expanding into the industrial hemp space. It feeds nicely into the Santa Fe Farms ecosystem that has ties to industrial research, as well as the ongoing pursuit of genetics for CBD as an ingredient. Aside from the economic and growth benefits for both companies, we are all committed to powering a global supply chain for a better, healthier and more sustainable world.”

We spoke with Santa Fe Farms CEO Steven Gluckstern to learn more about the acquisition and to get a sense of how the company sees the industry developing in this year and in future years.

Eric Sandy: Can you set the stage for what Santa Fe Farms was looking for in an acquisition like this?

Courtesy of High Grade Hemp Seed

Steven Gluckstern: Santa Fe Farms is committed to playing in the entire hemp ecosystem. That's all the way from genetics to growing to processing to investigating new forms of products. Our thesis was that if you didn't play in the entire system in a brand new industry like this, then you wouldn't necessarily know where in the long run the best margins are going to be for you to make the most impact. When we started out two and a half years ago, we were committed to building a comprehensive company. That's very important. We spent the last two and a half years focusing on different areas at different times. One of the things that is obvious, and it should be to anybody in this business, is that what you grow makes a difference.

We spent a considerable amount of time looking. We purchased seed from lots of people. We grew seed on our demonstration farms. We began to understand the various opportunities out there, and then concluded that we needed to take a position in a well-known ultra-high-quality firm. We looked around and were lucky enough to find High Grade Hemp Seed. So, it all starts with genetics.

By the way, I think everybody knows that there's not one “genetics,” and that depending on what latitude you grow at you may or may not need different kinds of seed with different kinds of characteristics—growth patterns.

ES: Could you elaborate a bit on that point about the regional characteristics that make this such a great fit for your farmers?

SG: One of the things is the way in which High Grade went about producing its own seed and identifying its own strains with production partners in various regions around the U.S., it had a portfolio of different kinds of seeds. Some have to be resistant, some need more water, some need less water, some need more sun, some need less sun. What we found in their portfolio was this range of different kinds of seeds.

It's still early days, obviously, for all of us, especially on the industrial side. One of the important things is that High Grade, like most seed producers in the U.S. focus initially on phyto-rich cannabinoids. Everybody really started out focusing on the cannabinoids, and that was the first push, but now obviously industrial is really important.

We also, I should mention, have operations in central America. We have a very important partnership with one of the most significant high-profile companies in Costa Rica, where we're working to develop strains that will also ideal for the tropics, because those will be different. What's interesting about the tropics is that you can grow year-round, which obviously we can't do in North America. I think everybody knows that the farther south you go, the more likely that plant is to express THC. Obviously in the hemp business that’s a negative, not a positive.

ES: What sort of problems does this genetic consistency solve for famers?

SG: Each microclimate poses different problems. In New Mexico, generally, we have to deal with the fact that water is critical here. It's not abundant as it is in some other localities. For us, finding seeds that can operate in a lesser water environment will be important. Also, our topsoil isn't the best in the world here in New Mexico. Anybody who's in the seed business wants to figure out how their seed in any given strain will work in any given sort of ecology.

For a farmer, what they want is consistency. They want to know what seed do I have? What are the standard operating procedures? How do I grow the seeds, in the case of cannabinoids, to make it produce the highest amount of CBD with the lowest amount of THC with the highest amount of biomass per plant with the fewest amount of seeds? Consistency is what you look for in any farming practice, right?

We don't like doing monoculture, but the idea is for farmers to know what you're going to get when you plant it if you plant in the same way, every time. Here in New Mexico, for instance, we have hail early in the season. So, that determines when you plant. You have to understand the depth. When I started out sort of on the farming side, it was a process of buying your seeds and realizing what you were buying exactly. They didn't necessarily tell you what the standard operating procedures were—how deep should you plant this? Should you plant starts? Or should you plant seed? Should you plant mechanically? What kind of irrigation? As our industry matures, we'll get smarter about doing that. And obviously the consistency of seed will help the consistency of farming output.

ES: You’ve mentioned the CBD-rich varieties that have been all over the market, and how there’s a rising interest in industrial varieties. Does agricultural practice itself change when you're working with those different types of seed—meaning, as you get more involved in industrial, do you need to rewrite the script on planting this crop?

SG: I have to preface this and say I'm not a farmer myself, but I'm learning it. But, certainly, just in the simplest way, think of the density of seeds. When people plant cannabinoid-rich seed, you're looking at planting between 2,000 and 5,000 seeds per acre, depending on who you talk to. When you’re doing industrial seed, you're talking about a vastly higher density of plants. You don't care about flower, right? If you're planting for fiber and hurd, flower is what you don’t want. If you're planting for CBD-rich flower, you don't want fiber and hurd; what you want is resin-rich flower. So, there's no question that the practices are different.

By the way, the harvesting is wildly different. How do you get it out of the ground? What do you do with it? How do you process it after you pick it? You can't build an industrial practice in hemp with hand-shucked flower. It doesn't make sense. You’re never going to be able to get the scale.

ES: With High Grade in the fold now, as the 2021 season gets under way, what are some of the big things that you're hoping to achieve with Santa Fe Farms this year?

SG: What we're doing is trying to find a way to, I would say, industrialize the business. And I don't mean that just in terms of fiber and hurd, but even in the cannabinoid space—to find a way to make this a real industry that can supply on a consistent basis high-quality product to the manufacturers who are going to use it in their products or on a standalone basis.

We are extremely focused on the issues of sustainability and carbon sequestration. The hemp plant is a unique plant. If we can begin to develop the standards on how much carbon is sequestered when you grow it appropriately and then use it appropriately, that is another revenue source for farmers. Basically, you'll be able to add additional revenues with respect to the carbon offset that’s produced in hemp farming. I happen to personally believe that's going to maybe be the most significant part of our industry in the next 10 or 20 years.

ES: For all the obvious reasons, it’s a very exciting idea—just in the conceptual sense of what that means and how to convey it to other businesses and also the consumers who are still somewhere in the early stages of that demand curve. There’s much more to come, for sure.

SG: I don't know how old you are, but I'm almost 70. I think the generation of the 30- and 40-year-olds has woken up in a way that we never did in my generation—to say that if we don't make protection of the planet, if not the No. 1 issue that transcends every other issue, at least among the top three, then businesses need to begin to address what they do. Either you're part of the problem or you're part of the solution. And I think one of the very unique things about hemp is that, when we think about bio-sequestration, which without a doubt is a requirement in solving the climate crisis, there's just no doubt about it. Hemp and the hemp industry, if it thinks about itself in the right way, we can be a leader in the bio-sequestration effort, which I believe is critical for my grandchildren to live in a planet where they can breathe the air and drink the water.