As New Jersey moves to approve marijuana for recreational use, those aspiring to launch a cannabis business can expect both opportunities and challenges unique to this industry.
Entrepreneurs will need good legal counsel, advises Stacey D. Udell, director of valuation and litigation Services at HBK Valuation Group in Cherry Hill. Despite Attorney General Jeff Sessions’ memo reversing the federal government’s hands-off approach on marijuana businesses in states where it is legal, Udell expects that recreational marijuana will become legal in New Jersey.
Udell will be among a group of panelists who will speak about “The Business of Cannabis” in a forum hosted by the MID-Jersey Chamber of Commerce on Tuesday, January 23, from 7:30 to 10:30 a.m. at Forsgate Country Club, Monroe Township. Register from the Tickets link on the chamber’s website: www.midjerseychamber.org/event/cannabis, or call 609-689-9960.
Attendees will have a chance to learn about the financial and legal requirements of setting up a business, securing cannabis cultivation and dispensary licenses, employment law issues, liability and risk issues; and working with state and local officials to secure a location. Riley Cote, founder of Hemp Heals Foundation and former Philadelphia Flyer, will give the keynote address.
In addition to Udell, the panel includes George Schidlovsky with Compassionate Sciences Alternative Treatment Center, an organization that dispenses medical cannabis and offers seminars and outreach programs. The panel also includes David Berndt with Nottingham Insurance, and Peter F. Kelly, a partner with Fox Rothschild LLP, the law firm presenting the event.
The event will be moderated by Scott Rudder, president of Trenton-based New Jersey Cannabusiness Association, an organization that provides information and advocacy for New Jersey’s cannabis industry, and promotes jobs and sustainable growth. Rudder is a partner at Burton Trent Public Affairs. In the past, he has served as a Republican state assemblyman, the mayor of Medford, and an executive with Lockheed Martin.
A press release on MIDJersey’ website states that the cannabis industry promises a potential $1.3 billion market in New Jersey and an anticipated $300 million in tax revenue. While the state stands to benefit from the tax revenue, business owners need to be aware of the tax laws and all financial costs of starting and operating a marijuana business, Udell points out.
People who are unfamiliar with the cannabis industry could be surprised about the cost of starting and maintaining a business, Udell says. Based on her findings from business owners from neighboring states, the cost of obtaining the initial license could be as high as $1.5 million, and renewal fees could run between $40,000 to $125,000.
Taxes are another consideration because businesses handling cannabis are taxed at a higher rate than other businesses. Udell says that under New Jersey’s current plan, the rate for the first year of business would be 7 percent, and it would increase annually, eventually to 25 percent.
“The tax burden means you need to do a lot more planning,” she says. For instance, the tax rate on marijuana will be higher than the rate for other products or services, so if a business’s sales revenue comes from marijuana and T-shirts, the overall tax amount of the combined sales would be reduced.
“Accounting will be critical,” she says, pointing out that prospective business owners will need to understand the current tax laws for this industry.
It will be challenging for someone with no industry experience or connections to start a marijuana business that involves direct handling of the plant, says Udell. She sees ancillary businesses as good options for newcomers because those will be easier to set up and operate.
Business opportunities include offering tours of dispensaries; running a hotel that allow guests to use the product; production and sale of paraphernalia and storage containers; product reviewing; apps to help business owners look up and comply with regulations; delivery services; and financial services that are not offered by established big banks.
Whether Sessions’ announcement will stand in the long run remains to be seen. “There is push back against Sessions’ position by several law firms and politicians,” Udell says. The state’s new governor, Phil Murphy, State Senators Nicholas Scutari and Ray Lesniak, Assemblyman Reed Gusciora, and Senator Cory Booker are among them.
There are also questions about the cost effectiveness of cracking down on dispensers. There is also the possibility that the Drug Enforcement Administration will eventually remove marijuana from Schedule 1 of the Controlled Substances Act, based on evidence that it has value in medical treatment.
In the meantime, the Fox Rothschild law firm posted a statement linked on MIDJersey’s event page, recommending that companies that handle cannabis be sure they are in full compliance with state laws.
If a bill to legalize marijuana passes in New Jersey, it will probably be 9 to 12 months before consumers will be able to purchase it. Organizations and companies that already have state approval to offer medical marijuana services are likely to be among the first to offer the drug for recreational use. Pharmaceutical companies, which had previously opposed legalization, have shown interest in cannabis as a profitable business venture, and there is concern within cannabis communities that big pharma will attempt to dominate the market.
Udell has been working in the accounting field for over 20 years. She grew up in Piscataway, where her mother worked as a secretary, and her father worked in HVAC sales.
After graduating from the University of Delaware, she held positions with accounting firms before joining HBK. In addition to working with numbers, Udell loves to write, and she recently co-authored the forthcoming book: The Ultimate Cannabis Industry Financial Management and Appraisal Guide (http://cannavaluation.com). The 300-page guide covers the industry’s unique issues, the reasons for its popularity, how a business is valued, and the history of cannabis.
Udell’s best advice for entrepreneurs is to be informed about the challenges of working in the industry, to get professional advice, and maintain a positive relationship with your surrounding community. If the business ventures that involve handling marijuana appear overly daunting, choose an ancillary product or service.