Author: Eric Schneider
Email: eric@alpharoot.com
Phone: 646-854-1093
Address: 114 E 25th St 4th Floor, New York, NY 10001
Website: https://alpharoot.com
Bio: Eric Schneider is the managing director of AlphaRoot, a tech-enabled cannabis insurance broker in NYC. Empowered by a team of industry veterans with long-standing relationships in the cannabis and agriculture insurance space, AlphaRoot can provide customized coverage and access to select insurance markets. Schneider is dedicated to his clients’ best interests, attributing his success to taking steps one at a time instead of focussing solely on the bigger picture. This strategy helped triple AlphaRoot’s book of business within its first year. Eric’s mantra is to have heart, be smart, and most importantly, have fun — themes carrying the AlphaRoot team into becoming an industry giant.
The Garden State is changing rapidly as cannabis regulations make room for more businesses to operate legally. In a growing list of states changing initiatives, from New York to Virginia, New Jersey’s massive shift is most welcomed in the cannabis industry. We’ve teamed with AlphaRoot, a tech-enabled broker calibrated to cannabis, to review the new legal landscape. Also, we highlight what it takes to launch a cannabis business in New Jersey.
New Cannabis Regulations in New Jersey
As in most states, the new cannabis regulations in New Jersey are long-awaited. That said, the New Jersey Cannabis Regulatory Commission currently issues licenses for medical and recreational cannabis business operations in New Jersey, including:
- Growing cannabis plants
- Storing cannabis and cannabis products
- Making cannabis products
- Transporting or delivering cannabis and cannabis products
- Selling cannabis and cannabis products
- Testing cannabis and cannabis products
The Commission began accepting applications for the following two Classes on December 15, 2021:
- Class 1: Cultivators
- Class 2: Manufacturers and Testing Laboratories
On March 15, 2022, the Commission started accepting applications for one more class of cannabis business, which is:
- Class 5: Retailers, Dispensing, and Delivery
According to the Commission, all Classes must submit their license applications online at http://www.nj.gov/cannabis. There is no deadline for applications. Although the Commission hasn’t set a limit on how many cannabis business licenses are available statewide, it has established that it will only issue 37 Class 1 (cultivators) licenses before February 22, 2023.
Also, the Commission has the right to update regulations at any time. If there are any updates or changes, the Commission will announce them at a public meeting, post them on their website, publish them in the New Jersey Register, and email them to the Commission’s entire mailing list.
Requirements for Business License Applicants in New Jersey
Launching a cannabis business in New Jersey comes with a handful of requirements. License applicants must review and comply with the requirements listed on page 17 in the Notice of Application document. Applicants can download this PDF directly from the Official Site of the State of New Jersey (linked in the previous section).
These qualification requirements will dictate applicant priority, with 1A the highest scoring and 10B the lowest. Testing laboratory license applications will be rated in priority group 1A. After the scoring process, the Commission will grant final approval based on the priority system. Still, scoring high depends on a few factors that we review later.
Conditional License Application Scored Measures
Other mandatory application requirements exist for all applicants, such as your legal name and primary address, a complete Entity Disclosure Form, a waiver of liability, and plenty more. In addition to many of these standard requirements, each business type has its requirements, such as zoning approval and evidence of local code compliance. Applicants can find all criteria on the Notice of Application Acceptance.
While Classes 1, 2, and 5 must navigate different application requirements, every type must score 100 points for approval on the Conditional License Application Scored Measures. Here’s a shot from the actual Notice of Application PDF outlining these specific requirements:
Source: Notice of Application Acceptance for Personal Use Cannabis Licenses
Insurance Considerations for New Jersey Cannabis Companies
According to the Conditional License Application Scored Measures, part of the application requirements considered is the plan for businesses to obtain liability insurance. This requirement might be challenging for new applicants who don’t have insurance, but there’s a solution.
Here’s a pro tip; cannabis companies shouldn’t purchase insurance before the Commission formally approves you for a license. Naturally, you must have a plan for liability insurance to avoid getting docked ten points on your score.
Letter of Commitment vs. COI
Typically, companies can provide a Certificate of Insurance (COI) to vendors, clients, and investors as proof of active insurance. However, many New Jersey cannabis businesses don’t yet have any commercial insurance policies in place. For those professionals vying for a New Jersey license that don’t have active insurance, consider a “letter of commitment” instead.
A letter of commitment merely states that the broker and carrier partners have engaged your cannabis company and discussed insurance needs. The document also states that the broker will work with your company to obtain the necessary quotes and limits required by New Jersey if your company is granted a license.
As a broker offering this document, AlphaRoot specialists confirm that a letter of commitment usually only references four insurance lines of coverage, including:
- Commercial General Liability
- Products Liability
- Property
- Workers’ Compensation
Additionally, according to AlphaRoot’s bench of experts, a letter of commitment puts applicants in the best position to be awarded a license. The NYC broker explains that it doesn’t make sense to have insurance in place before you even know if you will receive a license — but the application requires a plan for liability insurance. It might seem like a Catch-22; however, a letter of commitment is a fantastic alternative for companies that don’t have insurance in New Jersey and can’t provide a COI.
Insurance Policies Recommended for Cannabis Companies
Roughly half of New Jersey’s Notice addresses insurance-related considerations, so it only makes sense to unravel several vital coverages for building your risk management plan. What’s more, many insurance policies can seem complicated, with varying enhancements and exclusions.
Lastly, inquire about policy language and various options to customize your plan. AlphaRoot’s experts chime in with their experience regarding what commercial insurance policies they recommend for cannabis companies. Remember, teaming with a trusted commercial insurance broker, preferably with experience in the cannabis industry, is your best bet.
General Liability
General liability coverage protects companies against basic business risks, including bodily injury and property damage on the premises. Most states require cannabis companies to carry the policy, and it’s often teamed with product liability insurance.
Product Liability
Product liability insurance protects cannabis companies from third-party liability exposure, alleging a product caused injury or damage. With federal regulations ever-changing, companies must prepare a legal defense to prove their products are safe. As mentioned, general liability and product liability typically go hand-in-hand, and most states require these policies.
Directors & Officers
Directors and officers (D&O) insurance covers directors and officers from investor lawsuits involving mismanagement of company funds, misrepresentation, etc. For any company relying on outside investment, this coverage is critical. Plus, most board of directors require it.
Property
Property coverage is a first-party insurance policy, reimbursing cannabis companies for direct property loss. This policy covers a company’s equipment and buildings used throughout daily operations.
Crime
Whether employees steal from you, a thief robs your armored car, or you receive a forged check or fraudulent wire transaction, money theft happens in many ways. Crime insurance guards your cannabis company against damages from these particular crimes.
Workers’ Compensation
Most states, including New Jersey, require businesses to carry workers’ compensation coverage. When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping businesses running smoothly.
Employment Practices Liability
Employment practices liability (EPL) is a labor law coverage that responds to claims arising from invasion of privacy, wrongful termination, sexual harassment, etc. We recommend it as standard coverage for cannabis companies with any number of employees in the current legal landscape.
Vertical Specific Coverage Considerations
Besides some basic insurance coverages, some cannabis companies require a more tailored approach. For example, a cannabis cultivator might want to purchase crop coverage, while a delivery business could opt for an auto policy. On that note, the following are a handful of coverages designed for specific verticals.
Crop Coverage
As a type of property coverage, crop insurance covers crop loss due to a physical loss by a covered peril. For example, consider a fire in the facility and the damage it would cause the company’s facilities and crops.
Auto Liability Insurance (Owned & HNOA)
Owned auto insurance provides first-party property damage coverage for your vehicle and bodily injury coverage to uninsured or underinsured motorists. HNOA includes coverage for third-party property damage and bodily insuring resulting from accidents during your business.
Cyber Liability
Cyber insurance protects cannabis companies from third-party lawsuits relating to electronic activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Other Legal Considerations Before You Launch
Purchasing adequate commercial insurance is undeniably vital to your business’s longevity. After all, you must protect the ground you’ve already covered to grow and expand your operations. However, insurance considerations aren’t the end of your to-do list. Set aside plenty of time to get your ducks in a row, as with any business launch.
For example, have you decided on a business structure (i.e., LLC, corporation, etc.) or even a business name? Several legal services exist to help walk you through structuring your new business. Also, here are a few more items to consider before you start your cannabis business in New Jersey:
- Zoning
- Creating non-disclosure agreements
- Registering your business name
- Developing marketing strategies
- Submitting your federal tax ID application
- Applying for state tax ID number (if applicable)
- Obtaining business permits and licenses
- Opening a business bank account
- Applying for a business credit card or loan
As you develop a strategy to launch your cannabis business in New Jersey, an excellent approach is to team with professionals. Accountants, attorneys, marketing strategists, and various other professional services should be in your corner. Don’t hesitate to ask questions and network diligently to make vital connections. New Jersey is nearly a blank canvas for the cannabis industry, and now might be your time to be a first-mover, making an impacting and colorful stroke.
Sources:
https://alpharoot.co/cannabis-do-insurance-guide/
https://alpharoot.co/insurance-cannabis-cultivators-growers/
