0:00:00.0 ANNOUNCER: So you wanna know the ins and outs of managing your money? Well, lucky for you, you are just in time for another episode of Master Your Finances, with certified financial planner professional, Kurt Baker. Kurt and his panel of experts are here for you and will cover topics from a legal and personal standpoint. They’ll discuss tax efficiency, liability, owning, managing and saving your money and more. Master Your Finances is underwritten in part by Certified Wealth Management and Investment and Rider University. Rider offers continuing studies programs for adults who need flexibility. Want to add new skills to your resume, take a continuing studies course at Rider University. Now, let’s learn how we can better change our habits with Kurt Baker.
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0:00:55.3 Kurt Baker: You want to gain a better understanding of the cannabis industry? You wanna gather information to determine whether the cannabis industry is of interest to you in terms of business, investment and/or employment? Nick Scalera is the founder and CEO of NJ Cannabis Consulting, a company that assists entrepreneurs and businesses interested in entering the legal recreational cannabis market. He will assist you in understanding the numerous challenges that may lie ahead, as well as determining whether opportunities are appropriate for you. Today, he will instill confidence in you that you are making sound decisions. Alright, this is something that’s been going on for, I guess, a while. I remember like, God, maybe at least 20 years ago, they’re talking about legalizing cannabis, and then I guess we got into the point where we did it for medicinal purposes, and then some states picked that up, and I guess what was it? I believe Colorado was the first one to really come on board with this, right?
0:01:53.7 Nick Scalera: Yeah, they were the pioneers for sure.
0:01:55.9 Kurt Baker: And then it just been kind of slowly but surely moving its way across the country, and New Jersey is a relatively new entry into this new recreational cannabis being legal, which of course has some pros and cons to which we can the debate later. But do you wanna explain a little bit about your journey and how you ended up at this point in time, because we look like we’re similar ages, so you may have had a little bit of a background on this, right?
0:02:19.8 Nick Scalera: I’m much older. [laughter]
0:02:24.8 Kurt Baker: Okay, alright.
0:02:24.8 Nick Scalera: So actually I was… Excuse me. I was a technical guy starting out and worked at laboratories and actually later got a Master’s in Computer Science from Stevens, and then mid-career, I got some advice that with the technical background, I could do really well in the business end of technical companies, so I did do that, I went on and got an MBA. And then from there on, it was more business-oriented kinds of jobs that I had with AT&T and other big companies, PerkinElmer and so forth. And then about 20 years ago or so, I was happy to be working for a dot com that went out of business, right after 9/11, as many of them did, and decided to hang out a shingle as a small business consultant, essentially. So I was doing business plans and marketing plans for the most part, market research, competitive analysis, that kind of thing, for the most part, small businesses, although once in a while, I’d get a job to do some mystery shopping for AT&T or somebody like that.
0:03:31.7 Nick Scalera: And then it was more than five years ago when Phil Murphy was running for governor, and he was talking about expanding the medical program and getting into legalization of adult use in New Jersey, and I thought about in a minute, and I thought this could be interesting, and there is a saying among consultants that chaos breeds opportunity, and I knew there would be a lot of chaos here and there certainly has been for sure. And I remember at the time speaking with my wife and talking about it, trying to make the decision with how to focus on this industry or not, and she said, “Well, at least you’ll have some interesting stories.”
0:04:07.5 Kurt Baker: I’m sure that’s true. [laughter]
0:04:09.6 Nick Scalera: And that has absolutely been the case.
0:04:12.1 Kurt Baker: Okay.
0:04:13.5 Nick Scalera: There’s many of those kinds of stories. So I developed an educational seminar and took it on the road, went to public libraries and chambers of commerce, and joined a trade association right here in New Jersey, and the New Jersey CannaBusiness Association started to go into the networking events. And what I found was that there were quite a few, as we say, subject matter experts, of which I was not, but there were very few people who really understood the business side of it. So sure enough, I did find some other folks to work with, first I helped out on other people’s financials, their pro formas and things like that. In New Jersey, they have now a very well-organized way that you have to submit an application, and one of the things that you have to do is a business plan and a pro forma, and in many cases, you also need a pitch deck to show to the town, and we’ll talk about that a bit more to get their approval and/or investors.
0:05:11.0 Nick Scalera: So that’s how I got into it, and that’s what I’ve been doing for the last… Well, I just celebrated our 5th anniversary, my son put together a website for me, and I get a lot of hits, as you can imagine, I educate a lot of people on the pros and the cons, and making the smartest choice, and for a lot of people, the smartest choices it’s not for them. And I wind up talking a lot of people out of it.
0:05:33.9 Kurt Baker: Yeah, there’s a lot to this. You were here from the very, very beginning. And I remember there were a lot of hurdles. I remember just getting this thing negotiate. In fact, I think everybody was “on board” at the legislature level, and then they never seemed to pass it. I remember, it just seems like it took a lot longer than people thought. ‘Cause I know that just from the usage side, ’cause once you open up cannabis, and we won’t spend a lot of time, but we’ll touch on just briefly, is this pros and cons. So if you have an industry that’s underground that people are just gonna do it anyway, and then you’re not gonna see what’s going on and you have to access and figure what the heck going on. And then when you legalize something like this, you’re like, “Okay, well, now it’s in the open, it’s legal now, are you gonna promote additional use?”
0:06:08.1 Kurt Baker: But that also means you got additional access to services because now in theory, the service, it should know where the people are, so kind of like alcohol it. You went to prohibition and we could hit it, but yeah, people are still going down to the speakeasies in the basement and still drinking and they just… Nobody, it wasn’t public, they couldn’t talk about it.
0:06:24.7 Nick Scalera: And a lot of people became blind.
0:06:26.6 Kurt Baker: Right. [laughter]
0:06:28.5 Nick Scalera: Because again, once the regulations were off, then people were making in their bathtub and things like that, and to a certain extent, that’s true now. What they call the legacy market or the black market is still there, and it will be there for sure. But there are certain risks associated with that. I mean, there are plenty of anecdotes where people have gotten something in there that shouldn’t have been there, and the health issues, and of course, you don’t know what kind of pesticides have been used on it and so forth. So the one benefit of having a legal system is that the product is now tested scrupulously by the state and the testing agencies and so forth, so you know exactly what you’re getting.
0:07:09.1 Kurt Baker: Yeah, and I recall, I went to a workshop to the Chamber House, and you might have been there, but there was one person who got involved in it because I guess his brother was a doctor, and he was looking for consistency in the THC content because it was variable and for a period of time. “How can I prescribe something if I don’t exactly what I’m really prescribing to them?” Because it changes based on the production, so little he went into the business to make sure you had a consistency in the product that was being delivered ’cause he was doing it for medicinal purposes in his case. And so I guess the same rings true for if you’re gonna use it, at least understand what you’re using and understand what you got exactly.
0:07:42.7 Nick Scalera: Exactly.
0:07:44.4 Kurt Baker: So that’s kind of the argument that goes on. I’m sure that debate will continue forever, but. So how did this start in the beginning, as far as what you saw? ‘Cause you’re on the consulting side of this before it actually came, so what did you kinda see through this process, and how do we get to the point now where it is legal to do this and now we’ve got processes in places to open the business? Can you take through a little bit of a the history how long that worked?
0:08:07.3 Nick Scalera: Sure. Well, we were on the sidelines for quite a while until New Jersey figured out what they were going to do, and sure enough, they did visit other places, Colorado, California, some of the folks that had been through this before, and with the idea that they would develop best practices for implementation here. So every state, of course, is different, and New Jersey implemented its program much differently than the other states. We also work with people in New York, they’re doing it again, completely differently, different orientation, different focus and so forth. But they write the rules. And so in New Jersey, when they finally did get it around to, first, I put it in the lap of us, so we voted on it, and 67% of the voters voted to legalize adult use, and then the legislature got involved. I had to figure out what kind of laws they would pass, they put… There were a few failed attempts to put something in front of the governor that he would accept, he finally did, and when he did, now, we needed the infrastructure to make this all happen.
0:09:11.0 Nick Scalera: So they set up something called now the Cannabis Regulatory Commission, they folded medical program under it, they set the rules and regulations, they have commissioners, they’re also responsible for ensuring that all folks that have licenses are complying with the regulations. There is, by the way, 24/7 video monitoring of all the locations and all of that information gets fed to some place in the CRC so that they can monitor exactly what’s going on, is very strictly regulated operation to be sure.
0:09:45.6 Kurt Baker: Now, you mentioned licensing real quick, and I know that it’s not like you just get a cannabis license in New Jersey, there’s different types of license. You wanna walk through a little bit of how that works? The licensing aspect and what types of licenses there are?
0:09:57.5 Nick Scalera: Right. Well, first of all, you can get a different type of license depending on the kind of business. So there was a cultivation license, there’s a processing or manufacturing license, there’s a retail license, there’s also a testing license, and there will be others that are coming. They were in the works for wholesale and distribution and delivery. One thing to note, that delivery is just like Uber in that there’s no selling involved, so you just take it from point A and bring it to point B.
0:10:26.3 Kurt Baker: Oh, okay, so they’re just literally moving the product?
0:10:29.6 Nick Scalera: Exactly.
0:10:30.4 Kurt Baker: So there, Uber might be licensed to do this at some point?
0:10:32.5 Nick Scalera: They could.
0:10:33.3 Kurt Baker: Okay.
0:10:33.8 Nick Scalera: For sure. Okay. Then there’s also different, I’ll call them levels of license. So the key here is that the town, whatever town it has to be, any of the 565 municipalities in New Jersey, and they’re all doing it a little differently because they can, they have total control over what goes on in their town. So in my town, your town, they can determine the kind of cannabis business that can operate there, if any. They may very well say… They may opt out of the program entirely and say no, and by the way, they can change their mind anytime. They can opt in, they can opt out, they can change the regulations, and all of that happens. So the town does have to provide support with the application, has to be a letter of support. And obviously, you have to have a location where this is going to work, it has to be in the right size, has to be, again, the location that the town specifies, and there was even some state regulations in terms of distance from schools and daycares and things like that. And you will see here as well as many other places, that the fact that cannabis is still illegal at the federal level has a ripple effect, and in the case of real estate, the FDIC as a federal agency will not allow “illegal operations” on any place that has an FDIC mortgage.
0:11:55.0 Kurt Baker: Oh, wow.
0:11:57.3 Nick Scalera: Which many places, many mortgages are, so that can be a sticking point as well. So again, that’s one of the things we counsel folks when you go to look at the property, make sure that the owner of the property doesn’t not have an FDIC mortgage.
0:12:10.2 Kurt Baker: Oh, interesting. Wow, that’s what’s fascinating. We’re gonna pick right back up. We’re gonna take a quick break. You’re listening to Master Your Finances, we’ll be right back.
0:12:17.1 ANNOUNCER: This is Master Your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing and saving your money and more from Kurt and his experienced panel guests. Master Your Finances is underwritten in part by Certified Wealth Management and Investment, and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/nextstep.
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0:12:52.8 Kurt Baker: Welcome back, you’re listening to Master Your Finances. I’m here with Nick Scalera, and we’re talking about the cannabis industry, which is relatively new as far as recreational goes here in New Jersey. We had medicinal purposes a few years back, and now Governor Murphy opened it up now it’s, I guess through the voting right, 67% of the voters said, “Yep, that’s okay.” So the voter said okay. The legislature, after a few back and forth with a governor, they came up with the rules, and a lot of that sounds like it pushed out of the township level where they have a lot of control, there’s a lot of levels of control and they’re monitoring this very, very carefully. So it sounds like, yes, it’s available, it’s also being watched really, really closely, ’cause as we all know, there’s pros and cost this whole thing going on. And you touched on this a little bit before hand, though. Of course, it’s legal in New Jersey, plus and I guess roughly about half the States. Somewhere in that range, I think.
0:13:37.0 Nick Scalera: Yeah, 39 states now for medical programs.
0:13:38.7 Kurt Baker: Maybe even more than that. Wow.
0:13:40.4 Nick Scalera: And maybe 13 or 14 now depending on the last elections to have adult use.
0:13:44.8 Kurt Baker: Okay, so we’re way beyond the halfway point, so this is really literally coming across the country. However, as you pointed out in the last segment, federally, this is still illegal, so if I… And I know that if I’m a bank, let’s say if I’m a federally chartered bank, how can I do business with a business that’s illegal, whereas if I’m a state-chartered bank, maybe I can. Can you explain like, how do I as a company maybe have a merchant account where I can take your credit card as an example. Or can I? How does all that work?
0:14:17.2 Nick Scalera: So again, part of the trickle-down effect of the fact that it’s still illegal at the federal level, legal in many cases with the states, the feds have taken a kind of look the other way attitude on it, and again, we’re… United States of America, there are states rights, so the States are allowed to implement whatever program they want in this regard. The feds are not bothering them, other than the fact that any federal agency that’s impacted by this business is gonna have something to say about it. So we talked about the FDIC, another is the IRS.
0:14:48.9 Nick Scalera: The IRS says if you are a cannabis business, you have to fill out your taxes in a different way. A lot of the costs are not gonna be allowable. So there’s something called 280E, which is a provision of the tax code that makes it much more expensive to run a cannabis business because you can’t deduct as many expenses as you can another business. There’s an issue with banking, credit cards and so forth. The issue with the banks is that they can, in fact, handle cannabis businesses, but there are many requirements in terms of regulation for the government. So many of them have decided, as a business decision, that they do not want to incur all the additional work that’s gonna be required to do that. So that’s a business decision. Some, by the way, have more recently decided, “We’re gonna take that on, we’re not going to leave money on the table, we wanna get into this business.” And there are a few banks, even in New Jersey, that will handle cannabis accounts, however, they are more expensive.
0:15:47.5 Kurt Baker: Okay.
0:15:49.6 Nick Scalera: Okay, because they’re recognizing the fact that they have to spend a lot more time and effort to comply with the government regulations, obviously they need to pass some of that expense on to the consumer, in this case, the business owner.
0:16:02.8 Kurt Baker: So can I get a credit? Can I get a merchant account through these banks?
0:16:04.9 Nick Scalera: Yes.
0:16:05.1 Kurt Baker: So of the bank opens up the system. So are these… So you’re saying it’s look the other way. So if I’m a federally charter bank that you’ve seen still, regardless of charter, there are still like your big banks are doing this as well as a small banks?
0:16:17.8 Nick Scalera: Not too many big banks.
0:16:19.6 Kurt Baker: Okay.
0:16:20.2 Nick Scalera: Mostly the small banks, the independent banks, the credit unions.
0:16:21.3 Kurt Baker: Okay. Credit unions?
0:16:23.5 Nick Scalera: Yeah.
0:16:23.9 Kurt Baker: Okay.
0:16:24.7 Nick Scalera: And it’s, again, a moving target. People in the industry know the banks that are doing it. We have contacts, for example, in the various banks, so when people ask us as they often do, “Who can we go to for security? Who can we go to for real estate? Who can we go to for banking?” We have those names, we do an introduction to them and help them out that way.
0:16:45.6 Kurt Baker: Okay, so you have the banking side of it, the merchant account is fine. So I can put the deposits in there, I can run an account. Just gonna cost me more money ’cause of the compliance issue?
0:16:53.5 Nick Scalera: Exactly.
0:16:56.4 Kurt Baker: Now, what about things like insurance. Obviously, I wanna be insured. How is that looked at, because this might be a slightly higher risk than if I own a flower shop, right?
0:17:02.1 Nick Scalera: Sure. What’s happening is that many companies either are springing up to serve the cannabis business or are creating divisions to address the cannabis business. This is a new market segment. In many cases, they were going along fat, dumb, and happy, and all of a sudden, here comes this new market segment, “Well, let’s take advantage of it.” And these are legal firm, CPA firms, insurance companies. You will find specialists in every area now, security companies where all they do, or a major division of them, all they do is cannabis. And there are insurance requirements obviously. And it depends on the type of business. For example, if you’re doing delivery, you have to have insurance to cover the driver and things like that.
0:17:50.1 Kurt Baker: Okay, so it’s a little bit more involved. Okay. But it can be done. It sounds like this…
0:17:53.2 Nick Scalera: Everything can be done.
0:17:54.8 Kurt Baker: Okay, well, at this point. I remember all along, that wasn’t always the answer, ’cause I remember them talking about how huge amounts of cash were sitting in Colorado and they didn’t know what to do, there were subject to robbery ’cause they couldn’t put it in the bank account, they wouldn’t know where they’re gonna put the money. And I guess finally this stuff got figured out because somebody saw that stack of cash or figure, “Let’s find a way to work through this and maybe we can find a solution.” And obviously, they have found solutions.
0:18:14.9 Nick Scalera: Where there’s a will, there’s a way.
0:18:17.0 Kurt Baker: Alright, so good. They found a solution. So can we walk through a little bit about, if I’m coming to you as a consultant and I wanna set up one of these businesses. I just recall that if you were to build a facility for one of these, one of the things I remember was, okay, I wanna get approval for a license, but then I need to show them the location where I wanna be, but then on the other hand, my landlord, I have to sign a lease, but I don’t have a license to open the biz. So I’m in this catch-22 between securing a location and getting approval for my license to use the location, which I don’t really have yet because you haven’t given me a license so I can open my business. So you got kind of this gap or how am I gonna like… I can’t operate yet but I’m spending money, so how does this kind of impact my planning, so to speak?
0:19:01.0 Nick Scalera: It is complicated.
0:19:04.9 Kurt Baker: Okay.
0:19:05.5 Nick Scalera: For sure, and people have come up with very interesting kinds of solutions. The brute force one is you go to a location that’s within an area in a town that either has been approved or you know will be approved and you make an arrangement with the property owner or you buy the property and the arrangement is whatever works for you both. And there’s a wide variety of different kinds of things that can happen. He can go or she can go month to month with somebody with the provision that he or she will throw them out. When you have your license, you may pay for that privilege. You can lease it and leave it bare or sub-lease it and that’s another arrangement. But again, the realtors and the brokers have done something like this before and they have a lot of ingenuity going on to figure out creative ways that make everybody happy.
0:19:57.5 Kurt Baker: Okay. So the solutions for that too, and you just have to work it out and determine what to do about it. When I go into… So I get the license from the state and now you know which townships are pretty much doing. Is this kind of settled down?
0:20:12.0 Nick Scalera: No.
0:20:13.7 Kurt Baker: ‘Cause I remember originally… I remember originally it was like you never knew what town was gonna go far with or not. ‘Cause I was sure there’s a lot of debate on the local level about this.
0:20:18.7 Nick Scalera: Yes. Now, the way the state set it up was that a town had not made up its mind by a year ago, August, the deadline that they had set, that the default value was, yes, sure, Cannabis anywhere, any kind, any place in my town.
0:20:33.7 Kurt Baker: Oh, that’s the default?
0:20:34.7 Nick Scalera: That was the default, yeah.
0:20:36.6 Kurt Baker: Okay. [laughter]
0:20:37.2 Nick Scalera: Don’t ask me.
0:20:38.1 Kurt Baker: Okay.
0:20:38.4 Nick Scalera: But that’s what they did. And then the word spread fast. There’s something called legal municipalities where they all go and they all hang out and they share information. And I’m sure that was the topic of conversation there many times. And so a lot of them, almost knee jerk reaction, opted out.
0:20:58.6 Kurt Baker: Right, ’cause they didn’t know what they’re getting into, of course.
0:21:00.6 Nick Scalera: Exactly. So that gave them time to have public debate, think, talk among themselves, as they say, and decide what they wanted to do. Some of them have opted back in. Some of ’em have opted back out. Some of ’em have changed the regulations. Some have said only cultivation and later said, well, okay, maybe one or two retail. It’s a changing environment, that’s why sometimes people will come to me and say, “Well, I have this database of where all the towns are,” and I say, “Well, how often do you update that? Every 20 minutes?” [laughter]
0:21:33.0 Kurt Baker: Every 20 minutes. Okay.
0:21:36.7 Nick Scalera: It’s a changing landscape to be sure.
0:21:38.6 Kurt Baker: Oh, so it’s still in a lot of flux right now.
0:21:41.0 Nick Scalera: Less flux than there was initially, but I still hear about it once in a while.
0:21:46.1 Kurt Baker: Okay.
0:21:46.6 Nick Scalera: I was surprised recently. The town next to me had told me that they only were going to allow cultivation and only two licenses. And they had already given out their letters of support, so essentially they were finished. And then about six months ago, somebody told me that they were getting support from that same town for retail. And I said, “Well,” at first I thought, “Well, how did that happen?” Then I realized, well, they changed their mind. [laughter]
0:22:13.2 Kurt Baker: Right, and it sounds to me like they’re just dipping their toe and they’re like, “Oh, let’s try this first. See what impact that it has.”
0:22:16.8 Nick Scalera: And they it told themselves so they see how it’s going in other towns. There were a few towns that initially said, “Wide open. Yes. Bring it on.” The Asbury Parks, the Atlantic Cities. Jersey City was another one. And naturally people flocked there, and scooped up the real estate but now they have, again, an approval process. Some of the towns have their own application, just like the state does, where you have to fill out all of this information. In some cases, they want you to come and present in front of them, hence the need for a pitch deck, one of the things we do. Others have regulations already in place, either pro or con or whatever and that’s why the advice I always give folks is if you are interested in what’s known as a micro business license, it has to be in the town in which you live or a surrounding town. So that’s where you would start, call the mayor’s office, find out what the regulations are. You’re gonna get an answer. You better not like the answer, but at least you’ll know what you have to do. Are they open, are they closed? And again, that’s the answer you get. It’s only for today, it may change tomorrow. No doesn’t mean no in this particular case.
0:23:25.7 Kurt Baker: Right. No means that I’ll ask again tomorrow, it sounds like.
0:23:28.8 Nick Scalera: Exactly.
0:23:29.2 Kurt Baker: Well, we’re gonna take a quick break here. You’re listening to Master Your Finances.
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0:23:33.6 ANNOUNCER: This is Master Your Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing, and saving your money, and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth Management and Investment, and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/nextstep.
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0:24:10.5 Kurt Baker: Welcome back. You’re listening to Master your Finance. We’re here with Nick Scalera, and we’re talking about cannabis and I guess different municipalities have different attitudes towards it, and that, it seems to be in flux even now, even though it’s kind of a little bit more mature now, but there’s still a lot of changes. And one of the things you said, a lot of them will want you to actually present before the town and provide what they call a pitch deck. So for those who aren’t familiar with the VC world or any of these kind of operations, explain to somebody what a pitch deck is. And then secondarily, what typically are the towns looking for in these pitch decks?
0:24:44.4 Nick Scalera: Okay, so pitch deck is nothing more than a slide deck, typically PowerPoint slide deck, and it’s a reflection of your business plan. So where your business plan prior to the implementation in New Jersey, we do 40, 50 page business plans. New Jersey, by the way, limited to 20 pages, so we’ve had to figure out how to squeeze all that good stuff into 20 pages. But essentially, it’s taking that business plan and including the proforma, the profit and loss statement and communicating it via slides. And so what investors are typically interested in the same kinds of pitch decks that we’ve been making for years and years and years, even before cannabis, they want to know primarily your leadership team. That’s very important. As the saying goes, the smart people that track bit on the jockeys, not the horses.
0:25:35.0 Nick Scalera: So, the leadership team is very important to the extent that they’ve been in an industry allied in some degree with cannabis so much better. From another state, for example, where they’ve been successful in organizing, planning, operating a successful cannabis business, that’s a very good thing. If they’ve been in another regulated industry, liquor or pharmacy or something like that, that’s also a good thing that demonstrates that they can operate within that kind of environment and be successful in it. Also obviously, if you’re going to be cultivating, there should be a master cultivator there and et cetera, et cetera. And obviously you’re having not only good business skills, but also those kinds of things that are particular to the cannabis industry that you’re either going to hire or have in house security, very strict point of sale systems to track the product, as they say in the back door, out of the front door.
0:26:35.2 Nick Scalera: The finances are very important. The break even, how much investment it’s going to take to get into the business to make sure that… And proof that there is sufficient funds to fund the business, not only for the upfront cost, but also the carrying costs until you turn a profit. So normally what we do is we add those two numbers together, what it takes to outfit the business, very expensive inventory, for example, if you’re in manufacturing or in retail, very big investment in terms of equipment and so forth if you’re getting into cultivation, so that’s a big expense. Plus the first few months, you’re gonna be running in the red. So you need to be able to cover that until you turn a profit. So the operation of the business is important in the pitch deck as well, how you’re going to be operating, how you’re ensuring that you’re gonna be complying with the requirements that the state has, that you’re operating at a profitable manner, that you have a good plan for training, for security, inventory control, all the normal kinds of things.
0:27:41.0 Kurt Baker: Okay. So it’s pretty highly regulated sounds like, even compared to other regulated industries is what it sounds like to me.
0:27:47.9 Nick Scalera: Much more so. Much more so.
0:27:50.0 Kurt Baker: Okay. All right. So you mentioned that you… I dunno if you wanna touch on some of these different business plans that people set up. Like let’s say if I want to do a cultivation or if I wanna do a retail, you wanna explain a little bit of the differences about how those might go if I were to try to get licensed and maybe set up one of those businesses?
0:28:02.4 Nick Scalera: Sure. They just, by the way, expanded the cultivation licenses. Initially, they had limited to 37 licenses until this past February. And then they expanded the limit. So now they will allow more cultivation licenses. But cultivation is farming. It’s indoor farming. No one in New Jersey that I’m aware of is planning to do any outdoor farming. There’s a good reason for that. The fact profitability, obviously you can get three, four at least crops per year. They’re very sophisticated. They have LED lighting systems that are essentially fooling the plant in many cases. They have irrigation systems, they get into nutrients. There are people called master cultivators and they know what they’re doing. Let me tell you. There are very many different kinds of strains. A lot of ’em from California, there are companies just in the business of creating seeds. You go from the seed to the clone and then in your growth facility, in many cases then you are going to be harvesting and drying and processing in that facility and you cannot sell in that business to consumers. You can only sell to manufacturers who do something else with the product that you’re creating or, yeah, sell to manufacturers.
0:29:30.4 Kurt Baker: Okay. So I cultivate it now I sell to the manufacturer.
0:29:35.0 Nick Scalera: Or the store, that’s what I meant to say. Sell it to the store.
0:29:37.6 Kurt Baker: You sell it to the store. So, well I grow it, right? Somebody has to turn it into a product. So who’s turning it into the product? The store does that?
0:29:43.9 Nick Scalera: Well, you can either package it yourself, you can dry it, and have clippers, people who trim the plant and put it into packaging, or there’s a company actually out there that will do it for you. So they’ll pick up bags of dried cannabis for you and they do labeling and packaging and those kinds of things off-prem. And then either we’ll deliver it back to you or to its ultimate destination.
0:30:11.9 Kurt Baker: Okay. So what about security? I was thinking that if you have that much cannabis in one building, isn’t that a concern, so to speak? For lack of a better word.
0:30:21.2 Nick Scalera: It is, and in fact, there are companies just in that business. So you will talk to them and they will develop a security plan for you for a price and then they will either implement that plan for you or you can do it yourself or hire somebody else to do it. But yes, and in the business plan, we will specify the entrances, the exits, the security programs there. Some of the provisions that you have to comply with in terms of, it has to be a gated parking area to make sure that nobody’s messing with the vehicles and having them break down during a delivery or something like that.
0:30:58.3 Kurt Baker: Oh, interesting.
0:31:00.5 Nick Scalera: There’s surveillance, inside surveillance, outside surveillance. As I said, the product themselves are tracked very carefully through something called seed to sell, where initially they have barcodes and that barcode follows it through its entire life.
0:31:16.8 Kurt Baker: Oh, wow. Awesome. So now I’ve got it manufactured, I take it to the store. So that’s another license, right?
0:31:23.4 Nick Scalera: Yes.
0:31:24.5 Kurt Baker: For the retail.
0:31:25.1 Nick Scalera: Yes. Retail.
0:31:25.2 Kurt Baker: So how does that differ a little bit from the cultivation aspect of it?
0:31:28.3 Nick Scalera: Okay, so now you can sell to consumers, and you can even deliver it to consumers. That’s also part of the the provision. And by the way, delivery can be anywhere in the state. So even though a town has indicated that they do not want a cannabis business in their town, they cannot stop another cannabis business from delivering cannabis into their town.
0:31:50.5 Kurt Baker: Oh, that’s interesting.
0:31:51.4 Nick Scalera: It is. And some people use that as an argument. Well there’s gonna be cannabis here anyway via these delivery systems. Why not “make some money from it”, because the towns do make money. Okay? They get up to 2% back to them. So some towns have taken advantage of that. Towns that are maybe in a little lower economic situation, closed storefronts, things like that, they see this as an opportunity to get some of those stores open again, generate some revenue for the town, make it a little easier on the taxpayers.
0:32:26.9 Kurt Baker: Okay. So there is a revenue share of some kind here?
0:32:29.4 Nick Scalera: Yes.
0:32:30.0 Kurt Baker: Okay. So, wow, interesting. So if the town next to me has it, then the theory of it could be delivered to the town that I’m in already.
0:32:37.0 Nick Scalera: That’s correct.
0:32:37.5 Kurt Baker: So that’s why some of them are like, “Well you might as well have a location there… “
0:32:40.7 Nick Scalera: That’s in argument.
0:32:41.0 Kurt Baker: Okay. I’m not saying… I understand. Yeah, that’s an argument basically. You can say no still, obviously. But okay, so then, so this retail, so you, you grow it, you retail it. You had a couple other licenses in there. What other licenses do you provide?
0:32:54.4 Nick Scalera: Manufacture. Okay, so…
0:32:55.6 Kurt Baker: And how does that differ?
0:32:56.3 Nick Scalera: Well, you would get dried cannabis in the back door and then you’d do something with it. You need to create rolled products or you could make it into tinctures. You have to be careful in New Jersey, because New Jersey does not yet allow edibles per se.
0:33:18.5 Kurt Baker: Okay. I remember in Colorado they had the edibles on the lower floor and the kids were like picking it up thinking it was candy.
0:33:24.0 Nick Scalera: That’s another issue by the way, is packaging. So the state has indicated very strict packaging regulations to make sure that, I can’t say that, make sure that doesn’t happen, but to hopefully prevent that as much as possible. Okay. But other states have beverages. They have edibles. Really the only edible we have here are what they call lozenges, which kind of left over from the medical program. So kinda more like gummies, but they’re tinctures, oils, that kind of thing that people will put under their tongue. Take ’em that way.
0:33:57.6 Kurt Baker: Okay. So you have the growing it, right to farming and the cultivating, you have the manufacturing and you have the retail that you mentioned. There were some other ones as well, right?
0:34:06.7 Nick Scalera: Well, yeah, they haven’t issued the regulations for those, but that’s gonna be distribution and wholesaling and just delivery.
0:34:14.5 Kurt Baker: Okay. Okay. So those are the main ones right now.
0:34:17.0 Nick Scalera: Yeah. I think they did the most popular ones right now. And right now some of those other functions are really not as necessary because the industry is so new.
0:34:26.0 Kurt Baker: Do we have any sense of like how much of this has grown since the start? I know it’s relatively no. I dunno if you know any rough numbers of like how.
0:34:33.1 Nick Scalera: No.
0:34:33.3 Kurt Baker: Because I just was shocked when I went like down route one, just one day and all of a sudden I saw this huge line around this store, they’ve been closed for a while and I’m like, what the heck is that? And I go, and in fact, I realized it was a new retail cannabis place. Then I go, oh, well that makes sense. Something like that.
0:34:47.7 Nick Scalera: Every once in a while the CRC will publish some numbers and things like that, but I don’t recall any off the top of my head.
0:34:53.8 Kurt Baker: But they seem to be growing and it seems to be taking hold.
0:34:57.4 Nick Scalera: Yes, very, very popular.
0:34:58.5 Kurt Baker: And so far do they seem to be successful? The ones that are opening?
0:35:01.1 Nick Scalera: Using that as a measure, I would say so.
0:35:03.0 Kurt Baker: That’s the only one. I only know one location that I saw based on the traffic foot traffic. It seems like they’re doing pretty well.
0:35:09.7 Nick Scalera: Some people have registered some concerns that they don’t think it’s gonna be as popular as predicted. Time will tell. There is actually a, I call it a dispensary, because it is medical near me and every time I go in there, it doesn’t seem to be that many people.
0:35:24.1 Kurt Baker: Oh, interesting.
0:35:27.5 Nick Scalera: Yeah.
0:35:28.6 Kurt Baker: Okay. Well, yeah, I don’t know. We’ll see what happens. You never, because… I mean, because I mean theories, people can grow it themselves, ’cause it’s pretty, it’s a… They don’t call it weed for no reason. Right? So if they…
0:35:37.1 Nick Scalera: Well, it’s still illegal in New Jersey.
0:35:38.8 Kurt Baker: No. I know that, but I’m just saying that is it’s kinda like, okay. They always had other ways of getting it before, lemme just put that and point that out.
0:35:46.1 Nick Scalera: The legacy market.
[laughter]
0:35:47.5 Kurt Baker: Right? All that you call it the legacy market. Okay. See, I do legacy planning, which very different than what you’re talking about.
0:35:52.6 Nick Scalera: I’m sure it is.
[laughter]
0:35:53.8 Kurt Baker: Alright. You’re listening to Master Your Finances. We’re gonna take a quick break.
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0:35:57.3 ANNOUNCER: This is Mastery Finances with Kurt Baker, certified financial planner professional. Learn about tax efficiency, liability, owning, managing, and saving your money and more from Kurt and his experienced panel of guests. Master Your Finances is underwritten in part by Certified Wealth Management and Investment and Rider University. Rider University offers flexible education for adult learners. For more information, it’s rider.edu/nextstep.
[music]
0:36:32.7 Kurt Baker: Welcome back. You’re listening to Master Your Finances. I am here with Nick Scalera, the founder and CEO of NJ Cannabis Consulting. And we’re talking about all aspects of like, what’s relatively new to New Jersey, but I guess now we’re in 39 states where it’s for medical, right? And I guess recreational somewhere in between there. We don’t know. We don’t know that number, but…
0:36:51.7 Nick Scalera: 15 or so.
0:36:53.3 Kurt Baker: But it’s growing. I guess the trend is growing, so I think the awareness of the issue is growing. Which means I think we need to be smarter about exactly what’s happening. It’s here, right? So let’s just, regardless of where you stand on the issue, it’s something we need to manage and we need to manage it intelligently, I think. And so I think part of the issue I have is, you talked about the legacy market before, so you said that that’s probably gonna hang around because it’s there, right? And then you’re gonna have the regulated market, which of course a lot of people are taking advantage of that because now they know what they’re getting. It might be costly a little bit more, but at least you have a known product and things like that. And we don’t really know where this is all gonna level out, although we do know that, and issue of awareness is is growing. So I think the next step is we need to get smarter about this. So what is your advice and how we kind of get down to the bottom line about what are the true pros and cons as we start getting more data, we’re gonna see, well here’s the issues that we need to be concerned about for real. And here’s the other issues maybe we had some concerns about, but they didn’t turn out to be as bad as we thought they were gonna be. But there’s gonna be things on both sides is and we’re gonna have to pay some attention to it. What are your thoughts about that?
0:37:58.8 Nick Scalera: Well, again, people have to be smart about it. I mentioned before the fact that at least if you go to a licensed store, you know what you’re getting. There are conflicting statistics in terms of what legalization means in terms of use in the overall population with respect to children, things like that. Again, you can find statistics and studies on both sides of that argument. I guess it’s gonna take some more time to sort that out. But as far as education of folks that work in the industry…
0:38:39.8 Kurt Baker: Right. Okay.
0:38:43.9 Nick Scalera: There are schools, there are cannabis schools, online schools, and they’re… Every once in a while you see them pop up at a location a week where they’ll have a training course for bud tenders. That’s what they’re called. Not bar attenders, bud tenders.
0:38:57.8 Kurt Baker: Bud tenders. Okay. All right.
0:38:57.9 Nick Scalera: Bud tenders. So, for example, when you go into a retail store, you’ll be confronted with a bud tender.
0:39:05.6 Kurt Baker: Do I have to tell them my life story?
0:39:10.1 Nick Scalera: Well, it depends.
0:39:10.0 Kurt Baker: Okay.
0:39:10.1 Nick Scalera: If you’re there for medical purposes. They’ll ask you what your ailment is.
0:39:14.5 Kurt Baker: Okay.
0:39:15.3 Nick Scalera: And so they’ll make specific recommendations both in the type of product, the strain, whether they’re recommending gummies or oils or something like that.
0:39:27.3 Kurt Baker: It’s a little bit like a pharmacist kind of deal.
0:39:29.4 Nick Scalera: A little bit.
0:39:30.5 Kurt Baker: Yeah.
0:39:31.5 Nick Scalera: A little bit. So they have that education and they can guide you in that endeavor. And now with adult use, same thing. You can go in and you can pretty much say, “Is it to help me sleep? Is it for anxiety? Do I just want to get high?” I’m sure people go in just for that.
0:39:51.7 Kurt Baker: Okay.
0:39:51.8 Nick Scalera: So yes, they will advise you in that regard. And so there is quite a bit of education out there for not only that, but now some of the colleges have picked up. The one I’m most familiar with is Stockton. They have a cannabis certificate now. And some of the junior colleges now are offering some cannabis related courses as well. And if you’re just looking for information on various topics, again, it’s available on many places on the internet including The Cannabis Learning Center. Something…
0:40:26.5 Kurt Baker: Okay.
0:40:27.0 Nick Scalera: That we set up. And there’s 67 different topics there. We borrowed the list of topics from Ganjapreneur. They had laid out the cannabis universe and define 67 topics that people could be interested in. So we borrowed that.
0:40:41.9 Kurt Baker: Interesting.
0:40:42.5 Nick Scalera: You can go there and read educational information that folks have uploaded, typically what are known as ancillary businesses. For example, the people who sell LED lights that are used in the cannabis industry will have educational information there. They might have videos, they might have articles, they might have other kinds of literature illustrating how to use their lights in a cultivation situation. Okay? Manufacturing companies, same thing. They’ll be showing how their machines can be used to produce cannabis related products as well. It’s a good place to go and learn. There are recipes and all kinds of other topics that are addressed as well.
0:41:26.4 Kurt Baker: Yeah. So 67 topics. I guess one that just crossed my mind, if it’s… What about interstate commerce?
0:41:33.7 Nick Scalera: No. No.
0:41:35.6 Kurt Baker: That’s a no because they’re federal. Right?
0:41:36.5 Nick Scalera: Exactly.
0:41:36.6 Kurt Baker: So if you have a thing in New Jersey, you cannot go across the Delaware and talk to Pennsylvania about it?
0:41:42.2 Nick Scalera: Well, no cannabis can cross state lines according to the federal government.
0:41:46.5 Kurt Baker: Okay. Just wanna be clear on that.
0:41:48.1 Nick Scalera: Oh, it’s very clear. So again, that’s one of the implications of the fact that it’s still illegal at the federal level.
0:41:53.9 Kurt Baker: Okay. Yeah. So no, you gotta stay all within the same state at this point in time, correct?
0:42:00.2 Nick Scalera: Right.
0:42:01.2 Kurt Baker: Okay.
0:42:02.3 Nick Scalera: So that’s why, by the way, some of the gateway cities are good spots to have retail establishments because not yet legal in Pennsylvania, adult use-wise. So all of those New Jersey towns right across the river are good from a retail perspective.
0:42:21.8 Kurt Baker: So if I’m down in like the Mount Laurel area or Cherry Hill area, yeah, you’re right across from Philadelphia. So…
0:42:27.7 Nick Scalera: The population area.
0:42:27.9 Kurt Baker: People are likely coming across the river to…
0:42:28.3 Nick Scalera: Exactly same thing in Northern New Jersey. Jersey City with the path stations and things like that.
0:42:35.4 Kurt Baker: Okay. Okay. Oh, so we’re the first of the Tri-state area, so to speak, to do this?
0:42:38.3 Nick Scalera: That’s correct.
0:42:39.1 Kurt Baker: Okay. Wasn’t aware of that. So.
0:42:41.1 Nick Scalera: Yeah.
0:42:41.5 Kurt Baker: At the moment for now, like we were the first to have the casinos. Now, I guess they all do. It’s probably just a matter of time is what it sounds like.
0:42:45.2 Nick Scalera: New York is a little behind us and Pennsylvania’s further back still.
0:42:51.8 Kurt Baker: Okay, what do we see kind of moving ahead from here now because we see it’s starting to develop. What are you predicting as far as the next steps as far as what we might see? What are some of your thoughts?
0:43:01.2 Nick Scalera: All right. Well the state has now issued quite a few licenses.
0:43:04.2 Kurt Baker: Okay.
0:43:04.5 Nick Scalera: Quite a few. And one of the types of licenses that they have been most issuing is something called a conditional license. The conditional license means you can have the license, but until you get the approval of a town and a suitable location, you can’t start your business. And when you have those come back.
0:43:24.7 Kurt Baker: Okay.
0:43:26.1 Nick Scalera: And we’ll… Then you can do a conversion license to get your annual or standard license. Okay? So there are a lot of people looking for towns that will have them, looking for properties that will work for them or a place where they can build. That has been the challenge for a lot of people. I believe 70, 80 percent of the people went for that conditional license, which meant good to have, as we say, necessary but not sufficient. So I have the license, but I have no place to hang it right now. Let me go find a town and hopefully they’re doing that now. There’s actually a finite amount of time to do that. The state gave them, I think, it was three or four months initially, but of course they had to put in a provision to allow extensions to it because obviously those people didn’t find a place.
0:44:19.5 Kurt Baker: Right. Right.
0:44:20.0 Nick Scalera: So they’re still hunting.
0:44:20.1 Kurt Baker: Okay. And that has a lot to do with the fact that a lot of it’s regulated by the town. So even if I found a town that was interested, I have to go do my proposal and present my pitch deck. And so they may have their own process.
0:44:29.2 Nick Scalera: That’s true. And we do deal with quite a few people who will come to us and say, “I have a location.” If you find somebody point them in my direction. So we do provide that service, we provide a lot of collaboration between our clients, and even people that just call, people who are looking for this, that are the other. When you’re in the middle of it, you’ve been doing it for five years, you know a lot of people and you run into a lot of people and you collaborate with a lot of people both on the telephone, the networking events. So it’s still a relatively small industry.
0:45:02.4 Kurt Baker: Yeah.
0:45:03.5 Nick Scalera: So it’s pretty easy to know somebody who does virtually everything that needs to be done. Architects, construction people. Mentioned before, CPAs, attorneys, security people, packaging people, whatever you can think of to open any kind of cannabis business, there’s somebody doing it, and probably many people, and we point people in that direction.
0:45:26.0 Kurt Baker: Okay. So as far as the towns you’ve… Are there certain things that they like as far as when somebody comes in, I don’t know, I’m thinking like a farm here, would they want it away from the center of town, or if I’m a retailer, do they tend to have some… Do they favor it, or does it matter which town, or it just depends on the town itself?
0:45:41.9 Nick Scalera: It depends on the town. As I said, there’s 565 and I think there’s probably 800 different ways to do it. ‘Cause they keep changing their minds. So some towns have indicated preferences, they don’t want it downtown.
0:45:55.1 Kurt Baker: Okay.
0:45:56.6 Nick Scalera: So no retail. If you want to open up and some in the manufacturing facilities can be anywhere, you wouldn’t even know. Especially there were older mitigation systems, again another kind of company that we deal with all the time, because if you’re opening a consumption lounge, you have to put, essentially, a bus on the roof to handle the HVAC requirements for that kind of location.
0:46:20.3 Kurt Baker: Oh wow.
0:46:21.1 Nick Scalera: So again, the towns will specify, we do want this, we don’t want that, or only a certain number of them are only in that area. So they hold all the cards. So it’s whatever they want, that’s what you’re gonna have to do. As Simon Roth said, this is the business we have chosen.
[chuckle]
0:46:38.4 Nick Scalera: We have to follow the rules of the town.
0:46:41.5 Kurt Baker: Okay, alright, so any of the other changes you see maybe happen in the future as far as the opportunities for somebody that might be interested in being involved in it on a business side?
0:46:52.2 Nick Scalera: To us, it was very seasonal.
0:46:54.4 Kurt Baker: Okay.
0:46:54.9 Nick Scalera: And by that I mean this opened up for applications a year ago, December.
0:47:00.9 Kurt Baker: Mm-hmm.
0:47:01.0 Nick Scalera: And people started coming to us three or four months before that. Because as long as I’ve been in this business, I’ve been telling people, “Don’t wait, start now, give yourself as much time as possible.” So we started doing applications again an year and like… Almost a year and a half ago, at least 15-16 months. But I think most of the people who were gonna file have filed.
0:47:23.1 Kurt Baker: Okay.
0:47:25.2 Nick Scalera: That doesn’t mean that they have their location and they still don’t need to do the conversion or they don’t need investment, or. The other thing we do is marketing plans as well, and now we do consulting on the operation side, so we can help them open their business and things like that. So from our perspective, we’ve moved down the food chain a little bit in that it’s less getting your license and now it’s opening, starting operating your business, we can help you with that too.
0:47:49.7 Kurt Baker: And now there might be a little bit of competition ’cause it sounds like you’ve got more than one… Now we’re getting into that second stage where you’ve got a pretty good infrastructure there. And now we’re gonna see whether it works from a business perspective, long-term. As you pointed out earlier, it’s hard to tell because we don’t really know and a lot of players are coming on the field at the same time, and… Yeah, this has been a very interesting concept and conversation, so I appreciate your coming on and talking about… Any final words before we sign off today?
0:48:16.1 Nick Scalera: No. Certainly, and my wife was right, plenty of interesting stories. [chuckle]
0:48:21.3 Kurt Baker: Absolutely. Well, Nick, I appreciate your coming on. You’ve been listening to Master Your Finances. You have a wonderful day.
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0:48:29.3 ANNOUNCER: That was this week’s episode of Master Your Finances with Kurt Baker, certified financial planner professional. Tune in every Sunday at 9:00 AM to expand your knowledge in building and managing your wealth. Missed an episode? No worries. You can subscribe to a weekly episode of Master Your Finances to listen to on your favorite podcasting platform: Apple, Spotify, Google Podcasts, whatever. Master Your Finances is underwritten in part by Certified Wealth Management and Investment and Rider University. Rider offers continuing studies programs for adults who need flexibility. Want to add new skills to your resume, take a continuing studies course at Rider University.
