The New Jersey Cannabis Regulatory Commission (“CRC”) has been busy in 2022 reviewing thousands of applications submitted for Class 1 Cultivators, Class 2 Manufacturers, and Class 5 Retailers, and has added an additional use – consumption lounges – that will undoubtedly be met with additional applications and activities for those endorsements in 2023 and beyond.

By way of brief background and reminder, at the end of 2021, the CRC issued a notice of application for personal use cannabis licenses, and specifically, cultivators, manufacturers, retailers, and testing labs (the “Notice”). Importantly, pursuant to the Notice, the CRC did not solicit applications for Class 3 Wholesale, Class 4 Distributors, and Class 6 Delivery Licenses, which awaited the proposal and adoption of regulations governing same, which will be finalized in early 2023, resulting in a new notice of applications for those classes of uses. However, recently, the CRC also proposed certain rules for consumption lounges, which are not a standalone license in New Jersey, but rather an additional endorsement that attaches to a Class 5 Retailer – though does require an additional application and submission to both the CRC and the local municipality where the Class 5 Retailer is authorized.

So what do these regulations provide?

The proposed regulations, while not identifying the form of application, do prescribe the process. Specifically, within 14 days of receiving a complete application for a consumption area endorsement, the CRC will forward a copy of same to the municipality. Within another 14 days from there (and 28 days after the submission of a complete application), the municipality is obligated to notify the CRC whether the consumption area complies with its local restrictions. Thereafter, the CRC is permitted to make a determination on the application.

Where the municipality denies a request for an endorsement, an applicant may challenge that determination in the Superior Court by filing a request for a hearing within 30 days. A hearing must be scheduled by the Superior Court within 30 days of the filed request. Interestingly, the rules identify that no formal pleading or filing fee is required for the hearing (in contrast with the general requirement that all actions in the Superior Court are initiated via complaint).

In terms of the operation of the facility, the CRC proposed regulations permit both indoor and outdoor consumption areas. For indoor consumption areas, the rules identify that they must be:

1. Structurally enclosed from the retail floor plan, separate by solid walls or windows from the area in which the retail sales occur.
2. Only accessible through an interior door after first entering the retail facility.
3. Comply with all ventilation requirements applicable to cigar lounges, in order to permit indoor smoking, vaping, or aerosolizing of medical cannabis or cannabis items that is the equivalent of smoking tobacco not in violation of the New Jersey Smoke-Free Air Act.

For outdoor consumption areas, the rules identify that they must be:

1. An exterior area on the same premises of the retail facility that is either separate from or connected to the retailer.
2. While not required to be completely enclosed, the outdoor area must have sufficient walls, fences, or other barriers to prevent any reasonable view from any sidewalk or other pedestrian or non-motorist right-of-way.
3. Must ensure that any smoking, vaping, or aerosolizing of cannabis does not result in migration, seepage, or recirculation of smoke or other exhaled material to any indoor public place or workplace, which includes the use of ventilation features that the CRC deems necessary and appropriate.

A few interesting peculiarities of the consumption areas:

1. While retailers and consumption lounges are generally prohibited from serving food or beverages, the regulations permit the consumption of food in cannabis consumption where it is delivered to consumers or patients in that area (though the regulations are silent on who permissible deliverers of such food and beverages might be, and whether a retailer can have a separate or stand-alone retail segment adjacent to the consumption lounge for the purposes of providing food and drinks).
2. Retailers can only have one consumption lunge – meaning, an Expanded ATC that operates up to 3 retail facilities would only be permitted to operate 1 consumption lounge connected to 1 retail facility.
3. Requires retailers to ensure that consumers are not served when they display “visible signs of intoxication,” without any corresponding standard for how to assess that for cannabis users.

The big open question discussed by many is how to make consumption lounges economically viable. Given that municipalities have traditionally zoned Class 5 licenses in higher value downtown or retail districts, these areas have the potential to have higher price per square foot costs, with a limited return on value given that the products consumed themselves are purchased in the retail portion of the facility anyway. What the regulations are silent on, however, and thus presumably permissible, include charging a fee to enter the retail area. Also silent are the type of recreational (as opposed to adult-use) activity that can occur on-site, such as live music, live performances, movies, or other such social activities, which may justify a fee that is ultimately charged.

Written comments must be submitted to the CRC by no later than March 18, 2023.