N.J. Admin. Code § 17:30-6.10

Current through Register Vol. 56, No. 19, October 7, 2024

Section 17:30-6.10 - Financial source agreements

(a) A license applicant or license holder and a financial source may, pursuant to this section, contract to implement a financial source agreement to provide financial assistance.

1. A financial source includes any creditor holding:

i. A security interest in the license holder, the cannabis business, or the premises; or

ii. An outstanding bond, loan, mortgage, trust deed, note, debenture, or other form of indebtedness of the license holder or the cannabis business.

(b) The terms of the financial source agreement, including terms related to interest rates, returns, and fees, shall be commercially reasonable and consistent with the fair market value for the terms generally applicable to agreements of a comparable nature.

1. The Commission may determine whether a term is commercially reasonable or consistent with the fair market value generally applicable to the services to be provided and may consider:

i. The current valuation of a similar interest, loan, or product in the medical or personal use cannabis market in this State and in other states with legal cannabis markets; and

ii. The current valuation of a similar loan, service, or product in an industry with operations similar to the cannabis industry, including, but not limited to, horticulture or agriculture, pharmaceutical drug manufacturing, or sale of pharmaceutical drugs and alcohol in this State and in other states with such industries.

(c) A financial source agreement shall be bargained for between the parties in an arms-length transaction and shall include the ability for the borrower to pay off the complete debt at any time with due notice and no penalties for pre-payment.

(d) A financial source agreement shall not grant to a financial source an ownership interest in the license applicant or license holder.

(e) A financial source agreement may grant a future or contingent right to obtain an ownership interest in the cannabis business being operated, where a financial source is qualified pursuant to N.J.A.C. 17:30-7.11 and 6.8.

(f) A financial source agreement shall not include a provision that provides the financial source with an unfair advantage over the license applicant or license holder or that violates any provisions of this subchapter.

1. Provisions that provide an unfair advantage over the license applicant or license holder and are prohibited pursuant to this subsection include, but are not limited to:

i. Any term of the agreement that is not commercially reasonable or consistent with the fair market value generally applicable to the services to be provided;

ii. Where a financial source receives a percentage of the net profits of the cannabis business being operated, such percentage of the profits is not commercially reasonable or exceeds the percentage of the net profits received by the license applicant or license holder;

iii. A loan from the financial source to the license applicant or license holder that is not commercially reasonable and is excessive, including, but not limited to, an interest rate exceeding 20 percent;

iv. Where the percentage of a cannabis business's "shelf space" guaranteed for the products of the financial source or an entity designated by the financial source is not commercially reasonable or is excessive, including, but not limited to, a "shelf space" guarantee exceeding 50 percent of the cannabis business's total "shelf space";

v. A promise by the license applicant or license holder to buy a percentage of its products or materials from the financial source or an entity designated by the financial source where the percentage is not commercially reasonable or is excessive, including, but not limited to, a promise exceeding 50 percent of the cannabis business's products or materials from such entity;

vi. A promise by the license applicant or license holder not to purchase cannabis, cannabis products, or other products or materials from or sell cannabis, cannabis products, or other products or materials to specifically identified license applicants or license holders or other businesses;

vii. A promise by the license applicant or license holder of non-competition with other license applicants or license holders;

viii. Where a penalty upon a license applicant or license holder for noncompliance with the agreement is not commercially reasonable or is excessive relative to the degree of and harm caused by the noncompliance; and

ix. Where the financial source is granted control over the license applicant or license holder, such that it may overrule the license applicant's or license holder's owners and principals over the most fundamental decisions of the license applicant or license holder, including its strategic plan, or any decision regarding a transfer of ownership interest of an owner.

(g) Prior to any financial source agreement taking effect, a license applicant or license holder shall submit to the Commission:

1. A copy of the financial source agreement and any related agreements between the parties;

2. Information detailing any remuneration and interest rate paid or to be paid to the financial source by the license applicant or license holder in exchange for the bond, loan, mortgage, trust deed, note, debenture, or other form of indebtedness; and

3. All submissions required from a financial source pursuant to N.J.A.C. 17:30-7.10 and 7.13.

(h) Prior to any material change to a financial source agreement, including a change of ownership interest or control of the financial source, a license applicant or license holder shall:

1. Submit to the Commission a copy of any proposed material changes to the financial source agreement and any related agreements between the parties, any proposed material changes to information detailing any renumeration and interest rate paid or to be paid to the financial source by the license applicant or license holder; and any proposed material changes to any previously required submissions; and

2. The Commission shall determine whether the financial source agreement and any material change complies with the Act and this chapter; and shall notify the license applicant or license holder of the Commission's decision.

N.J. Admin. Code § 17:30-6.10

Adopted by 53 N.J.R. 1583(a), effective 8/19/2021

Amended by 55 N.J.R. 402(a), effective 3/6/2023