N.J. Admin. Code § 17:30-6.9

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

Section 17:30-6.9 - Management services agreements

(a) A license applicant or license holder and a management services contractor may, pursuant to this section, contract to implement a management services agreement, which may include, but is not limited to, management or supervision, operations, technical assistance, consulting, hiring employees, accounting, recordkeeping, leasing of equipment or real or intellectual property, or provision of goods or materials.

(b) The terms of a management services 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, service, 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 interest, 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 management services agreement shall be bargained for between the parties in an arms-length transaction and shall include the ability for either party to terminate the agreement with due notice.

(d) A management services agreement shall provide that the management services contractor and its owners, principals, and staff who are engaged, directly or indirectly, in operating the cannabis business, are supervised in such operations by the license applicant or license holder and its owners and principals.

(e) A management services agreement shall not grant:

1. A security interest in a cannabis business being operated or in any of the assets of the license applicant or license holder; or

2. An ownership interest or any right, including a future or contingent right, to obtain an ownership interest in the cannabis business being operated.

(f) A management services contractor may be granted a future right of first refusal to acquire an ownership interest in a license applicant or license holder that would cause the management services contractor to be an owner, where a management services contractor is qualified pursuant to N.J.A.C. 17:30-6.8 and 7.11 and will cease operations as a management services contractor to become a passive investor or an owner.

(g) The term of a management services agreement shall not exceed five years without an opportunity for the parties to renegotiate the agreement at arms-length.

(h) A management services agreement shall not include any provision that provides the management services contractor 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 management services contractor 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. Where the amount of a fee or price charged by the management services contractor for a service, product, intellectual property, lease, or brand provided is not commercially reasonable;

iv. Where the percentage of the cannabis business's "shelf space" guaranteed for the products of the management services contractor or another entity designated by the management services contractor 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 management services contractor or an entity designated by the management services contractor where the percentage is not commercially reasonable and is excessive, including, but not limited to, a promise exceeding 50 percent;

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, including the surrender of personal assets of the license applicant or license holder owners or principals; or

ix. Where the management services contractor 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.

(i) Prior to the execution of any management services agreement, a license applicant or license holder shall submit to the Commission:

1. A copy of the management services agreement and any related agreements between the parties;

2. Information detailing any remuneration paid or to be paid to the management services contractor by the license applicant or license holder in exchange for the provision of management services; and

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

(j) Prior to any material change to a management services agreement, a license applicant or license holder shall:

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

(k) The Commission shall determine whether the management services agreement and any material change comply with the Act and this chapter; and shall notify the license applicant or license holder of the Commission's decision.

(l) The license holder shall retain authority to audit, or use an accounting firm to audit, the management services contractor's records relating to its performance under the management services agreement.

N.J. Admin. Code § 17:30-6.9

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

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