Watch Fresh Cut’s WEBINAR

Breaking Ground: Fresh Cut’s Strategy for Success in New Jersey’s Cannabis Boom

Fresh Cut is a licensed cultivator poised to capitalize on the explosive growth in the NJ cannabis market.

Experts project that the New Jersey cannabis market will reach $2.1 billion at maturity. The most recently published sales data (from Q2 2023) shows that adult use sales topped $160 million during the quarter. During that period there were only 10 cultivators supplying cannabis to retailers in New Jersey. Based on typical wholesale pricing dynamics, this would imply $80 million dollars of wholesale transactions, or about $8 million per supplier for the quarter. Considering the market is still in its nascency and the distribution channels to consumers have not been fully established (there were only 31 adult-use dispensaries open during Q2), these numbers show both the immediate success possible for cultivators and allude to the future potential yet to be unlocked in the state.

With this glaring opportunity, many are concerned that operators will flock to the state and New Jersey will follow the path of some other more mature cannabis markets like Michigan, Oregon, and California. These other markets are highly saturated and have faced extensive price compression. What’s to stop this from happening in New Jersey? New Jersey has three major barriers that, paired with a large population and high rate of tourism, will push market saturation out by several years. Fresh Cut has modeled this scenario and predicts this period of beneficial market conditions to extend for at least six years from now. The effects of the high barriers to entry are already evident in that the adult use licensing process opened in December 2021 and since then, only 70 standard cultivators (comparable to Fresh Cut) have been able to achieve their final licensure. Of those 70 companies, only 4 have been approved to operate. The obstacles contributing to this slow roll out of cultivators are:

1. New Jersey’s industrial real estate market is fiercely competitive, making it difficult for operators to find viable locations. In Q2 2022, New Jersey’s industrial real estate hit a record low availability rate of 3%.
2. Over 70% of New Jersey municipalities have banned cannabis operations, further complicating finding a viable location.
3. Operators have less access to capital, and capital is very expensive.

Fresh Cut has worked diligently to overcome these barriers. Having done so, the company has positioned itself to enter the market early and benefit from the positive market conditions at play. To accomplish this, Fresh Cut began searching for viable real estate in a cannabis-friendly municipality back in 2020. Taking a proactive approach, the company managed to secure a 10-acre property in Atlantic County. Continuing to be active participants in the community and attending township meetings, Fresh Cut’s founders were able to guide the local officials in crafting policy that benefits both the town and operators alike. This close relationship with the municipality resulted in the support required for Fresh Cut to obtain an annual cultivation license.

To address the third major hurdle, Fresh Cut has partnered with a large New-Jersey-based real estate developer. The company has executed a term sheet with the development partner in a deal that is highly advantageous to Fresh Cut. The division of labor between developer and operator will allow Fresh Cut to create as much value in the brand and operations as possible. With the developer managing the bulk of the construction process, Fresh Cut will be able to use the construction period to further develop its brand, sales, and marketing strategies in order to maximize the effectiveness of its initial launch.

The deal is structured as a build-to-suit transaction whereby the developer delivers a fully furnished, turnkey facility. The developer provides all of the capex requirements of the project, including equipment, with minimal upfront cost to Fresh Cut. The company then enters into a long-term lease agreement with the developer who will own the building and land. The deal also includes 7 months of rent abatement, allowing Fresh Cut ample time to cultivate and achieve its first harvest before incurring rent payments. Fresh Cut worked with its development partner to design this deal in a way that limits the capital Fresh Cut will have to raise and outlay before generating revenue. This partnership is the cornerstone of Fresh Cut’s strategy to become profitable within 12 months of beginning operations.

The developer will construct the building according to the specifications set by Fresh Cut and its third-party design firm, Fuss & O’Neill. Fuss & O’Neill is a leading cannabis architectural and engineering firm who has designed dozens of cannabis cultivation and manufacturing facilities equating to over 2 million total square feet. Together Fresh Cut and Fuss & O’Neill have designed a state-of-the-art 46,000 square foot facility.

The facility will feature over 21,000 square feet of total cultivation canopy – over 16,000 square feet of flower and 4,000 square feet of vegetative – equipped with 953 total LED fixtures. The company will be utilizing Fohse A3I lights in the flower rooms, which at 1,500W are some of the most powerful grow lights on the market. While Fresh Cut has conservatively modeled that it will optimize its cultivation over the course of five years, initially outputting 60 grams of biomass per square foot and ramping up to 90 grams per square foot, other operators using the same model light are outputting over 100 grams per square foot. The facility will also feature cutting edge technology in curing, solventless extraction, and pre-roll automation, which will complement Fresh Cut’s hand trimming and craft approach. When prices do eventually begin to drop, the state-of-the-art facility designed and built by experts will allow Fresh Cut to create consistently high-quality products and maintain profitability while doing so.

While extremely beneficial market conditions may not last forever, Fresh Cut is confident that it will have sufficient time to build meaningful brand equity. Brand equity is the best shield against compressing prices, which starts with an effective go-to-market strategy and the infrastructure to consistently produce great products. These steps that Fresh Cut is taking now will set the company up for long-term success.

To learn more please contact Spotlight Family Office Group at Info@SpotlightFamilyOffice.com.