Current through Register Vol. 56, No. 24, December 18, 2024
(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.
