The New Jersey Legislature has approved landmark legislation to legalize, regulate and tax cannabis for adult use. The bill will be sent to Gov. Phil Murphy for his signature. Voters signed off on legalization in November when they overwhelmingly approved Public Question 1, which required the Legislature to implement it and determine the details.
The new law will take effect at the end of the year, at which time possession of limited amounts of cannabis will become legal for adults 21 and older, Vicente Sederberg LLP reported. It calls for the creation of a five-member Cannabis Regulatory Commission that will be tasked with issuing detailed regulations by June 2021 that will govern virtually every aspect of the adult-use cannabis industry.
“New Jersey is already one of the largest cannabis markets in the world, and the industry here is poised to grow substantially as the state embraces legalization and regulation,” said Cranford-based attorney Jennifer Cabrera of Vicente Sederberg LLP, a national cannabis law firm that has helped shape and implement cannabis laws and regulations across the U.S.
The legislation establishes a licensing system for cultivators, processors/manufacturers, wholesalers, distributors, retailers, and delivery services, in addition to testing labs. Vertical integration is prohibited and cultivation licenses are capped at 37 for the first two years. Twenty-five percent of licenses must be distributed to microbusinesses, which are comprised of 10 or fewer employees and must be locally owned. Microbusinesses can obtain any of the six license types through a simplified application process, and they are omitted from the cap on cultivation licenses. Applications for adult-use cannabis business licenses will begin to be accepted 30 days after the regulations are issued.
“This legislation creates the conditions for a vibrant craft cannabis industry in New Jersey,” Cabrera said. “Setting aside licenses and streamlining the application process for microbusinesses will hopefully enable a healthy number of smaller local companies to sprout up across the state. There are some additional steps we would like to see policymakers take to make it easier to operate these microbusinesses, and we look forward to working with them as they fine-tune the system. Still, this is a great starting point and opens the door to a lot of exciting opportunity for local entrepreneurs.”
Adult-use cannabis will be subject to the state’s standard 6.625% sales tax, and 70% of the revenue will be directed to areas disproportionately impacted by cannabis-related arrests. Local governments will have the option to add an additional tax of up to 2%. The commission will also be able to create an excise tax based on the cost per ounce of cannabis.
The law also includes several provisions aimed at promoting social equity in the cannabis industry and repairing damage caused by prohibition. For example, it specifies that 30% of licenses must be allocated to businesses owned by women, minorities, or disabled veterans, and at least 25% should be allocated to residents of impact zones, which are defined as municipalities with more than 120,000 residents that: rank in the top 40% of municipalities in the state for cannabis-related arrests; have a crime index of 825 or higher; and have a local average annual unemployment rate that ranks in the top 15% of municipalities.
“Social equity was contemplated from the start, which is a big advantage,” Cabrera said. “The commission will be able to make the implementation of equity provisions a priority right off the bat. It is much easier to build these considerations into the system than it is to go back and incorporate them later.”