Dec 17, 2020

New Jersey Legislature Approves Plan to Regulate and Tax Cannabis for Adult Use

The legislation will expand the state's legal cannabis market and create a variety of opportunities for local entrepreneurs through provisions that promote small businesses and social equity; detailed regulations will be issued by June 2021

Statements below from N.J.-based cannabis lawyer and policy specialist Jennifer Cabrera of Vicente Sederberg LLP, which has helped craft and implement cannabis laws and regulations around the country

TRENTON, N.J. — The New Jersey Legislature approved landmark legislation Thursday to legalize, regulate and tax cannabis for adult use, send it 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. 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. She works closely with state lawmakers and regulators on cannabis policy issues and provided testimony to the Assembly regarding the legislation.

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."

Vicente Sederberg has worked on social equity and small business policy matters and programs around the country. It has also provided pro bono and reduced-fee legal assistance to a wide variety of equity and economic empowerment program applicants and participants.

"New Jersey has adopted some of the strongest social equity provisions we’ve seen," Cabrera said. "We are committed to working with microbusinesses and social equity applicants to foster a vibrant local cannabis industry that reflects the racial, ethnic, and economic diversity of the community. Ending cannabis prohibition and promoting diversity in this new industry does not eliminate injustice or fix all the harm caused by the drug war, but it is an important step toward a fairer and more equitable Garden State."