New Jersey Cannabis: “Hey, We’re Workin’ On It!”
Just like summer trips to the Jersey Shore, the date 4/20 is known as a time for celebrating. Each year, this day in late April is marked by new product launches, price-slashing promotions, bonus freebies and record sales for retailers. It is a win/win for purveyor and customer alike, as patients and consumers enjoy sizable price breaks, and businesses realize a healthy revenue bump. This trend continued in 2022 as the businesses within the 36 states + the District of Columbia with legal cannabis enjoyed a fruitful April 20th. Then…a day later, like a horseshoe crab clawing its way from the ocean onto the sand, New Jersey’s adult-use market officially arrived.
Good timing? Let’s work on that. Good cannabis policies? Let’s take a look.
Early Medical Cannabis Roadblocks Cleared for Future Success
New Jersey first dipped its toe into cannabis legalization in January, 2010 when Governor Jon Corzine included S.119, the New Jersey Compassionate Use Medical Marijuana Act (CUMMA) in a multi bill sign-and-dash on his final day in office. Unfortunately for patients, CUMMA languished for the next eight years under Governor Christie who was outspoken in his opposition to cannabis legalization of any kind.
The Christie administration effectively stalled the program until 2012 when the first patients were finally able to obtain registration, and access medical cannabis via Alternative Treatment Centers (ATCs). However, this milestone by no means opened the flood gates. Over the next six years, due to unreasonably burdensome patient/doctor enrollment criteria, low medication allowances, limited retail access, and extreme restrictions on operators, only 15,000 patients registered and five ATCs were licensed by the time Christie left office in 2018.
In June of 2019, Governor Phil Murphy who campaigned on cannabis legalization, signed the Jake Honing Compassionate Use Medical Cannabis Act into law and ushered in a more inclusive, accessible and less restrictive medical cannabis program. The new program, operated by the Cannabis Regulatory Commission (CRC), increased the amount of cannabis permitted per 30 day period from 2 to 3 ounces, eased patient/practitioner visit requirements, expanded the practitioner type to include physician’s assistants and advanced practice nurses, included edibles as allowable medicine, enacted medical card reciprocity for patients visiting from other states, and phased out the tax on medical cannabis to relieve the cost burden on patients (medical cannabis should NEVER be taxed).
As a result, according to the state’s data center, today NJ has 27 ATCs or medical cannabis dispensaries (and counting) from 10 active operators and 122,655 registered patients. While the state does not yet have enough ATCs or medical dispensaries to adequately service the growing patient population, they have made tremendous strides and are continuing to award medical licenses. According to newjersey.com, regulators awarded 30 new licenses to medical cannabis companies in December of 2021. Which means patients should soon start benefiting from increased accessibility and decreased costs as these newly licensed medical operators open for business.
New Jersey seems committed to consistently evaluating the regulations governing their medical cannabis program to ensure patients have access to the medication they need, in the amount they need, when they need it. Additionally, the Compassionate Use Act helps protect patients by prohibiting punitive or discriminatory actions by employers based on a person’s medical use of cannabis. Finally NJ’s medical program maintains an office dedicated to diversity and inclusion minority. The Office of Minority, Disabled Veterans, and Women Business Development is devoted to connecting with underserved populations and providing education about the Cannabis Regulatory Commission and its programs.
Expanding the Garden with Adult-Use
The Garden State formally legalized adult-use cannabis on February 22, 2021 via New Jersey’s Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization (CREAMM) Act. The state’s adult use program is very young and still developing, and lawmakers and regulators are awaiting the preliminary results of the first full year of operation before making program changes. With this in mind, five months after the doors to New Jersey’s adult-use market officially opened, how are they doing?
Licensing
Come one, come all! New Jersey does not currently limit the number or type of individual licenses to be issued by the state, with a temporary exception for the Class 1 Cultivator license, which will not exceed 37 until February 22, 2023. The state does prohibit vertical integration, with an exception for vertically integrated medical operators who can now (with an approved license) also sell adult-use cannabis. And, as of this publication, these dual-licensed (medical + adult-use) businesses are the only license holders currently in operation and running the state’s 19 active adult-use dispensaries.
Beyond the expanded ATC license, operators must choose what function they wish to perform (i.e. cultivator, manufacturing, laboratory, retail, etc.) then submit an application, along with the associated fees, for the corresponding license.
And speaking of fees, New Jersey’s cannabis business application and licensing cost structure is a deal! Application and certification fees range from $3K-$4K for individual microbusiness or standard adult-use operators seeking either conditional or annual licenses. The cost of certifying an Expanded ATC is a bit higher (due to vertical integration) ranging from $100K - $1M. Then, if everything is in order and the business is certified, license fees range from $1K - $50K depending on license type.
Considering Texas charges $814,919 for a two-year certification and the cost of a California license ranges from $1,200 - $180K, New Jersey is offering a bargain!
The Tax Man Cometh, but Doesn’t Take Too Much
Staying consistent with reasonable pricing, New Jersey’s cannabis tax model is pretty moderate. Here is the breakdown: first, all New Jersey adult-use cannabis is subject to the state sales tax, currently at 6.625%. Additionally, locals are allowed to charge a transfer tax up to 2% and a use tax that must be equal to the transfer tax (and thus cannot exceed 2%). And last, Class 1 cultivators are subject to a Social Equity Excise Fee (SEEF), currently calculated at $1.10 per ounce, on the sale or transfer of adult-use cannabis to other cannabis establishments (except other Class 1 license holders). Tax rates in other states with legal cannabis sales range from 0 to 37%, putting the Garden State’s tax of up to 11% on the low end.
Social Equity
New Jersey has built promising social equity provisions into its medical and adult-use cannabis programs. We discussed the efforts of the Office of Minority, Disabled Veterans, and Women Business Development within the medical program, but what about the adult-use program?
Expungement is a great place to start, and let’s make it totally automatic. Much like New York, the Garden State incorporated the automatic expungement of records for cannabis related offenses into its cannabis law. Expungements will occur only for offenses related to conduct that is now legal in the state of New Jersey. While this provisions is just a first step in a long road to remediating the discriminatory laws of the past, it will greatly reduce obstacles to employment and housing for those impacted.
Next up, relief through tax revenue. In addition to imposing the SEEF tax on Class 1 cultivators, the revenue from which is said to be dedicated to combating the wrongs brought on by the war on drugs, New Jersey’s cannabis law mandates that 70% of cannabis taxes be allocated to impact zones. The CRC’s site on impact zones states, “The statute seeks to target communities disproportionately affected by the War on Drugs for particular consideration in New Jersey’s burgeoning cannabis market – specifically for preference in licensing and in allocation of revenues generated from cannabis sales.”
With that said, the details of how, when and where this money will be put to use are still being worked out. Once the CRC understands how much money they have from cannabis tax revenue following a full year of adult-use sales, they should have clearly defined lines and areas of allocation. However, if done properly, a tax revenue apportionment of this size going towards growth, education, improved housing, services and job-training in communities with the greatest need, could have an indelible impact on generational poverty in New Jersey.
Finally, the state will be awarding priority applications to: individuals with cannabis convictions, individuals from communities most impacted by the war on drugs, women, minorities and disabled veterans in an effort to level the playing field between historically oppressed peoples and the big kids on the cannabis block. While a priority or social equity applicant has yet to open for business in New Jersey, we hope to them soon, and in numbers!
Protection for Consumers
A critical component of any state’s permissive cannabis law is including protections for consumers. The CREAMM Act does an excellent job covering the bases by providing protection from discrimination or penalization by employers, schools, landlords, doctors/medical facilities, or government services upon current or prospective employees, students, tenants, patients, parents or guardians for the legal use of cannabis. It is unfair and unreasonable for a state to leave consumers and patients vulnerable by legalizing cannabis without implementing proper civil and criminal protections. Hats off to New Jersey for getting it right from the start!
What’s Next Down the Shore?
New Jersey regulators are still putting some of the pieces of the model together, and local governments are just getting started with licensing considerations. So, there is still time for businesses interested in securing licensing in the state to get engaged. Big picture? The Garden State may have been a day late in opening for adult-use this year, but we think the success of Jersey’s cannabis market will be a shore thing.