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Murphy Administration Strikes Deal Concerning Proposed Legislation to Legalize Adult-Use Marijuana in New Jersey

UPDATE: “The much-anticipated vote, tentatively scheduled for Monday afternoon in both the General Assembly and the state Senate, was called off when it became clear there were not enough votes in the Senate to pass it.”  Read full coverage at ROI-NJ.com

Governor Phil Murphy, Senate President Steve Sweeney, Assembly Speaker Craig Coughlin, Senator Scutari, and Assemblywoman Quijano announced last week that they have reached an agreement concerning the legislation to legalize adult-use marijuana in New Jersey.

While the proposed legislation will likely be released in the coming days, this is what we know so far based on pending Senate Bill S2703.

The proposed legislation reveals that adult-use marijuana will be governed by a Cannabis Regulatory Commission (“Commission”), composed of five members. The Commission will enforce all regulations that govern the industry and essentially oversee the applications for licensing of adult-use marijuana dispensaries.

The pending legislation proposes four licensing classes for adult-use marijuana: A Class 1 License (Cannabis Grower License), which would permit a person or entity to grow, cultivate, or produce cannabis in NJ, and sell cannabis to other cannabis growers, cannabis processors, cannabis wholesalers or retailers (but not consumers); a Class 2 License (Cannabis Processor License), which would permit a person or entity to process cannabis (equivalent to a manufacturing facility); a Class 3 License (Cannabis Wholesale License), which would permit a person or entity to sell cannabis items for resale to another wholesaler or retailer; and a Class 4 License (Cannabis Retailer License), which would permit a person or entity to purchase cannabis from a cannabis grower, processor or wholesaler, and to sell as a retailer to consumers.

In addition, there will be two categories for licensing: (1) traditional and (2) microbusiness. The traditional license category is the standard license. The microbusiness is somewhat more flexible in that the applicant has more time to work out financing and can still proceed, despite not having secured financing. In short, it is the Legislature’s way of encouraging New Jersey locals to become involved in the industry. The Commission is tasked with ensuring that at least 10% of the total licenses be designated only for microbusinesses, and that at least 25% of the total licenses be issued to microbusinesses.

There will be additional limitations for an owner of a microbusiness. For example, a microbusiness owner could not hold any significant beneficial interest in any other cannabis establishment, and license holders in other cannabis establishments would not be permitted to be microbusiness owners. Moreover, microbusinesses would not be permitted to sell or transfer their licenses, all of the ownership interests in a microbusiness would have to be owned by a resident of New Jersey residing in state for the past two years, and at least a majority of the owners, directors, officers, or employees of the microbusiness would have to be residents of the municipality in which the microbusiness is located.

While these restrictions appear restrictive, they are ultimately designed to ensure broad-based participation in the industry for minority and women-owned business enterprises (M/WBEs), low- and middle-income individuals, and disadvantaged communities across the state.

The path to licensure is similar to obtaining a permit for an Alternative Treatment Center (“ATC”). The Commission is to review and score each application for licensure based on a 1,000-point scale, with rankings based on highest to lowest points. So the closer to 1,000, the better.

There are several tax implications to obtaining a license. Based on the agreement reached, adult-use marijuana will be subject to an excise tax of $42 per ounce, which will be imposed when marijuana is cultivated. In addition, municipalities that are home to a cultivator or manufacturer will receive the revenue from a 2% tax on the products within their jurisdictions. Municipalities that are home to a wholesaler will receive the revenue from a 1% tax on the products within their jurisdictions, while municipalities that are home to a retailer will receive the revenue from a 3% tax on the products within their jurisdictions.

Provisions in the proposed bill would also establish an expedited expungement process for individuals convicted of low-level marijuana offenses, and a virtual expungement process that would automatically prevent certain marijuana offenses from being taken into account in certain areas such as education, housing, and occupational licensing.

The Legislature is expected to vote on this on March 25, 2019. If approved, the cannabis industry will create significant opportunity for interested New Jersey residents and will require participants to continuously deal with challenging legal issues on both a state and federal level. If you have any questions or concerns, please feel free to contact our office.

Disclaimer: Using, possessing, distributing and/or selling marijuana is illegal under federal law, regardless of any state law. Businesses and individuals should be aware that compliance with state law does not assure compliance with federal law. Federal laws may be enforced in the future. Legal advice provided by Lindabury, McCormick, Estabrook & Cooper, P.C., is designed to counsel clients regarding existing and/or proposed cannabis law. No legal advice we give is intended to provide any guidance or assistance in violating federal law.

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