NJ Passes the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act

On December 17, 2020, the New Jersey legislature passed the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (the “Act”), providing the framework for legal adult recreational cannabis use in New Jersey.  The Act lays out the ground rules for licensing arrangements for the cultivation, packaging, distribution, advertising, and retail sale of recreational cannabis to persons 21 years old or older.  Governor Murphy signed the legislation into law on February 22, 2021.

It is important to note that the passage of the Act does not immediately make “street pot” legal—instead, it provides the roadmap for businesses to become licensed so that they may take part in the future legal adult recreational cannabis market in New Jersey.  Cannabis, however, will no longer be a Schedule 1 controlled dangerous drug under New Jersey law (although it remains so at the Federal level).

Although the Act is over 200 pages long, it still requires that the New Jersey Cannabis Regulatory Commission (“CRC”) develop regulations to flesh out the details of how these arrangements will all be put into practice.  For example, there are currently no application forms to apply for any license to operate in the cannabis market in New Jersey.  These forms, their instructions, and a host of other details all need to be developed before any business can apply for one of the required licenses.  The CRC has been given 180 days to develop these enabling regulations and forms.  That said, individuals and businesses interested in entering into this market will want to keep apprised of the details of these ongoing regulatory developments so that they can position themselves to have already put arrangements in place which will allow them to immediately move forward with the application process as soon as it becomes available.

The Act is quite lengthy, and covers a broad range of areas relevant to the development of the legal adult recreational cannabis market and related social justice issues.  The following is not an attempt to fully summarize the Act, but instead simply covers in broad strokes some of the main elements of the arrangements provided for in the Act relevant to businesses that wish to enter into the market.

Licenses.  The Act provides for six different types of licenses that businesses may seek in connection with the adult recreational cannabis market:

Class 1 License:          Cannabis Cultivator (growing cannabis)

Class 2 License:          Cannabis Manufacturer (preparing and packaging)

Class 3 License           Cannabis Wholesaler (selling to other wholesalers and retailers)

Class 4 License           Cannabis Distributor (selling between cultivators/establishments)

Class 5 License           Cannabis Retailer (selling to retail customers)

Class 6 License           Cannabis Delivery (delivery from retailers to retail customers)

The Act also allows for certain “conditional licenses”.  Given that some of the criteria for receiving full license approval may take several months (e.g. waiting for certain third party approvals), a conditional license would allow for a license to be granted pending receipt of certain specified final conditions.  This would allow the applicant to go through an abbreviated approval process and commence its operations, subject to the potential of losing its license if the specified conditions are not met in a certain time frame.

Applications would be reviewed on a points system, with the CRC developing the criteria and relevant point categories for matters (e.g. unionized labor) beyond the basic application requirements (e.g. operating plan, environmental plan, safety plan, security plan).  Although the regulations and application forms for these licensing arrangements have yet to be developed, the Act does further specify various additional criteria that an applicant for each specific Class of license would be required to meet (e.g. criminal background checks and fingerprinting for various persons involved in the business).

Office of Minority, Disabled Veterans, and Women Cannabis Business Development.  This office would establish and administer, under the direction of the CRC, practices for promoting participation in the legal adult recreational cannabis business field by prospective and existing minority-owned, women owned, and disabled veteran-owned businesses.  The office would target having 30% of the cannabis licenses granted to such socially disadvantaged businesses (and target having not less than 15% of cannabis licenses go to minority-owned businesses, and not less than 15% of cannabis licenses go to women-owned and disabled veteran-owned businesses).

Impact Zones.  The Act lays out criteria for “impact zones”.  These would be certain municipalities with certain specified high rankings in past small amount cannabis crimes, crime rate, and unemployment.  Special priority will be given for certain licenses to be granted in such impact zones.  In addition, further priority will be granted where the applicant has a significant person in its operations who has resided in the impact zone for three or more years prior to making the application (or if there is a plan to hire 25 employees from such impact zone).

Microbusinesses At least 10% of each Class of licenses, and 25% of the aggregate licenses, are to be awarded to “microbusinesses”.  Among other criteria, a microbusiness would have no more than 10 employees, have an occupancy space of no more than 2,500 square feet (and for cultivators, no more than 24 feet in height), and deal with no more than 1,000 pounds of dried cannabis per month (although these requirements vary somewhat depending on the Class of license involved).  All of the owners must have been New Jersey residents for the past two years. Further, at least 51% of the owners, directors, officers, or employees of the microbusiness must be residents of the municipality in which the microbusiness will be located.  Additional criteria apply.

Cannabis Consumption Areas.  The Act permits retailers to establish a cannabis consumption area where persons over the age of 21 may consume cannabis on premises.  This will generally be a well-signed structurally enclosed area that is separated by solid walls or windows from the area where retail sales are made.  It may only be accessible through an interior door after first entering the retailer (and shall comply with certain ventilation requirements).

Municipal Regulations and Ordinances.  Municipalities may enact ordinances or regulations governing the number of cannabis establishments, as well as the location and operating hours of these establishments in the municipality.  The cultivation, manufacture, distribution, and wholesale cannabis operations shall generally be permitted in areas zoned as industrial.  The retail sale of cannabis shall generally be permitted in areas zoned as commercial zones or retail zones.  The municipality may also impose local cannabis transfer taxes of up to 2% on certain transfers of cannabis within the municipality.

State Social Equity Excise Fee.  New Jersey may impose a social equity excise fee on the sale by cultivators of recreational cannabis (to be paid by the purchaser, and collected by the cultivator).  After an interim adjustment period, the State may adjust the social justice equity fee to up to:

$10 per ounce, if the average retail price of an ounce of cannabis is $350 or more;

$30 per ounce, if the average retail price of an ounce of cannabis is at least $250 (but less than $350);

$40 per ounce, if the average retail price of an ounce of cannabis is less than $250 but at least $200; and

$60 per ounce, if the average retail price of an ounce of cannabis is less than $200.

These social equity excise fee revenues will, among other things, be dedicated to certain programs benefiting impact zones, to fund certain police training programs, to further development of the medical cannabis program.

As already mentioned, the Act is over 200 pages long (and additional regulations will be rolled out over the next several months to fully implement the arrangements).  These arrangements will trigger various issues regarding the adult recreational cannabis business market, issues about licensing planning and application, issues for employers, for property leasing, entity formation, intellectual property, unionization, and a host of other areas.  Lindabury attorneys are prepared to assist you as you attempt to make your way through the maze of these many issues.

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