New Jersey lawmakers pass bill to regulate biggest East Coast recreational marijuana market

New Jersey recreational marijuana, New Jersey lawmakers pass bill to regulate biggest East Coast recreational marijuana market

(This story has been updated with more details and comments.)

New Jersey lawmakers on Thursday approved legislation to regulate and launch an adult-use marijuana market next year that’s expected to become the largest on the East Coast with sales approaching $1 billion in a few years.

Passage of the implementation bill by the Assembly and the Senate comes six weeks after residents voted to legalize adult use at the ballot box.

The Assembly passed the measure by a vote of 49-24 with six abstentions, while the Senate passed the bill by a margin of 23-17 after several Senators railed against certain provisions. Some lawmakers and advocates have criticized the lack of transparency and wanted stronger social equity provisions.

New Jersey’s decision to launch a recreational marijuana market is expected to ignite a domino effect across the Northeast and Middle Atlantic, especially putting pressure on neighboring New York and Pennsylvania to legalize adult use.

The bill, which now goes to Gov. Phil Murphy for his expected signature, would fast-track existing medical marijuana operators and impose cultivation caps in the first two years, with licensing designed to increase according to market demand.

Provisions include giving licensing priority to microbusinesses owned by residents as well as applicants from economically hard-hit communities or those impacted by the war on drugs.

The bill finally made it to the floor in part after Murphy and leading lawmakers agreed to target 70% of the tax revenue to communities most harmed by the war on drugs.

“I think the state clearly made an effort to make this inclusive for businesses of every size,” said Rob DiPisa, co-chair of the cannabis law practice at Cole Schotz. “We’ll have to see how it plays out though.”

Marijuana Business Daily projects New Jersey’s adult-use market will generate $850 million-$950 million in annual retail sales by 2024.

Implementation timetable

Under the timetable laid out by the bill, rules must be developed within 180 days of the bill’s enactment or within 45 days of all five members of a Cannabis Regulatory Commission being appointed.

An existing medical cannabis operator could begin adult-use sales immediately after rules are issued – but only if it can show it has sufficient quantities to meet medical cannabis demand.

And that’s the rub.

New Jersey has issued only 12 vertical MMJ licenses, and just 13 dispensaries were in operation as of Nov. 30.

State lawmakers approved an expansion to issue a mix of 24 additional MMJ licenses, but the licensing has stalled because of litigation.

A number of existing MMJ operators are expanding their cultivation facilities.

“Expansions will be helpful, but the fact is that we’re not meeting medical demand,” DiPisa said.

“If we’re not meeting the demands of the patients, we shouldn’t be selling cannabis to the adult-use market. We (also) have to think how much excess we will need to meet the adult-use market, which I think will dwarf the medical market.”

DiPisa reckons the adult-use market will launch in the fourth quarter of 2021, but it’s possible some of the operators will get permission to start sales before then.

Multistate operators with licensed operations in New Jersey include Acreage Holdings, Columbia Care, Curaleaf, Green Thumb Industries, iAnthus and TerrAscend.

The bill at a glance

Below are key provisions spelled out in the legislation, according to a bill statement published Dec. 14:

  • The bill would establish six classes of licensed businesses: cultivator, manufacturer, wholesaler, distributor, retailer and delivery.
  • The 12 licensed medical marijuana operators would be permitted to get an adult-use license. Some would get licenses to cultivate, process and sell, while others would get wholesale/distributor licenses. The process is more complicated for the potential, yet-to-be-issued 24 additional MMJ licenses.
  • Cultivation licenses would be capped at 37 for the initial 24 months. The limit wouldn’t apply, however, to licenses issued to microbusinesses, which are firms of no more than 10 employees and 2,500 square feet of canopy space.
  • The Cannabis Regulatory Commission (CRC) would determine the maximum number of licenses for each class based on market demand and would be authorized to accept new license applications to meet increasing demand.
  • The CRC would determine an application points system based on criteria such as an applicant’s operating, environmental and safety and security plans. The referendum passed by voters calls for regulators to give priority consideration to minorities, women and disabled veterans.
  • In addition, priority would be given based on “impact zones,” or municipalities negatively impacted by unemployment, poverty or past marijuana enforcement activity. To the extent possible, the CRC would grant at least 25% of the total licenses to such applicants or those who employ at least 25% of their employees from such zones.
  • Other priority factors would include residents of at least five years who hold at least a 5% investment interest in an entity.
  • Labor peace agreements would be required, except in the case of microbusinesses.
  • The bill would make it more difficult for municipalities to prohibit marijuana operations. All past prohibitions would be “null and void” and a municipality would have 180 days from the bill’s enactment to prohibit adult-use operations but wouldn’t be able to ban delivery services to consumers in the area. Every municipality also would have the option to decide how many licensed businesses to permit.
  • Adult-use sales would be taxed at 7%. The CRC also could levy a small “social equity excise fee” on marijuana growers that would fluctuate depending on the average retail price of cannabis.
  • Proceeds from the excise fee and 70% of the state sales tax would go to programs in communities disadvantaged by the prohibition on marijuana.
  • The initiative also would allow municipalities to pass ordinances to charge local sales taxes of up to 2%.

Jeff Smith can be reached at [email protected]