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November 5, 2020

New Jersey Votes to Legalize Adult-Use Cannabis: What's Next?

In a historic night for cannabis, all five states with cannabis measures on the ballot in the November 2020 election voted affirmatively for either medical or adult-use legislation. New Jersey, Arizona, and Montana voters legalized adult-use cannabis, Mississippi passed medical marijuana, and South Dakota passed both medical and adult use.

Today 35 states have medicinal cannabis, and 15 states have legalized cannabis for adult use, which means one in three Americans live in a state with a cannabis program. Given the proximity of many of Barclay Damon’s offices and cannabis clients to New Jersey, our focus is directed toward what will happen next with this state.

This week, New Jersey became the 12th state to legalize adult use of recreational cannabis. As predicted by multiple pre-election polls, New Jersey voters approved amending the state’s constitution to legalize the cultivation, processing, and sale of retail marijuana for adults aged 21 and over by a ratio of nearly two to one. The affirmative vote on New Jersey Public Question 1 is not the end of the road to legalization in New Jersey but the first step on its path to retail sales. The amendment becomes effective January 1, 2021.

The New Jersey legislature now has to pass a bill detailing the framework and regulations surrounding the legalized cannabis industry. Senator Nicholas Scutari, sponsor of the original legislation, has already signaled his intention to introduce a bill as early as November 6. After the Senate and General Assembly pass enabling legislation, regulations need to be drafted and promulgated for public comment before entities can begin applying to grow, process, and sell retail cannabis in New Jersey.

Retail dispensaries, cultivators, and processers will likely undergo a rigorous licensing process similar to the process in place for medical cannabis cultivators, processers, and dispensaries. Between passing enabling legislation, proffering regulations, and initiating and approving applications for retail sales, it could be months or even years before retail sales open in New Jersey. Even though New Jersey was first to the finish line among Mid-Atlantic states in legalizing, there is a very real possibility other nearby states could beat New Jersey to the sales floor.

Distinct from other states that have already legalized recreational cannabis, New Jersey stands alone in the seemingly low tax to be imposed on the sale of retail marijuana. The ballot measure approved by the state’s voters allows the imposition of the state sales and use tax of 6.625 percent, and the legislature may allow up to a 2 percent tax to be imposed by the municipality in which the retail sales operation is located. These tax rates are astronomically lower than any other retail cannabis tax in the country. However, we understand the enabling legislation may include an as-yet-unknown excise tax on growers, which may make up for the relatively low sales and municipal tax rate.

New Jersey faces other obstacles to realizing the sale of recreational cannabis. Further legislation is needed to address social justice issues. A bill decriminalizing the possession of marijuana has been sitting in the Senate Judiciary Committee since June. The Cannabis Regulatory Commission (CRC), required by the 2019 Jake Honig Compassionate Use Medical Cannabis Act, has not yet been fully formed. Under the approved ballot measure, the CRC will be responsible for regulating retail cannabis sales as well as medical cannabis sales. Only one member of the five-member committee has been appointed.

New Jersey lawmakers are expected to grapple with other outstanding issues in the enabling legislation, including limiting the number of retail entities approved to sell recreational cannabis and ensuring the local business community is prioritized. Another item on the table is allowing the existing licensed medical cannabis alternative treatment centers (ATCs) to offer recreational sales as well. This last measure seems highly unlikely, as the ATCs may not be in a position to offer sales to the anticipated influx of recreational customers from New Jersey and surrounding states on top of the state’s existing 95,000 patients.

New Jersey voters may have taken the first step in approving recreational sales of cannabis, but those sales are not likely to materialize in the near future. We expect to see New Jersey motivate New York, Pennsylvania, and Connecticut to enact state-specific adult legislation in 2021. We hope New York will become the 16th state to legalize adult-use marijuana through the budget in April 2021.

If you have any questions regarding the content of this alert, please contact Aleece Burgio, Cannabis Team leader, at aburgio@barclaydamon.com; Gabrielle Figueroa, associate, at gfigueroa@barclaydamon.com; or another member of the firm’s Cannabis Team.

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