Updates to New Jersey’s Adult-Use Cannabis Rules Would Expand Licensee Opportunities
Co-Author: Devin H. Malone
In February 2021, New Jersey became one of the 19 states to legalize cannabis for recreational use. The bill, A21 – “The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act,” regulates the use and possession of recreational marijuana and decriminalizes marijuana and hashish possession for individuals 21 years old and above. Since A21 became law, New Jersey has made efforts to adopt rules via the Cannabis Regulatory Commission (“CRC”).
In December 2021, on the first day that the portal opened for applications, the platform averaged 155 new users per hour. About three months later, the first recreational cannabis business licenses were approved. Adult-use cannabis sales began just one month later. In the first day, the state’s 12 dispensaries sold cannabis and cannabis products to 12,438 recreational customers and grossed sales of nearly $1.9 million.
Sales have not slowed down. New Jersey’s second fiscal quarter of 2022 brought in $79.7 million in total sales. With 18 dispensaries now operating in New Jersey, and more on the way, the state expects to see increased sales as businesses turn to online platforms.
With soaring sales and businesses quickly looking to enter the market, the CRC has proposed updated rules which expand the license classes to include wholesalers, distributors, and delivery services. Under these proposed rules, retailers, manufacturers, and wholesalers are required to keep more detailed records, including information on the date of purchase and delivery sale, the cannabis items purchased or sold, and the purchasing or selling entity.
Wholesalers (Class 3 licensees) will be able to purchase usable cannabis and cannabis products from another cannabis wholesaler, cultivator, or manufacturer for the purpose of resale to another wholesaler, manufacturer, or retailer. Wholesalers can also store/warehouse cannabis and transport usable cannabis and cannabis products to a wholesaler, manufacturer, or retailer.
Distributors (Class 4 licensees) can transport unusable and usable cannabis between cultivators and manufacturers and transport usable cannabis and cannabis products between other cannabis establishments. Even more, Distributors can possess and engage in temporary storage of unusable and usable cannabis and cannabis products as necessary to carry out transportation activities.
Delivery services (Class 6 licensees) can purchase or otherwise obtain cannabis items, cannabis paraphernalia, and related supplies from a cannabis retailer after receiving a purchase order from a consumer and presenting it to the cannabis retailer. These services can also transport usable cannabis and cannabis products and paraphernalia, deliver usable cannabis, cannabis products, and paraphernalia to a consumer and return undelivered usable cannabis, cannabis products, and paraphernalia back to its originating cannabis retailer.
These proposed rules do not affect tax rates or how revenue is used within the state. Currently, there is a social equity excise fee of $1.10 per ounce of cannabis sold. This per-ounce, flat-rate fee is assessed on all cannabis cultivated and sold in New Jersey’s recreational cannabis market. It is not imposed directly on consumers or on sales between licensees within the same class.
The fee is intended to reinvest in New Jersey, specifically via grants and low-interest loans for aspiring entrepreneurs and investing in “impact zones” which are considered towns with higher than average unemployment rates, crime indexes, and marijuana arrests. The CRC has the power to amend these fees, and any increase will be effective January 1 of the next calendar year. Being able to adjust the social equity fee allows the CRC to respond to the market so that impact zones will continue to be funded by the same tax. Under New Jersey law, 70% of all tax revenue, including social equity fees, is earmarked for investing in impact zones.
These new rules continue to promote New Jersey’s overall goal to ensure stable revenue collection for social equity investments while encouraging license-holders to hire individuals living in Economically Disadvantaged areas or with past marijuana convictions. The public comment period closed on Sept. 30, 2022. Now, the CRC is compiling and responding to the comments with a target date to adopt the new rules by February 2023.
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.