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Recreational Cannabis is Legal in New Jersey, Now What?

After years of debate, culminating with weeks of back and forth in the state legislature, the bills Governor Murphy signed into law on Monday, February 22 simultaneously decriminalized possession of certain amounts of cannabis and created the legal framework for adult-use cannabis.  This occurred days after the New Jersey Appeals Court restored the green light for an additional twenty-four licenses for medical cannabis dispensaries, which had been delayed late in 2019. There is no immediate timeline for adult-use cannabis sales in New Jersey; however, the newly formed regulatory body, coined the Cannabis Regulatory Commission or CRC, is tasked with providing the remaining regulations to round out the business framework before legal transactions can occur. How long will it take?  The law provides that process will conclude in, at most, six months.

But surely the state’s ten pre-existing medical cannabis operators can morph into adult-use sales as well, correct?  The law stipulates they certainly can, but only once rules and regulations are memorialized, at which time legacy operators must demonstrate their supply chains can meet expected adult-use sales, while also providing for its medical patients.  This is a tall order considering the surging medical market in recent years in contrast to the limited number of operators.

The new law addresses social justice and equity.  Notably 30% of cannabis licenses are reserved for minority, disabled veterans and women-owned businesses.  Going a step further, 70% of state sales tax revenues and 100% of state excise tax revenues from cannabis sales will fund grants, loans, expenses and other financial assistance in “impact zones”, which are municipalities or communities that experienced disproportionately higher law enforcement for criminal cannabis activity.

For entrepreneurs and business owners desiring to get in on the Garden State’s green rush, there are six license offerings to suit your desired industry vertical: cultivation (capped at thirty-seven licenses for initial two-year period), manufacturing, wholesaling, distributing, retail and delivery.  Be aware that currently each license is subject to an arduous and selective application process.  This often entails engaging an attorney for expertise in land-use and zoning rules in New Jersey’s municipalities. However, the new legislation is intended to streamline the licensing application process in order to promote small, locally owned businesses.

An inherent byproduct of legalization will be the seemingly infinite number of non-plant touching business ideas that will emerge, from light technology and innovative packaging, to cannabis cafes and yoga studios, the landscape is ripe with opportunity.  Withum serves a variety of cannabis clients throughout the nation, and we look forward to assisting additional companies based on the opportunities afforded by the passage of the laws in the State of New Jersey.

Authors: Sean Linde, CPA, slinde@withum.com | John Liska, CPA/ABV, jliska@withum.com

To learn more about what’s expected with the passage of this bill with our on-demand webinar on Murphy Signed the Cannabis Reform Bills – Now What? For questions or additional information, please contact a member of the Cannabis Group.

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