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NJ Leaders Agree to Compromise on Cannabis Tax

March 4, 2019

Author: Wendy D. Testa

The Garden State may have a new crop on the market in the near future. The prospects for legalizing cannabis for recreational adult use appear to once again be on the rise. After months of back and forth between Governor Phil Murphy and the State Legislature, a compromise solution appears to be in the works. Reports suggest details, including tax rates and regulatory schemes, finally have been ironed out. Many observers are optimistic about legislative action later this year. 

The Background
Governor Murphy doubled the enrollment of New Jersey’s medical cannabis program in 2018. The list of applicable medical conditions was expanded and other restrictions relaxed, resulting in an immediate surge in new patients enrolling for treatment. 

Murphy had campaigned on a promise to legalize recreational use of cannabis within the first 100 days of his administration. This self-imposed deadline came and went in early 2018, but momentum seemed to be building in the legislature. Movement came to a halt over the summer as New Jersey narrowly avoided a government shutdown over the state budget. This event underscored growing tension between the governor and leaders in his own party, including Senate President Steve Sweeney. 

Work on legislation resumed in the fall, culminating in a draft bill leaving committees of the Assembly and Senate in December 2018. The biggest remaining problems were the tax rate and the composition of a new regulatory body to oversee the cannabis industry. Reports indicated Murphy favored a robust 25 percent tax, which Sweeney thought would encourage black-market sales and thus undermine the legislative purpose. It also was unclear how the members of the regulatory commission would be selected. 

What’s New?
In late February reports indicated that Murphy and Sweeney had reached a tentative agreement on taxes and regulation. The agreement involves a $42 per ounce tax and gives the governor power to appoint three of the five members of a proposed Cannabis Regulatory Commission. 

What Comes Next?
The plan still needs to be approved by the Assembly and Senate to go into effect. Other details ranging from the expungement of prior convictions to licensing requirements are yet to be finalized. Some observers expect New Jersey to act soon to prevent New York from gaining a first-mover advantage in the lucrative tri-state market. On the other hand, last year’s optimism proved to be premature and the many predictions of imminent action never came to fruition. 

New Jersey may have cleared one of the most important hurdles on its meandering journey toward legalization, but in the world of New Jersey politics it’s a safe bet that there will be more legislative fireworks before a final deal is struck. 

From our office in New Jersey, the Wilson Elser Cannabis Law practice serves clients statewide. Regional Managing Partner Carolyn O'Connor serves as point person, drawing on the skills of colleagues in applicable practice areas. Contact Carolyn for more information on how Wilson Elser can help your business navigate these emerging issues.

NOTE: Patrick McKnight (Law Clerk-Philadelphia) assisted in researching and drafting this Alert.

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