March 22, 2019
Final Vote on Marijuana Legalization Set for Monday, March 25
On Monday, the Assembly Appropriations Committee and the Senate Judiciary each amended and approved legislation that will legalize the adult use of recreational marijuana. The committees also approved legislation to expand the State’s medical marijuana program and to streamline the expungement process. All of these bills are schedule for final votes in the Assembly and Senate this Monday, March 25, though it appears there may not be sufficient support for final passage at this point in time.
A4497 and S2703 will legalize the adult use of recreational marijuana. Specifically, the possession or use of an ounce or less of marijuana would be legal for those 21 and over.
The bill establishes four licenses for cannabis establishments, including:
- Class 1, Growth/Cultivation;
- Class 2, Processing
- Class 3, Wholesale
- Class 4, Retail.
The industry will be governed by a “Cannabis Regulatory Commission,” which will include 5 full-time Commissioners and an Executive Director. Three Commissioner would be direct appointment by the Governor and the remaining two seats would be appointed by the Governor, upon the recommendation of the Senate President and the Speaker of the General Assembly.
The State Tax will be $42 per ounce, assessed at the cultivation stage.Issues of Particular Interest to Local GovernmentsLocal Taxation
Section 21 authorizes municipalities to adopt ordinances imposing a “transfer tax” on cannabis sales on licensed cannabis establishments (see definition in Section 3, page 4, lines 13-16).
Municipalities may enact a local tax up to:
- 2% of the receipts from each sale by a cannabis grower, cultivators (Class 1 license);
- 2% of the receipts from each sale by a cannabis processor (Class 2 license);
- 1% of the receipts from each sale by a cannabis wholesaler (Class 3 license); and/or,
- 3% of the receipts from each sale by a cannabis retailer (Class 4).
Thus, the municipality may enact the appropriate transfer tax on any of the licensed cannabis establishments located in the municipality.
These taxes are in addition to the State cannabis excise tax of $42 per ounce. Please note that no local transfer/user tax can be imposed on medical marijuana.
Per Section 22 (starting on page 56), the municipality may prohibit any or all of the 4 licenses within 180 days of the effective date of the Act.
For those who do not opt out, the local tax ordinance shall also include provisions for imposing a user tax, at the equivalent rate(s) set by the municipality, on any “concurrent license holder…operating more than one cannabis establishment.” This language clarifies earlier concerns about the tax on businesses that holds more than one license within the municipality, commonly referred to as a vertically integrated operation.
Receipts from the transfer and user taxes shall be remitted by the cannabis establishment directly to the Chief Financial Officer of the municipality, in a matter proscribed by the municipality.
If there is nonpayment of the transfer/user tax, then the unpaid balance and accrued interest shall be a lien in the same manner as other unpaid municipal taxes, fees and charges.
Local Government Entity Regulations or Ordinances, Pages 56-58.
Section 22 (pages 56-58) authorizes municipalities to enact regulations governing the time of operation, location, manner and the number of cannabis establishments, as well as establish civil penalties for the violation of such ordinances and regulations.
A municipality may prohibit any one or more classes of cannabis licenses throughout the municipality, even if the municipality is within regions such as the Highlands, the Meadowlands or the Pinelands. In other words, a municipality could adopt an ordinance prohibiting retail establishments but permit cultivation operations.
On page 57, lines 11-14 it reads, “Only an ordinance to prohibit one or more classes of cannabis establishment enacted pursuant to the specific authority to do so by this section shall be valid and enforceable.”
Thus, any existing ordinances banning commercial marijuana sales or transactions will be null and void and the municipality will need to adopt a new ordinance to do so, which should reflect and reference this section of the law.
Municipalities will have 180 days from the effective date of the Act to opt out, by ordinance, of any one or all licenses. The League will prepare and make sample ordinance language that can be altered for your specific purposes.