EDITOR’S NOTE: NJ Cannabis Insider produces exclusive weekly content and monthly events geared toward those interested in the marijuana and hemp industries. To subscribe, visit njcannabisinsider.biz.
New Jersey could be less than a week away from passing a bill that will launch the legal weed industry after lawmakers agreed to impose an additional tax on growers that could one day boost marijuana tax revenue to $450 million, NJ Advance Media has learned
Sen. Nicholas Scutari, D-Union, said his bill (S21) will be amended to include a tax on marijuana growers. It would start as just a fraction of a penny but increase over time as the price of marijuana falls.
Scutari also said other changes to the bill will offer greater protections to workers who want to use marijuana while off the clock.
The new details were first reported on NJ.com’s exclusive text-messaging service included with a subscription.
The bill is now on a fast track.
Lawmakers have rescheduled both Senate and Assembly committee hearings on the bill for Thursday, and could have votes in the full houses on Monday, which would then send it to Gov. Phil Murphy.
Disagreements over the tax revenue allocations derailed the bill briefly last week, causing the state Assembly and Senate to cancel hearings and continue behind the scenes negotiations on the legislation.
New Jersey voters approved a ballot question to legalize marijuana in the Garden State on Nov. 3. But that referendum also set the sales tax rate at 6.625%, one of the lowest in the nation.
Many have debated the value of a low tax rate in recent years, particularly since the coronavirus outbreak has devastated the state financially. Some say it will help to make legal sales competitive with the black market, driving out activity from drug dealers who can offer better deals. But others have worried it may not raise enough money to become a meaningful source of revenue, especially for programs that are intended to help communities most affected by the enforcement of marijuana laws.
Putting the tax on cultivators also preserves the low sales tax voters agreed to in passing the referendum and amending the constitution. But it’s expected the escalating tax will be reflected in costs paid by consumers eventually.
“Until the price comes down, it will be the lowest tax in the nation,” Scutari told NJ Advance Media Tuesday. “What I’m against is pricing the product out of the reach of regular folks.”
When legal sales begin in a small market, many expect prices to be high. In the state’s medical marijuana program, an ounce of marijuana on average costs between $300 and $500 — far more than in other parts of the country or the state’s illicit market.
But over time, increased competition will force those prices to drop, experts say. That’s when higher tax rates could kick in.
The bill now allows for the yet-to-be constituted Cannabis Regulatory Commission to increase rates nine months after the first dispensaries licensed to sell directly to the public, not just to the medical marijuana program, open, Scutari said. Here’s how he said the new tax would pan out:
- If the average price of an ounce is over $350, the commission can enact a tax of $10 per ounce.
- When the cost falls between $250 and $350, that tax can jump to $30 an ounce.
- If the average price is between $199 and $250, the tax can be up to $40 per ounce.
- Once it falls below $199 an ounce, the fee can climb to $60 an ounce.
But those price jumps won’t trigger automatically. The commission, which the bill gives a good deal of autonomy, can decide to enact them.
It’s not clear how soon new dispensaries will open. Some have said in late 2021, while others forecast early 2022. If that’s the case, the tax on cultivators would not increase until the beginning of 2023.
A source in Gov. Phil Murphy’s administration, who was not authorized to discuss the matter publicly and spoke on the condition of anonymity, said the cultivators tax along with the sales tax could garner up to $450 million in revenue from a fully realized market in several years, according to early estimates.
Scutari also said other changes to the bill will offer greater job protections to residents who want to use marijuana in their non-work time. Employers could no longer enact blanket no-use policies for their workers, relying instead on specially trained “drug recognition analysts,” to determine through an employee’s behavior whether someone is high at work, he said.
A version of the bill introduced days after the election drew ire from racial justice advocates. It would use revenue from the sales tax to funding the Cannabis Regulatory Commission, reimburse police departments for costs associated with training Drug Recognition Experts to recognize signs of driving under the influence of marijuana. Funds would also go to the state’s general fund.
NJ CAN 2020, the campaign run in favor of the ballot question, centered the conversation around a need for racial and social justice reforms. That meant not only ending arrests, but generating new revenue for programs in minority communities disproportionately affected by the drug war.
“From the advocacy perspective, we wanted two things: One was to generate sufficient revenue and make sure that the state is actually collecting the money and meeting the potential of a fully realized market,” said Amol Sinha, executive director of the ACLU-NJ and member of NJ CAN 2020. “And the second was making sure that the money was going to help communities affected by the drug war.”
While the tax rate shows a shift toward the first priority, Sinha said he still hopes to see the Legislature will listen to communities from about their specific needs and direct funds where they could have the greatest impact.
Scutari said the cultivation fees would be earmarked for such programs.
A proposed amendment to the bill requires the commission to make recommendations for the Legislature as to how to spend money from the “Social Equity Excise Fee.” Some of the uses of the funds could include health-related prevention, legal aid for civil and criminal cases, food assistance, re-entry services, after school mentoring and recreation programs and GED tutoring and application help.
Scutari said there could still be more fine-tuning of the details.
The Murphy administration official said both lawmakers and the governor’s office are committed to racial and social justice causes, but there is continued work on the revenue specifics, as well as language around licensing caps to ensure many people can enter the industry.
“I think we still need to work out how some or all of it would be designated to various causes,” the source said. “There’s a commitment on both sides to work toward ensuring that the revenue does go to the causes that we’re talking about. But as to the specific causes, how much of the revenue, that’s still a work in progress.”
Our journalism needs your support. Please subscribe today to NJ.com.
Amanda Hoover may be reached at [email protected]. Follow her on Twitter @amandahoovernj.
Susan K. Livio may be reached at [email protected]. Follow her on Twitter @SusanKLivio.