NJ Cannabis Regulatory Commission Announced Initial Rules and Regulations Adopted August 19, 2021

On Thursday, August 19, 2021, after months of waiting, the New Jersey Cannabis Regulatory Commission (“CRC”) announced and adopted the first set of rules and regulations to establish the personal use cannabis industry in New Jersey. These rules and regulations were required to be announced within 180 days after the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (P.L. 2021, c.16), which was signed into law February 22, 2021. The rules become effective upon filing with the Office of Administrative Law and will remain in effect for up to one year. These initial rules may be readopted, amended, added to, etc.

Below are highlights from the various sections of the rules and regulations

Application Prioritizing

• The state has created a cap whereby only 37 cultivator licenses will be allowed for the first two years starting after February 22, 2021. There is no cap on the number of cannabis manufacturer or retailer licenses.
• The CRC will prioritize applications for the following three types of businesses, regardless of when the applications are received:
  • Social Equity Businesses – businesses owned by individuals who have lived in economically disadvantaged areas of New Jersey or those with past cannabis-related convictions.
  • Diversely Owned Businesses – businesses that are minority-, women-, or disabled veteran-owned and certified as one of the latter through the New Jersey Department of The Treasury.
  • Impact Zone Businesses – businesses that are located in an Impact Zone, are owned by people from an Impact Zone, or employ residents of an Impact Zone.
• The CRC further establish and prioritize “Microbusinesses,” which are businesses limited to ten employees and with premises no larger than 2,500 square feet;
  • Microbusinesses may apply for a “conditional license” which means that they only need to submit the background disclosures, along with a business and regulatory compliance plan. If approved, they have 120 days to find a proper site, secure approval from the municipality and apply for conversion to an annual license.

License Fees

Initial application fees and renewal fees vary depending on the type of businesses and cannabis license the applicant is applying for.

• Application License Fees – Only 20% of the application fee is required to be paid when initially filed, while the remaining 80% will be collected at the time the license is approved. The total application cost will range from $500 – $2,000 depending on the type of cannabis license and business.
• Annual License Fees – Each business that is approved for a license will have to pay a license fee annual renewal depending on the type of license and business as detailed below:
  
  • Annual Cannabis Cultivator Renewal Fee
    • Microbusiness = $1,000
    • Standard = $5,000 - $50,000 (depending on which tier, determined by premise square footage).
  • Annual Cannabis Manufacturer Renewal Fee
    • Microbusiness = $1,000
    • Standard = $20,000 - $300,000
  • Annual Cannabis Retailer Renewal Fee
    • Microbusiness = $1,000
    • Standard = $10,000
  • Expanded Alternative Treatment Centers (“ATC”) Certification Fee
    • Medical Cannabis Cultivator Expansion = $400,000
    • Medical Cannabis Manufacturer Expansion = $300,000
    • Medical Cannabis Manufacturer Dispensary Expansion = $100,000
    • Vertically Integrated ATC with three Dispensaries = $1,000,000
    • Vertically Integrated ATC with two Dispensaries = $900,000
    • Vertically Integrated ATC with one Dispensary = $800,000

Taxes

In addition to retail sales of personal-use cannabis being subject to New Jersey sales tax, the CRC initial rules and regulations also establishes the “Social Equity Excise Fee” on sales by cultivators. This fee is imposed on cultivators and increases as the retail prices drop. The CRC will set the imposed amount each year by November 1, effective on January 1 of the next calendar year. The initial Social Equity Excise Fee is set to be 1/3 of 1% of the statewide average retail price of one ounce of usable personal use cannabis. However, following nine months of the first sale of personal use cannabis, the excise fee may be adjusted annually as follows:

• Up to $10 per ounce, if the average retail price of an ounce of usable cannabis was $350 or more;
• Up to $30 per ounce, if the average retail price of an ounce of usable cannabis was at least $250 but less than $350;
• Up to $40 per ounce, if the average retail price of an ounce of usable cannabis was at least $200 but less than $250; and
• Up to $60 per ounce, if the average retail price of an ounce of usable cannabis was less than $200.

The Social Equity Excise Fee is paid by the cannabis cultivator or the cannabis cultivator can charge/collect it from the purchaser (other than another cannabis cultivator). Further, any sale that is subject to the Social Equity Excise Fee is not subject to New Jersey sales tax.

In addition to the above, municipalities are also allowed to establish a transfer tax of up to 2% on cannabis products being sold/transferred within their jurisdiction. This may create a tax on the retail purchase of personal use cannabis as high as 8.625% (6.625% NJ sales tax + 2% municipal transfer tax).

Municipal Powers

Part of the initial rules and regulations issued by the CRC is the establishment of rules that lay out what municipalities are allowed to do. These include the following:

Municipalities Can:

• Authorize certain types of cannabis businesses;
• Set a cap on the number of certain types of cannabis businesses that may operate within their jurisdiction;
• Set restrictions on the hours of operations of cannabis businesses and their locations;
• Create local licensing requirements and civil penalties;
• Restrict the type of cultivation that is allowed within their jurisdiction (i.e., indoor vs outdoor);
• Establish up to a 2% transfer tax on cannabis products; and
• Communicate the municipality’s preference for licensure to the CRC.

Municipalities Cannot:

• Restrict delivery of cannabis items to consumers within their jurisdiction; and/or
• Restrict transports of cannabis that are routed throughout their jurisdiction

Additionally, municipalities had until August 21 to opt-out of one, all, or a combination of the possible cannabis establishments, or otherwise allow all cannabis licenses (except retail) for five years. Municipalities that opt-out do not have to wait five years to opt-in types of cannabis businesses; this can be done at any time. At this time, almost three quarters of New Jersey’s municipalities have opted out of all cannabis business types or have approved non-retail cannabis businesses¹. However, it appears that a large portion of the municipalities have decided to ban personal use cannabis businesses to allow for more time to: 1) review the initial rules and regulations issued by the CRC and 2) draft and establish their own local ordinances.

Safety Regulations

A large portion of the CRC initial rules and regulations provide guidance on the safety requirements for personal use cannabis. These safety rules include but are not limited to the following:

1. Restricting cannabis businesses from selling to those under the age of 21;
2. Restricting advertising to those under the age of 21;
3. Requiring products sold in stores to come with warning statements regarding possible health risks and a hotline to contact poison control centers;
4. Restricting advertising from including anything that may be appealing to children (cartoons, trademarked images, pictures that resemble food or candy, etc.);
5. Requiring childproof packaging (both before opening and when resealed);
6. Initially, edible cannabis is only permitted in the following forms: syrups, pills, tablets, capsules, and chewables, and topical/transdermal forms, but cannot be in the form of cookies, brownies or other products resembling food; and
7. Vaping products cannot contain any additive that has been determined to be harmful to consumers.

When can you purchase personal use cannabis?

Now that we have the initial rules and regulations, the next question on everyone’s mind is, when will sales of personal use recreational cannabis be allowed? Based on the existing law established under P.L. 2021, c.16 or the “New Jersey Cannabis Regulator, Enforcement Assistance, and Marketplace Modernization Act,” the CRC is required to determine the first date personal use cannabis can be sold, of which must fall within 180 days after the initial rules and regulations were adopted (August 19, 2021). This put the date of first allowed sales between August 20, 2021 and February 22, 2022, with the expected date to be closer to February.

¹ More than 70% of New Jersey towns ban adult-use marijuana retail (mjbizdaily.com)