High Times

High Times

With adult use cannabis now legalized in New Jersey, the economic benefits could be far and wide.

This most recent election will go down in history for several reasons, not the least of which will be the record turnout that saw nearly 65% of the voting-eligible population cast their ballots. In New Jersey, Nov. 3, 2020 will also be remembered as the day that the Garden State overwhelmingly approved the legalization of cannabis for adult use.
 
Back in 2017, when Gov. Phil Murphy was running for office, he made the ambitious campaign promise to legalize recreational marijuana within the first 100 days of his term. But after several attempts that went nowhere in the state legislature, a constitutional amendment was put on this year’s ballot and it received tremendous public support with 67% of the vote.
 
Senate President Steve Sweeney says this was an historic step for New Jersey that will have a wide-ranging ripple effect as the state can now create a regulated market to both grow and distribute cannabis.
 
With the public’s approval, we will be able to move forward to correct social and legal injustices that have had a discriminatory impact on communities of color at the same time that marijuana is regulated and made safe and legal for adults. This represents a significant change in public policy that will have a real-life impact on social justice, law enforcement and the economy,” Sweeney says.
 
The creation of a new cannabis industry in New Jersey with growers, processors, wholesalers and retailers could create thousands of jobs in sales, production and related services, according to Sweeney.
 
“We developed a thorough and thoughtful plan that will put in place rules and regulations that allow for adult use cannabis in a responsible way. As a regulated product, legal marijuana will be safe and controlled,” he says.
 
State Sen. Nicholas Scutari was the lead sponsor of the marijuana legalization bills and echoes his colleague’s sentiments.
 
“As the largest state in the Northeast to legalize the recreational use of marijuana, we have the ability to establish a new business sector that will create jobs and generate economic growth at a time when it is desperately needed.”
 
Along with New Jersey, similar measures passed on Election Day in Arizona, Montana and South Dakota while Mississippi and South Dakota gave the green light to medicinal programs. Currently, only 15 states outlaw cannabis in any form, signaling a major shift in thinking about the often-debated drug.
 
So why now? Scott Rudder, president of the New Jersey Cannabusiness Association, says it was the right time to move forward.
 
“I think being in the middle of a pandemic really helped because we have a different thought process of what our priorities are and we need greater economic opportunities, not less. It really was a paradigm shift,” he says.
 
Bill Caruso, who manages and runs Archer’s government affairs practice, has been recognized as one of the state’s most prominent policy makers and was instrumental in researching and drafting the bill that brought medical marijuana to New Jersey. He says better education on the topic and the success of programs in other states has led to the change in public perception.
 
“Since 2009, when we first passed and signed medical marijuana into law, there’s been a broad culture change. In fact, I think the public acceptance of adult use cannabis now dwarfs where we were back [then] in terms of the public support. The entire game has shifted,” Caruso says.
 
The Economic Benefit
One of the biggest selling points to legalize marijuana was having a regulated industry that could give the cash-strapped state a shot in the arm. And in the light of the pandemic, with unemployment numbers on the rise, many are hoping that this move can help resuscitate the economy.
 
“The ‘green rush’ is a real thing,” says Charles Messina, a partner at Genova Burns who also co-chairs the firm’s cannabis industry group. “Right now, there are only nine operational alternative treatment centers that are serving over 95,000 patients. Soon, there’s going to be an award of 24 additional types of licenses. So, in 2021 you are going to have an open applications process for growers, processors, wholesalers, retailers, distributors and delivery services.”
 
Messina also touts a component being built into the legislation that requires 25% of the total number of licenses in each of those six classes go to microbusinesses, which are defined as a person or entity that can employ no more than 10 people.
 
“That’s huge for the little guy,” he says. “It’s supposed to prevent those interstate mega branches from dominating the marketplace and that’s going to create an opportunity for smaller businesses.”
 
The proposed tax revenue—which has been estimated to be as much as $300 million—that could be generated would certainly be welcomed, but the final legislation is still a work in progress as lawmakers press to iron out the details in an effort to get things up and running. At press time, a reported agreement had been struck that would allow the state’s newly formed Cannabis Regulatory Commission to charge cultivators an initial 7% tax, which could generate as much as $4 million more than the state’s normal 6.625% sales tax rate. However, the language was still being finalized and some officials would like to see additional taxes also put into place.
 
But before the state can actually see meaningful tax dollars, there’s still a way to go as the industry looks to get on its feet. Robert M. DiPisa, co-chair of Cole Shotz’s cannabis practice, says that the added revenue will help matters, but it shouldn’t be looked at as the answer to all the state’s financial woes.
 
What’s important to keep in mind is there’s certainly a long lead time before the state of New Jersey will actually see the tax revenue from the adult use market. The earliest you’ll be able to purchase adult use cannabis, if all the stars align, would be the fourth quarter of 2021,” DiPisa says.
 
“I think people are expecting cannabis to come in and be the savior for the budget deficit in New Jersey,” he adds. “While cannabis is an important aspect to meeting the amount of tax revenue we are going to need to overcome the deficit, it’s not the only player. It’s part of the cocktail of different sources of tax revenue that we are going to need.”
 
Furthermore, Rudder believes the state needs to expand its parameters to allow for a more robust marketplace that is less competitive for licenses and more of a criteria-based model that other businesses follow.
 
“If I want to open up a pizza shop or bank, once I meet the criteria and local, state and federal inspectors sign off, I can open my business. I’m not competing against others for the right to operate,” says Rudder. “Instead the state only lets out a limited number of applications and it costs hundreds of thousands of dollars just to compete. Under the current model, there’s a 90% chance of failure.”
 
Where the legalized adult use space should make an immediate impact is with direct job creation. Not only will licensees be looking to fill new positions, but the ancillary economy should also see a considerable boost. Construction companies will be helping to build grow houses, engineering firms will assist with cultivation, accounting firms will help with the books, law firms with help with legal matters and on down the line. Even packaging companies and signage manufacturers could derive some benefits.
 
“There’s certainly a lot of potential for all kinds of businesses to grow around the cannabis industry,” says Sheila Mints, chair of Capehart Scatchard’s cannabis law practice. “It’s going to be very beneficial.”
 
DiPisa says he’s stressed to clients that they don’t need a license to be part of the cannabis industry, instead advising them to pivot and see how they can apply what they do to this budding industry.
 
“When you have this emerging market, it not only creates new jobs within the industry, but it creates new jobs on the outer ring of the doughnut and from there outward. It’s going to increase revenue for other businesses,” says DiPisa.
 
Another key factor being touted by many is the benefit that decriminalization will have both socially and economically. Those with a record for possession, perhaps dating back decades, have a hard time finding gainful employment that would allow them to be more of a contributing member of society. The estimated $127 million now spent in New Jersey to enforce marijuana laws could be used by law enforcement to combat serious crimes, according to Scutari, who also serves as chairman of the Senate Judiciary Committee.
 
“Marijuana prohibition has failed. It is time to end the detrimental effect these archaic drug laws are having on our residents and our state. This bill will create a strictly regulated system that permits adults to purchase limited amounts of marijuana for personal use. It will bring marijuana out of the underground market where it can be controlled, regulated and taxed, just as alcohol has been for decades,” Scutari says.
 
Going a step further, the bill includes other social justice provisions, including the designation of “impact zones” with preference for new cannabis businesses, and incentives for minorities, women and disabled veterans to participate in the industry.
 
What It Means for Medical Marijuana
As the adult use space advances, there are some questions about what this will mean for New Jersey’s medical marijuana program, which has already been struggling to supply the demand as the number of patients has grown considerably over the years. But, as Mints points out, it’s no secret that there have been some bad actors with regard to practitioners who “will get you a card in 10 minutes.”
 
“There are people that have gotten medical marijuana cards because they simply prefer to get high. So, I think to that extent, the medical program will probably shrink some, but to the level of people that really need it for the particular chronic condition that they’ve used it for,” says Mints.
 
And to be able to better meet the demand for medical users, expansion will be key to increasing the supply. Currently, the existing medical dispensaries could only have one cultivation location and that is set to change. Additionally, before these medical dispensaries would be allowed to sell to recreational users, they first must satisfy the medical patient population.
 
“I think it’s going to help the medical community, especially with the undersupply of product,” Messina says. “There will be a focus to make sure those high-dose products are going to be available to the medical patients who really need them. They are trying to do everything they can to keep the medical prices and costs lower than recreational cannabis sales.”
 
Caruso says he expects to see more changes at the federal level where you can differentiate medical from adult use and still have a thriving market.
 
“Insurers want in this game now,” he says. “Medical cannabis is a much cheaper, and in a lot of cases a more effective treatment option for a variety of issues that are currently being prescribed with more expensive medicines, including some with detrimental impacts, most notably for pain management.”
 
While it remains to be seen how things progress in the coming months and years, one thing that is for certain is there are a lot of eyes watching how New Jersey handles legalized cannabis, especially in neighboring states like Delaware and New York where pressure is already building to follow suit. Scutari see this as an opportune time to pave the way.
 
“Taxing marijuana could generate tens of millions of dollars and the industry could create thousands of jobs in sales, production and related services,” he says. “New Jersey can be a leader in social justice reforms and in the legal cannabis industry.”

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Published (and copyrighted) in South Jersey Biz, Volume 10, Issue 11 (November 2020).

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