Preparing Your Cannabis Business for the 2020 New Jersey Marijuana Referendum: The Time Is Now

After several stalled attempts to pass a recreational marijuana law through legislation in New Jersey, voters will finally get the chance to decide the issue at the polls in November 2020.

On December 16, 2019, the New Jersey legislature approved a referendum putting the question of whether to legalize adult-use marijuana on the state’s 2020 general election ballot.

The question and interpretive statement that will appear on the ballot are as follows:

Constitutional Amendment to Legalize Marijuana

• Do you approve amending the Constitution to legalize a controlled form of marijuana called “cannabis?”
• Only adults at least 21 years of age could use cannabis. The state commission created to oversee the state’s medical cannabis program would also oversee the new, personal use cannabis market.
• Cannabis products would be subject to the state sales tax. If authorized by the Legislature, a municipality may pass a local ordinance to charge a local tax on cannabis products.

Interpretive Statement

• This amendment would legalize a controlled form of marijuana called “cannabis.” Only persons at least 21 years of age could use cannabis products legally.
• The Cannabis Regulatory Commission would oversee the new adult cannabis market. This commission was created in 2019 to oversee the state’s medical cannabis program. The scope of the commission’s new authority would be detailed in laws enacted by the Legislature.
• All retail sales of cannabis products in the new adult cannabis market would be subject to the state’s sales tax. If authorized by the Legislature, a municipality may pass a local ordinance to charge a local tax on cannabis products.

If the measure passes, the Garden State is poised to be the twelfth state (plus the District of Columbia) to legalize marijuana. Although legalization would take effect on January 1, 2021, further legislation and regulation will need to be established by the legislature and respective administrative bodies. Many of the details of how the state would implement the measure are not finalized. Nevertheless, those looking to enter New Jersey’s recreational market would be well-advised to begin preparing for legalization now as discussed below.

The legislation that was poised for a vote earlier in the year provides some basic guidelines on what could be on the horizon. Previous versions of the bill enumerated four classes of licenses:

1. Grower license
2. Processor license for facilities involved in manufacturing, preparation, and packaging of cannabis items
3. Wholesaler license
4. Retailer license where consumers will purchase cannabis products

Prior versions of the legislation have also included Marijuana Consumption Areas (lounges for on-site consumption). Licenses will likely be initially capped at a fixed amount, then the Cannabis Regulatory Commission would determine the maximum number of licenses for each class based upon market demands.

We have already seen how rigorous the licensing process can be in order to obtain a medical marijuana license for an Alternative Treatment Center (“ATC”), and it is expected that the foregoing adult-use licenses will require a similar vetting process. The prior legislation did not preclude an ATC owner from also owning recreational licenses. If other states are any indication, then ATC owners will likely also jump into the recreational fray. Previously unsuccessful ATC applicants will also likely apply for recreational licenses, as well as those simply waiting for adult-use legislation to pass. We, therefore, expect this to be a very competitive application process, much like the ATC application process.

Polling shows that a majority of Americans are in favor of legalization, with New Jersey residents favoring legalization by 62% according to a Monmouth University poll conducted earlier this year. Accordingly, businesses and entrepreneurs looking to get a head start on the application process would be wise to begin putting a team of capable professionals in place to advise on and prepare for the application process.

Additional Business Considerations

• Business Formation and Governance—Are you and your partners protected from liability? Do you have the proper corporate structure to maximize your gains while minimizing liability?
• Zoning and Land Use Issues—Do you know where you want to do business? Will that municipality allow your business?
• Financial/Tax Planning—Is your funding in place? How will your business be taxed on a state and federal level? How do you handle investors?
• Branding and Intellectual Property Issues—How do you protect your brand from infringement? Can you register your trademark? Your patent? Have you spoken to an attorney about how to do so?

These are just a few issues to consider if you’re thinking of going forward in this exciting new industry. We at Norris McLaughlin continue to monitor this important area of law, which represents a tremendous opportunity for growth for New Jersey businesses and will keep you apprised of any new developments.

If you have any questions, please feel free to contact me at (908) 252-4236 or ealvarez@norris-law.com.