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New Jersey Draft Cannabis Legislation Opens Marijuana To Entrepreneurs Big And Small

March 15, 2019

New Jersey is establishing legislation that will allow cannabis for personal use (i.e., recreational use) and easy pathways for entrepreneurs to become involved.  The New Jersey Marijuana Legalization Act (Senate Bill No. 2703) provides a focused structural introduction to legalized cannabis businesses in New Jersey and it describes how these businesses can work with businesses in other states.  


The Act outlines the processes and procedures to obtain the four types of licenses: Class 1 Cannabis Grower License, Class 2 Cannabis Processor License, Class 3 Wholesale License and Class 4 Cannabis Retail Licenses.  Each license provides authority to perform certain activities involved in the growing, distribution, related merchandise/paraphernalia product manufacture and sale and the retail sale of cannabis.  Each license has specific requirements regarding personal background and business ownership activity such as residency requirements, personal background information and percentage ownership.


New Jersey’s Act introduces the concept of a micro business -- a “microcannabusiness” -- to “lower barriers” to entering New Jersey’s cannabis market.  Specific regulations assist new and/or limited funded entrepreneurs in competing with large cannabis growers and well funded businesses/entrepreneurs.  Microcannabusiness applicants have reduced licensing costs and an expedited review that allows them to begin business activity quickly.  Microcannabusinesses have residency requirements, limits on business space and limits on profits.  For example, if in any fiscal year a microcannabusiness exceeds $500,000 in income, it will not be allowed to renew this license but will be required to apply for a “new” appropriate license (applications for “new” licenses shall be permitted even if the total number of licenses permitted by the Cannabis Regulatory Commission has been reached).


In further pursuit of cannabis businesseses, the Act provides for a “Conditional License” that will be accepted 30 days after the Act is adopted.  A copy of the application will be forwarded to the local government with 7 days to review of the operation of the Applicant’s business.  A determination will be completed with 90 days of receipt of the application, and the license will issue within 30 days of approval by the commission.  


It should be recognized the “local governments” will have discretion regarding the introduction of a cannabis based business in their jurisdiction.  The local government shall determine whether the application complies with “local” restrictions regarding time, location, manner and the number of businesses.  These regulations at the local level have only begun to be discussed for implementation upon approval of the act.  


Potential cannabis licensees and business owners have inquired regarding tax rates and potential tax issues.  At this time, legislators appear to have agreed on a $42 per ounce tax (see link) instead of an escalating tax.  Other tax issues are more problematic but issues regarding “mixed” business, land use etc. are being discussed.


Starting a cannabis based business (including microcannabusiness) in New Jersey is an inviting entrepreneurial opportunity which can be low risk high reward, but as in all businesses, a structured corporate plan recognizing the multiple facets in required.  Taking advantage of the specific considerations that will strengthen your candidacy, e.g. New Jersey resident, minority based business, veteran status, etc., are important but, equally important are corporate structure, intellectual property, transactional/contract and regulatory issues which require experienced legal professionals.
 

Photo by Michael Fischer from Pexels.

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