New Jersey Governor Phil Murphy this week signed legislation to grant standard business tax deductions to licensed cannabis companies in a move designed to improve the viability of the state’s regulated marijuana industry. The measure, which decouples New Jersey’s tax laws from Section 280E of the federal tax code, was signed by Murphy on Monday following passage of the bill by the state legislature in February.

In many states that have legalized cannabis for recreational or medical use, tax laws follow the lead of Section 280E of the federal tax code, which denies most standard business tax deductions for cannabis businesses. Under the rule, cannabis operators are only allowed to deduct the cost of goods sold, while deductions for other standard business expenses such as rent, payroll and utilities are not allowed for most businesses.

The bill from Democratic Assemblymembers Annette Quijano, Clinton Calabrese and Linda Carter was passed by the New Jersey General Assembly on February 27. An identical companion measure, sponsored by Democratic state Senators Troy Singleton and Shirley Turner, also passed in the state Senate on the same day by a vote of 32-3.

Under the new legislation, which goes into effect immediately and applies to tax years beginning on January 1, 2023, cannabis companies will be permitted to deduct certain business expenses on their state tax returns. The bill does not affect the federal tax liability owed by the businesses. The sponsors of the legislation say that the bill will help improve diversity in the regulated cannabis industry, which faces steep barriers to entry and high taxes and regulatory fees.

“We have seen here in New Jersey, and around the country, that legal cannabis businesses tend to lack diversity both in gender and race amongst its ownership ranks,” Singleton said in a statement quoted by local media. “This law aims to level the playing field for all cannabis businesses.”

“It will ensure that dispensaries are paying a fair amount of taxes by taking into account critical business expenditures and allowing these deductions from their income,” he added.

“New Jersey’s cannabis industry is still in its infancy, and we need to act early to provide equal opportunity for all businesses to succeed,” Turner said. “Supporting dispensaries while promoting diversity within the cannabis industry is better for our local economy and also helps to ensure that the profits from recreational cannabis are being funneled back into the communities that need it most.”

The legislation to grant standard business tax deductions to New Jersey cannabis companies is also supported by representatives of the regulated cannabis industry, including the New Jersey Cannabis Trade Association (NJCTA), a trade group that said the legislation “will provide a more economically viable landscape for our young industry and those wishing to enter it.”

“The continued implementation of 280E placed several financial constraints on cannabis operators, big and small, by prohibiting them from deducting common business expenses from their taxes,” the NJCTA said in a statement. “Now, New Jersey’s licensed cannabis operators will be treated like any other legal enterprise operating in New Jersey, a sense of normalcy that our industry will cherish.”

James Leventis, executive vice president of legal, compliance & government affairs for Verano, a company that operates three Zen Leaf dispensaries in New Jersey, applauded the passage of the new legislation, saying it eliminates “a key barrier that has impeded entrepreneurship and the growth of the cannabis industry across the nation.”

“It’s inspiring to see New Jersey take this bold step to support one of the fastest-growing industries in the nation,” Leventis wrote in an email to High Times. “I hope to see similar courageous action by leaders across additional states – and, most importantly, at the federal level – to deliver further cannabis reforms that will allow our industry to finally reach its full potential as a catalyst for positive economic and social progress across the U.S.”

Other states that have legalized marijuana including New York, California, Hawaii, Michigan, Colorado and Oregon have passed legislation to separate their state tax laws from Section 280E. Similar legislation is pending in Connecticut.

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Sales of adult-use cannabis in New Jersey for the third quarter of 2022 topped $100 million, according to recently released data from state officials. The New Jersey Cannabis Regulatory Commission reported that sales of recreational marijuana from June 2022 through September 2022 totaled $116,572,533, representing a jump of 46% over the previous quarter. Sales of medical cannabis came to $61,138,231 during the same time period, bringing the total for combined medical and recreational marijuana sales to $177,710,764 for Q3 2022.

“New Jersey is only seeing the beginning of what is possible for cannabis” Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission (CRC), said in a statement from the agency. “We have now awarded 36 annual licenses for recreational cannabis businesses to New Jersey entrepreneurs, including 15 for dispensaries. Those businesses alone will be a significant growth of the market. With more locations and greater competition, we expect the customer base to grow and prices to come down.”

New Jersey now has 20 dispensaries licensed to sell recreational marijuana, which was legalized with a referendum passed by voters in November 2020. Legislation legalizing commercial cannabis activity was passed by lawmakers the following month, and licensed sales of recreational marijuana began in April 2022.

“We are looking forward to seeing local, small business owners participate in this lucrative market,” said CRC chairwoman Dianna Houenou. “Our priority application process as well as new initiatives like the no-cost Cannabis Training Academy being launched by New Jersey Business Action Center in early 2023 are paving that path for them to be included.”

Another 10 dispensaries are licensed to sell medical marijuana to registered medical marijuana patients only. The medicinal use of cannabis was initially legalized in New Jersey in 2010, with subsequent legislation expanding the scope of the state’s medical marijuana program to encompass more patients and medical conditions.

George Archos, the founder and CEO of cannabis multistate operator Verano, said that sales were meeting expectations in New Jersey, where the company operates three Zen Leaf branded dispensaries.

“We’re thrilled to see the continued success of the cannabis industry in New Jersey,” Archos said in an email to NJ Advance Media late Friday. “The impressive revenue growth figures the Cannabis Regulatory Commission released from the third quarter are no surprise, given New Jersey’s large and dense population, robust summer tourism season, and proximity to other states without existing legal adult use cannabis programs.”

New Jersey Pot Retailers Now Face Nearby Competition

While sales of recreational marijuana in New Jersey have grown steadily since launching in April, the state’s weed retailers face new competition from New York, where regulated sales of adult-use cannabis began on December 29. But New Jersey Governor Phil Murphy said that he welcomes the expansion of regulated marijuana and that his state’s cannabis industry is ready for the competition from New York’s regulated operators.

“The Governor believes that a fair, regulated adult-use market for cannabis is a critical step toward advancing social justice on behalf of communities disproportionately impacted by marijuana prohibition,” Natalie Hamilton, press assistant to Murphy, said in a statement.

“The Governor is proud that New Jersey’s industry is serving as a model for other states in the nation and he looks forward to continuing our efforts to grow a cannabis industry that reflects the diversity of the state, protects access for medical marijuana patients, prioritizes justice, and promotes equal opportunities for communities of color,” added Hamilton.

Charles Gormally, an attorney specializing in cannabis law, said that the launch of retail cannabis sales in New York should be seen by New Jersey’s recreational marijuana industry as an incentive to produce high-quality products as a way to encourage consumers to buy locally.

“If a New York outlet has a great product, or a unique retail experience, or a great price — they certainly will attract market share from New Jersey sources,” said Gormally. “That said, New Jersey is the Garden State. We opened the market before New York, and I suspect when the start-up pain ends, there will be fantastic product, unique retail experiences, and consumption lounges — all of which might attract the New York cannabis consumer.”

“New Jersey should not view New York so much as a competitor but rather as a challenge to supply cannabis connoisseurs what they need to stay local,” he said. “Cannabis is not like a Broadway show after all,” adding, “In the adult use cannabis marketplace, the ultimate ‘spoils’ will belong to those outlets that have the most diverse product mix at the most competitive prices.”

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The New Jersey Economic Development Authority (NJEDA) last week announced the creation of a grant program to help small businesses with the costs associated with launching an enterprise in the state’s regulated cannabis industry. Known as the Cannabis Equity Grant Program, the new initiative will distribute up to $10 million in grants, with the majority earmarked for social equity applicants.

The new grant program was approved by a unanimous vote by the NJEDA board at its monthly meeting last week. In a statement, New Jersey Governor Phil Murphy said the grants will help level the playing field for entrepreneurs from underserved communities to participate in the new economy for recreational marijuana, which was legalized following the passage of a statewide referendum in 2020.

“My Administration is doubling its efforts to cultivate small businesses in burgeoning industries with massive untapped potential,” said Murphy. “The establishment of the Cannabis Equity Grant Program will help aspiring small business owners meet start-up expenses in a pivotal sector within our state’s ever-growing economy. Most importantly, the program will erode considerable barriers to access for communities of color, which this program will help to equip with the resources they need to not just enter, but thrive, in this exciting new industry.”

The program authorizes up to $10 million in grants to small businesses, including $6 million reserved for cannabis social equity applicants, such as those with past convictions for cannabis-related offenses and residents of economically disadvantaged areas. The pilot grant program was authorized by legislation sponsored by Senate President Nicholas Scutari and Assembly Budget Committee Chairwoman Eliana Pintor Marin and signed into law by Murphy in June.

“This program can have a positive impact by supporting diversity in New Jersey’s cannabis industry during its formative stages,” Scutari said in a statement. “As the market continues its successful growth, these grants will help provide more opportunities to a greater number of operators in a larger number of communities to participate.” 

$6 Million For Social Equity Applicants

Up to $6 million in grants will be awarded to businesses granted conditional operating licenses from the state’s Cannabis Regulatory Commission (CRC) that are located in economically disadvantaged areas and plan to hire 50 or fewer employees. The grants of up to $250,000 can be used by businesses formed after March 2020 in designated impact zones to help cover the start-up costs of launching a licensed cannabis company, including rent, utilities, wages, and regulatory fees. 

“The Governor and Legislature made a commitment that the cannabis market would be accessible to women and minority entrepreneurs,” said Assemblywoman Verlina Reynolds-Jackson. “The cannabis market is meant to be a boon for equity, but we are finding that for some people the cost of entry is too high. It is our hope that this grant program will help to begin leveling the playing field. We want to ensure that those most impacted by the war on drugs and our underserved communities have the opportunity to be a part of the process.”

The impact zones are defined by the CRC as areas with zip codes that meet specified socioeconomic criteria including poverty and unemployment levels and were heavily impacted by arrests for marijuana offenses. Entrepreneurs awarded the grants will also participate in technical assistance and business education courses provided by the NJEDA. Businesses located in impact zones that apply for the grants can have the $1,000 application fee waived.

“Part of the impetus for passing legislation for legalization was recognition that the prohibition of cannabis has, for decades, disproportionately and negatively affected young people in Black and Latino communities,” said Senator Nellie Pou. “As Chair of the Legislative Latino Caucus, I am heartened to see NJEDA launch this Cannabis Equity Grant Program to help financially with start-up costs for new businesses in those very communities that have been so adversely affected. This is one more important piece of the social equity contract that remains at the heart of cannabis legalization in New Jersey.”

The remaining $4 million in grant funding will be made available to all business entities that have secured a site for the enterprise and been awarded municipal approval, which are both requirements that must be met to apply for an annual license from the CRC. The application window for the grants will be open for 180 days following the launch of the program, according to state officials.

“We realize how important it is to empower cannabis businesses, many of which have faced barriers to accessing financial capital in the past,” said NJEDA Chief Community Development Officer Tai Cooper. “Communities that suffered unfairly during the criminalization of cannabis need the chance to benefit from new entrepreneurial opportunities created by cannabis legalization and regulated sales. We want to see these opportunities extended to those businesses that will help fill storefronts, warehouses, and other commercial properties that closed their doors during the pandemic and bring new jobs to communities where there is the greatest need.”

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A memo issued on Wednesday by acting Attorney General Matthew Platkin advises New Jersey law enforcement agencies that legislation passed to legalize cannabis last year allows adults, including police officers, to purchase and consume cannabis.

In his memo, Platkin wrote that law enforcement agencies in the state “may not take any adverse action against any officers because they do or do not use cannabis off duty.” The acting attorney general added that the right of police officers to use pot is consistent with the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act passed by state lawmakers last year. He also noted that police officers may not use cannabis while working or be under the influence of cannabis while on the job.

“To be clear, there should be zero tolerance for cannabis use, possession or intoxication while performing the duties of a law enforcement officer,” Platkin wrote in the memo obtained by the Asbury Park Press. “And there should be zero tolerance for unregulated marijuana consumption by officers at any time, on or off duty, while employed in this state. The safety of our communities and our officers demands no less.”

Brian Vicente, founding partner of cannabis law firm Vicente Sederberg, said that Platkin’s memo is consistent with the legal standard of equal protection for all.

“Law enforcement officials should enjoy the same rights and legal protections as other New Jersey adults,” Sederberg wrote in an email to High Times. “Those who choose to consume cannabis responsibly while off duty should be treated the same as those who choose to consume alcohol while off duty.”

New Jersey’s cannabis legalization law includes provisions that allow employers to maintain a drug-free workplace for their employees. The legislation also establishes procedures for employers to follow if an employee is suspected of using cannabis while at work or being under the influence at the workplace. Platkin reminded law enforcement officials that police have the same rights as others under the statute.

“Should there be reasonable suspicion of an officer’s use of cannabis while engaged in the performance of their duties, or upon finding any observable signs of intoxication related to cannabis use (including following a work-related accident subject to investigation by the agency), that officer may be required to undergo a drug test,” he wrote.

However, the drug test must also include a physical examination to confirm intoxication because THC metabolites can be detected weeks after someone has consumed cannabis, making a positive drug test an unreliable indicator of impairment.

Critics Fear Cops Will Be High While On Patrol

But critics have already come out to oppose the idea of cops using weed, even off the job. State Assemblywoman Beth Sawyer said that she is concerned that the policy will lead to police officers working while they are impaired by cannabis.

“Anyone who wants to work in public safety must be held to higher standards,” Sawyer told the New Jersey Monitor. “Our men and women in law enforcement have the responsibility to make life-altering decisions on a daily basis, for themselves, their partners, for the public. I want to trust that they are at their best when doing so.”

Governor Phil Murphy signed the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act into law in February 2021. The legislation legalized the possession of up to six ounces of cannabis for adults, although legal sales of adult-use cannabis have been delayed more than once while regulators create the rules for legal production and sales of recreational pot.

On Thursday, Murphy announced on social media that recreational pot sales will begin at some existing medical cannabis dispensaries next week, only one day after the infamous 4/20 weed holiday.

“This is a historic step in our work to create a new cannabis industry,” Murphy wrote on Twitter.

The New Jersey Cannabis Regulatory Commission said it would post a list of the medical dispensaries that will begin selling adult-use cannabis on April 21 once the retailers have shared their plans with the agency.

“This is an exciting time for New Jersey,” said executive director Jeff Brown. “We have been intentional and deliberate to do everything in our power to set the market on good footing to start.”

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