LEGISLATIVE UPDATE

New Jersey Adult-Use Cannabis Legislation, Rules, and Regulations

With New York’s adult use program in limbo (with developments afoot at the time of this writing), this quarter’s column focuses on our tri-state neighbor, whose program is a little bit further along. New Jersey is one of eight states that have legalized the recreational use of cannabis in the last year. After New Jersey residents approved a constitutional amendment to legalize, Governor Phil Murphy signed three bills into law that both decriminalize cannabis and create a path for a legal recreational market: (1) The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (the “Adult-Use Act”), (2) Assembly Bill No. 1897 (the “Decriminalization Bill”), and (3) Assembly Bill No. 5342 (a “Clean-Up Bill,” which rectifies some contradictory language in the first two bills).

The Adult-Use Act legalizes sale and possession of regulated cannabis—in other words, cannabis you buy at a licensed store in New Jersey. Those stores have not been set up yet. Possession of up to six ounces of unregulated cannabis is decriminalized, like a parking ticket. Buying and selling cannabis is not legal in New Jersey until licenses are awarded to those businesses that will make up the new legal market. The Adult-Use Act also created the Cannabis Regulatory Commission (“CRC”) as the regulatory entity governing the personal use of cannabis.

The Adult-Use Act creates six classes of licenses: Grower, Processor, Wholesaler, Distributor, Retailer, and Delivery. In addition to a “full” license for each of those classes, New Jersey also contemplates a “conditional” version and a “microbusiness” version of each class of license.

A “conditional” license has a shortened application process, so it allows licensees to begin operations sooner. These licenses are designed to help ease the burden for smaller businesses to enter the market. Following issuance of a conditional license, the holder has a limited period of time to become fully licensed by satisfying all remaining conditions for full licensure that were not required for the conditional license. The “conditional” process is only available when any person with decision-making authority for the licensee has an adjusted gross income no higher than $200,000 (or $400,000 if their taxes are filed jointly). Conditional licenses will make up 35% of the total licenses issued for each class. v

A “microbusiness” is a license to operate on a limited scale. To qualify, the licensee must have no more than 10 employees, and comply with caps on the amount of cannabis cultivated and sold, along with other restrictions. A microbusiness license can convert to a full license. At least 10% of the total licenses issued for each license class, and at least 25% of the overall total number of licenses issued, will be issued to microbusinesses.

On-premises consumption licenses will also be available. A licensed cannabis retailer, medical cannabis dispensary, or clinical registrant may apply to the CRC to operate a cannabis consumption area, which will need to comply with all ventilation requirements applicable to cigar lounges under New Jersey law.

Potential applicants should carefully consider which type of license to obtain. Like New York’s legislation, New Jersey prohibits vertical integration and limits the number of licenses that can be held by the same person. For the next two years, a licensed cultivator, manufacturer, wholesaler, distributor, or delivery service cannot also be a licensed retailer—and vice versa. A cultivator or manufacturer may only hold two licenses at the same time. And a wholesaler cannot hold any other license except distributor.

There are demographic requirements which potential applicants should keep in mind. For all licenses, New Jersey’s legislation has rules which require licensees to include a person who has lived in New Jersey for at least two years. The CRC will also rank applications with a point system based on a variety of criteria—such as an applicant’s operating, environmental, and safety and security plans. Applications will be prioritized using several factors, such as whether the applicant is a certified minority, woman, and disabled veteran-owned business. The CRC will also prioritize awarding licenses within municipalities negatively impacted by unemployment, poverty, or past marijuana enforcement activity.

Unlike New York (and every other state that has passed adult-use legislation), New Jersey does not allow growing marijuana plants at home. Possession of 10 or more plants at home still carries a potential 10 to 20-year prison sentence. While bills have been introduced to allow those ages 21 years and older to grow a set amount of plants on their own, no law has been passed in New Jersey to date.

New Jersey’s CRC has also promulgated proposed regulations which spell out further specifics of the program. That puts New Jersey at least a step ahead of New York. And the New Jersey CRC’s rules are likely indicative of what we can expect at some point from New York’s Office of Cannabis Management. Stay tuned next quarter for analysis of those regulations, and how New Yorkers can use them as a guidepost.

WRITTEN BY Patrick J. Hines, Matthew Parker, & Fallon Martin