In a historic event for New Jersey, Governor Phil Murphy last week signed into law several bills effectively legalizing marijuana in the state. The new laws permit the possession (up to six ounces) and use of marijuana by anyone over the age of twenty-one within the state. The laws also allow the purchase and sale of legal marijuana at state-licensed dispensaries, though it will take a considerable amount of time for recreational use sales to begin.
The state’s Cannabis Regulatory Commission (CRC) will continue to oversee the state’s medical-marijuana program and is responsible for eventually promulgating regulations concerning the use of recreational cannabis. The CRC expects to issue various kinds of permits to applicants, including for cultivation, wholesale, distribution, and delivery of cannabis. The fees for these permits will vary and require a significant investment.
These developments mean that entirely new business avenues will be open in the state, even for those not directly involved with the growth, sale, and handling of marijuana or other cannabis products. However, operating in the cannabis space will be complicated for all individuals and businesses.
For example, all cannabis businesses will be subject to strict oversight as well as to personnel and owner-specific requirements (e.g., New Jersey residence, on-site limitations, etc.). Marijuana also remains illegal under federal law for all purposes, thereby creating many other challenging legal issues, like opening a cannabis business banking account, along with securing other operational necessities.
Additionally, employers will be prohibited from discriminating against employees who are recreational marijuana users. However, they can still prohibit marijuana use on the premises and during work hours, and experts certified by the CRC can be deployed to detect employee usage of and impairment from a cannabis item. How such rules will actually work, as well as how they will interact with existing state laws like those currently permitting medical use of marijuana, remains unclear. It is clear though that employers will soon need to determine organizational approaches to marijuana testing, correspondingly train their human resources personnel, and ultimately engage experts in identifying marijuana impairment.
Finally, a substantial tax issue for current and future cannabis businesses is that the IRS requires cannabis businesses to pay taxes on their gross profit rather than their net income. This is because no expenses can be deducted from a business’s gross income when it is “trafficking” in controlled substances. The question of what constitutes trafficking has been debated in recent court cases, and the definition is quite broad, with the courts chiefly adhering to the restrictive federal position and denying deductions to cannabis businesses. To maximize the tax and operating benefits presently available, setting up the correct operating structure, and properly running any interrelated cannabis businesses, becomes critical.
We encourage you to contact MSPC to assist you with the opportunities and challenges presented by the recent legalization of cannabis in New Jersey.