Our Blog

Cannabis Regulation in New Jersey

November 10, 2020
Dawn Dezii
Posted in: Commercial Law

New Jersey along with Arizona, Montana and South Dakota by public referendum joined a growing number of states to legalize the adult use of cannabis. New Jersey could create a 1-billion-dollar recreational market for adults over 21 years old. The first step in this process requires the state to create a Cannabis Regulatory Commission which will be the rule making body for regulations, governance, and licensing. The referendum established a 6.65% sales tax on recreational sales and up to an additional 2% municipal tax for sales from local dispensaries. As of November 4 2020, cannabis is not yet legal in New Jersey and it is unlikely legal sales will not be authorized until late 2021 or early 2022.

New Jersey legalized the sale of cannabis for medical purposes in 2010 after which many local municipalities began enacting zoning ordinances prohibiting the sale of cannabis. Large cannabis growers are already established in New Jersey and they are expected to expand operations anticipating a demand for recreational use. Dispensaries will be looking to move into retail spaces which may be recently vacated due to present circumstances. Delivery platforms such as internet preorder or door to door service such as DoorDash could be permitted. There will be a need for transportation services from growth and extraction sites to dispensaries or points of sale.

What this means for the insurance industry in an expanding new market is yet unknown. Cannabis remains a Schedule 1 controlled substance under the Controlled Substance Act of 1970, it remains federally illegal impacting banking and tax issues for the grower and retailer. Additionally, IRS Code 280E prevents businesses from claiming standard deductions by companies that traffic in illegal drugs and Federal RICO laws may result in seizure of all gains resulting from the production and sale of cannabis.

Civil liabilities for cannabis related activities may include labor related issues regarding cannabis and the workplace, employer drug testing of staff and social host liability for the homeowner. There may be landlord tenant concerns such as an individual using an “illegal substance” on the premises if a rental is federally subsidized. Testing for those driving under the influence is still a grey area in the science.

The environmental impact of production of cannabis is evolving. The growing facilities are highly specialized involving extensive water purification and odor all of which have potential worker health and safety repercussions in addition to a myriad of other issues such as advertising liability, customer fraud for product purity, mold in a product – the list is too long for this space.

Stop by this space for updates regarding developments in this trend as the legalization of recreational use of cannabis evolves in the venues we serve.