Jul 2017

A Tree Grows in New Jersey: The Proposed Legalization of Recreational Marijuana in New Jersey

On January 18, 2010, then New Jersey governor Jon Corzine signed into law the New Jersey Compassionate Use Medical Marijuana Act (the “NJ MMJ Act”). Since the NJ MMJ Act was passed, five (5) marijuana dispensaries have opened in New Jersey. These dispensaries are known under the NJ MMJ Act as alternative treatment centers (“ATCs”). ATCs grow, manufacture, and sell their own medical marijuana and medical marijuana products to registered patients.

On May 18, 2017, New Jersey state senator Nicholas P. Scutari introduced a bill into the New Jersey Senate calling for the legalization of marijuana for recreational use (“Bill S3195”).

This post will cover:

  • a basic overview of Bill S3195;
  • how the proposed legislation would impact the NJ MMJ Act and ATCs;
  • notable omissions from and restrictions in the bill; and
  • future developments.

Bill S3195

Bill S3195 would permit individuals twenty-one (21) or older to possess up to one (1) ounce of marijuana and use marijuana for recreational purposes. The proposal would create several different types of licenses for companies seeking to operate in New Jersey’s recreational marijuana space. Separate licenses would be available for cultivation, product manufacturing, wholesale, retail, and transportation, with restrictions on the number and type of licenses a single entity could hold. Marijuana would be taxed on an escalating basis beginning at seven percent (7%) the first year, ten percent (10%) the second year, fifteen percent (15%) the third year, twenty percent (20%) the fourth year, and twenty-five percent (25%) the fifth year and beyond.

Overseeing the recreational marijuana market would be the new Division of Marijuana Enforcement (the “Division”). The Division would handle licensing, investigate violations, and issue regulations governing issues such as labeling and advertising.

The NJ MMJ Act and ATCs

The ATCs presently operating in New Jersey would not be permitted to sell to non-patients under Bill S3195. However, the ATCs would be allowed to immediately apply for a retail license, effectively giving the ATCs early market access.

Although Bill S3195 establishes the Division to oversee the broader marijuana market, the bill’s early incarnation suggests that the Department of Health would continue to regulate the medicinal side of the marijuana industry. Bill S3195 explicitly states that nothing in the bill should be construed so as “to discourage the Department of Health from its duties to regulate medical marijuana…”

Notable Omissions and Restrictions

Although Bill S3195 would greatly expand access to recreational marijuana, certain omissions and restrictions are worth noting. For example, Bill S3195 would not permit unlicensed individuals to grow their own marijuana at home or make their own marijuana products- all cultivating, manufacturing, and processing must be done by duly licensed entities.

The bill also draws a sharp distinction between the medicinal and recreational uses of marijuana. Although the ATCs operating under the NJ MMJ Act may apply for a retail license, the bill’s language suggests that the actual sales must occur at a different location than where the ATC is located. Bill S3195 would explicitly prohibit ATCs from selling medical marijuana to non-patients.

The bill also indicates that a marijuana retailer could only purchase marijuana from a licensed cultivator and marijuana products from a licensed product manufacturer or wholesaler. Since the bill’s language prohibits a licensed marijuana retailer from also holding licenses for cultivation, product manufacturing, and wholesale activities, and the ATC is only authorized to grow, manufacturer, and sell medical marijuana through its ATC license, the ATC would have to acquire recreational marijuana from separately licensed entities to sell to the public through its retail license. Allowing ATCs with retail licenses to acquire recreational marijuana from other duly licensed entities for resale should be a permitted implication in the bill.

Section 22(c) of Bill S3195, however, explicitly states that nothing in the bill shall be construed as permitting ATCs to “purchase marijuana or marijuana products in a manner or from a source not permitted under [the NJ MMJ Act].” The NJ MMJ Act does not permit ATCs to purchase marijuana or marijuana products from third parties for recreational purposes and the Section 22(c) language is a general prohibition against all types of marijuana i.e., recreational and medicinal. This means that an ATC could obtain a retail license but be unable to obtain recreational marijuana and marijuana products for resale because the NJ MMJ Act does not allow an ATC to obtain marijuana or marijuana products from third parties for recreational purposes.

This problem could be resolved if Bill S3195 was amended to allow an ATC to set up a separate corporate entity to hold and use the retail license or if the Section 22(c) language was amended to pertain only to medicinal marijuana.

Future Developments

The present New Jersey governor Chris Christie has adamantly opposed any legislation calling for the legalization of recreational marijuana, which would make the bill dead on arrival if sent for the governor’s signature. However, Governor Christie’s final term in office expires December 2017, meaning that an election for the governor’s position will be held November 7, 2017. Assuming the bill makes it to the future governor’s office, whether the bill is signed into law may very well depend on the outcome of the election this November.