New Jersey Cannabis Regulatory Commission Approves Specially Adopted Personal Use Cannabis Rules

On August 19, 2021, the New Jersey Cannabis Regulatory Commission (CRC) approved the Specially Adopted Personal Use Cannabis Rules (the “Rules”). The Rules will be effective until at least August 19, 2022.

The Rules establish the recreational cannabis industry in New Jersey and allow the CRC to begin licensing businesses as soon as possible. The Rules aim to promote social equity, safety and easy access to the cannabis marketplace while keeping local municipalities in control of how they want cannabis businesses to operate in their jurisdiction.

Licensing

The Rules specify different classes of licenses for each stage of the supply chain. These classes include cultivators, manufacturers, retailers, distributors and delivery services. The Rules also establish a microbusiness license for each of these license classes. A microbusiness is defined as having no more than ten employees and premises no larger than 2,500 square feet. In order to promote small business ownership in the New Jersey cannabis industry, the number of microbusiness licenses available will not be limited by the commission and microbusiness applications will be prioritized over other cannabis business applications during the licensing process. Additionally, microbusinesses will pay 50% of the license fee for their class. The Rules also create a pathway for Alternative Treatment Centers (ATC) previously licensed under New Jersey’s medical cannabis law to expand their operations to include recreational cannabis.

Importantly, the Commission will limit the number of cultivator licenses it awards in the 24-month period after February 22, 2021 to 37. This number includes expanded ATCs, but not microbusiness cultivators. Following the 24-month period, the Commission will determine whether or not to increase the number of cultivators to meet market demand. The Commission will determine an adequate number of licenses to award in all other classes in order to meet market demand, but is prohibited from putting a cap on the number of microbusinesses of any class.

New applicants may apply for either a conditional license or an annual license. Conditional license applications are prioritized over annual license applications to prioritize small business ownership. In order to apply for a conditional license, all owners of the business must prove that they made less than $200,000 in the previous year, or $400,000 if filing jointly. Conditional licenses have a less burdensome application and allow a business to begin the licensing process without having all of its organizational details figured out. A conditional license gives the licensee a 120-day window in which it must establish control of the proposed site, receive municipal approval, and develop a conditional conversion application to convert the conditional license to an annual license. After the conditional license expires, the business must have its conversion application approved to begin operation. After submitting the conversion application the conditionally licensed business will be reviewed by the Commission and will receive an annual license if it is deemed acceptable. An annual license requires that the applicant have control of the proposed site, municipal approval, and a detailed business plan at the time of application. An annual license applicant must also submit an operating summary plan which includes their experience and knowledge of critical aspects of the cannabis industry.

People with prior criminal convictions can qualify for a cannabis business license. As part of the application process, all applicants must submit a background check to confirm they have not been convicted of any disqualifying offenses. Disqualifying offenses are fairly limited in scope, and include: booby traps in manufacturing or distribution facilities, drug offenses involving minors (such as employing a juvenile in a drug distribution scheme, or distributing drugs and/or drug paraphernalia to persons under 18 years of age), and offenses involving counterfeit drugs or medical devices. Even these offenses will not be considered disqualifying if more than five years have elapsed since the later of the date of the conviction, the satisfactory completion of probation or parole, or the release from incarceration, and/or if the person has affirmatively demonstrated to the Commission clear and convincing evidence of rehabilitation.

Fees

There are two types of fees: application fees and license fees. Application fees cover the cost of the application itself and are different for conditional and annual licenses. License fees cover the cost of the initial license which must be renewed every year. In order to promote small business ownership, only 20% of the application fee is due at the time of application and is known as the submission fee. The other 80% is only due if a the applicant is approved for a license and is known as the approval fee. Application fees are different for conditional and annual licenses, and conditional licensees must pay an additional fee to convert to an annual license. Annual license fees vary with the class of license. ATCs must also pay a fee for getting approval to expand into recreational operations. The fee schedule is listed below:

Application Fees

Initial/Annual License Fees

ATC Expansion Fees

Municipal Authority

The Rules give municipalities considerable control to shape the cannabis industry within their jurisdiction. Municipalities may:

• Opt-out of the recreational cannabis program altogether. As of this writing, approximately half of all New Jersey towns have gone this route, but those towns can change course later;^[1]
• Set numerical limits on the numbers of certain types of businesses operating within the jurisdiction;
• Restrict the hours of operation of cannabis businesses and their location, including banning cannabis businesses in school zones and setting restrictions regarding proximity of cannabis business to playgrounds and places of worship;
• Create local licensing requirements and set civil penalties;
• Restrict the types of cultivation that occur within the municipality; for example, requiring all cultivation to be indoor;
• Establish a 2% transfer tax on cannabis or cannabis products being transferred by businesses within the jurisdiction; and
• Communicate the municipality’s preference for licensure to the Commission.

Municipalities cannot:

• Restrict delivery of cannabis items to consumers within their jurisdiction; or
• Restrict transports of cannabis that are routed through their jurisdiction.

Social Equity

The Rules address social equity by increasing opportunities in the recreational cannabis industry for people from statutorily-designated target communities. Specifically, the Rules designate three types of priority licenses that aim to increase access to the cannabis industry for those who are statutorily disadvantaged or have been disproportionately impacted by the war on drugs: (1) social equity businesses, (2) diversely-owned businesses, and (3) impact zone businesses. These businesses will all receive priority over all other types of applicants during the licensing process.

(1) Social equity businesses. The rules define a social equity business in two ways. The first way to qualify is if the majority of the ownership interest is held by a person or persons who have lived in an economically disadvantaged area for five of the preceding ten years and whose household is 80% or less of the average median household income of New Jersey. The second way is if the majority of the ownership interest is held by a person or persons who have been convicted of at least one cannabis-related offense.

(2) Diversely-owned businesses. A diversely-owned business is one in which the majority of the ownership interest is owned either by persons who are minorities, persons who are women, or persons who are disabled veterans. An additional qualification for the diversely-owned business title is that the management and daily business operations must be controlled by at least one of those owners who qualify as diverse.

(3) Impact zone businesses. An impact zone is a municipality with a large population that, due to past criminal cannabis enterprises, contributes to higher concentrations of law enforcement activity, unemployment and poverty. An impact zone business is one that operates in an impact zone and that has an owner or owners that control a majority of the ownership interest that are residents of an impact zone and have resided there for at least three consecutive years prior to the time of application.

The Rules also create a Social Equity Excise Fee on the sale or transfer of usable cannabis by a cannabis cultivator to any other cannabis establishment other than another cannabis cultivator of 1/3 of 1% per ounce. The revenue from this tax will be put towards educational support, economic development and social support services within municipalities designated as impact zones. 

Special Contribution by Cannabis Legal Intern Zac Weiner

^[1] Half Of New Jersey Towns Poised To Ban Cannabis Businesses - Gothamist.