United States: New Jersey Poised To Legalize Recreational Cannabis Use, But Federal Criminal Prohibition Remains In Place

Last Updated: December 10 2018
Article by Katharine A. Coffey, Christopher J. Stracco and Steven A. Cash

On November 26, the New Jersey Cannabis Regulatory and Expungement Aid Modernization Act (the Act) was released from committee in both the State Assembly (as A-4497) and the Senate (as S-2703). The Legislature could approve the Act by as early as December 17 and send it to the governor on that day. As discussed below, the Act creates a new set of regulated activities around "legalized" cannabis, but cannabis remains a controlled substance under federal law, with significant potential criminal sanctions for illegal production, sale, possession, and use of this product.

How the Act Operates

The Act would permit a variety of so-called "Cannabis Establishments," including a cannabis grower (cultivation facility), a manufacturing or processing facility, a wholesaler, or a retailer. Retailers, in addition to selling cannabis, could operate "Cannabis Consumption Areas." Cannabis Consumption Areas would be retail establishments operated by a licensee where customers can consume cannabis purchased on-site or brought into the facility. Each type of Cannabis Establishment would be licensed differently. A newly established state Cannabis Regulatory Commission will be responsible for licensing and regulation of Cannabis Establishments. Significantly, 10 percent of each license type and 25 percent of the overall number of licenses must be issued to "microbusinesses." For these purposes, a microbusiness would be one that employs no more than 10 employees, occupies no more than 2,500 square feet, possesses no more than 1,000 plants per month, and processes or acquires no more than 1,000 pounds of dried product each month.

The Act would legalize under state law the possession and use of one ounce or less of cannabis by persons 21 years of age or older. Possession of cannabis by persons under 21 would remain illegal under New Jersey law. Municipalities would be permitted to restrict the use of cannabis in public in the same manner as the use of alcohol or tobacco is currently regulated. As discussed below, the Act, if passed, will not legalize cannabis possession, sale or distribution under federal law, and the activities permitted and regulated under the Act constitute federal crimes, most of which are serious felonies.

The Act would permit municipalities to enact ordinances to govern the hours of operation, location, manner and number of Establishments and would provide for civil penalties for municipal ordinance violations. Moreover, the Act would permit municipalities to prohibit any one or more of the classes of Establishments. However, if a municipality wishes to prohibit cannabis production or use completely, it would have to officially opt out of the Act within 180 days of the adoption of regulations promulgated under the act by the Commission. If a municipality missed the 180-day deadline, growing, cultivating, processing and selling of cannabis would be permitted in all industrial zones, and retail sales would be a conditional use in all commercial or retail zones, subject to any zoning conditions or variances. More than 50 municipalities have already opted out, but as the Act is written, those municipalities would need to opt out all over again after the Act becomes law.

The Act also would impose several other noteworthy restrictions aimed at maximizing the state's capture of revenue from cannabis-related industry. Property on which cannabis is grown will not qualify for farmland assessment, and home-grown cannabis would be prohibited. Licensees would not be eligible to receive state or local economic incentives, and retail cannabis outlets could not be within urban enterprise zones. Municipalities would be permitted to assess and collect a 2 percent excise tax on sales of cannabis products by any licensed cannabis establishment. Under the Act, cannabis arguably could be taxed by municipalities at each of the production, wholesale and retail levels. The Cannabis Establishment would collect the sales tax and remit it directly to the municipality. In addition, the state would collect a 12 percent tax, which includes the current sales tax. At a combined state and local 14 percent tax rate at each of the three points of taxable events (production, wholesale and retail), cannabis products would bear a significant tax burden.

Cannabis Remains a Controlled Substance Under Federal Law

The cultivation, production, sale and possession of cannabis in New Jersey remain federal criminal offenses. Therefore, engaging in these activities, although they would be legal under New Jersey state law, could expose the actor to prosecution by federal authorities. In addition to criminal penalties, under federal law there can be a civil forfeiture of property in connection with cannabis-related crimes.

In addition to potential federal criminal liability and punishment, the current federal prohibition on cannabis cultivation, production, sale and possession poses challenges to the operations permitted pursuant to the Act. The remittance of taxes may pose a dilemma because most cannabis establishments would be all-cash businesses. Many financial institutions may be loath to conduct business with cannabis-related enterprises for fear they might be viewed as aiding and abetting criminal activity or engaging in money-laundering. Thus, Establishments would likely make the tax remittances in cash or cash equivalents. For the same reasons, Cannabis Establishments might find it difficult to obtain financing and insurance.

Conclusion

Those interested in forming Cannabis Establishments under the Act should consult with counsel, even if the Act legalizes these businesses under New Jersey law.

Click here to read further Insights from Day Pitney

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions