Legal marijuana prices in New Jersey could jump if taxes increase

TRENTON – How high is “too high”?

The usual response in the cannabis industry is that there is no such thing, with a laugh.

This is a drug whose overdose has virtually no signs. There are no restrictions on the number of businesses in New Jersey. In fact, there are almost as many cultivators, manufacturers, and dispensaries as there are Starbucks. And from entrepreneurs to activists to government officials, stakeholders are often optimistic about the future of cannabis, as if they have nowhere to go but up.

But when it comes to raising taxes on cannabis businesses, there’s a different chorus: slow down. Bleed the brakes.

“It was written by people who are not business people and implemented by people who are not business people,” said Todd Johnson, executive director of the New Jersey Cannabis Trade Association. “And it will hurt business people.”

That’s the conundrum facing state cannabis regulators who are considering increasing the Social Equity Excise Tax (SEEF) on legal marijuana.

Cannabis industry lobbyists, social justice advocates and even regulators themselves are divided on how high is “too high.”

On Wednesday, the New Jersey Cannabis Regulatory Commission was scheduled to vote on raising the excise tax from $1.24 an ounce to $30 an ounce, in accordance with state law and the commission’s own rules. But those same rules only say that the commission “may” increase the amount of the commission. This is not necessary.

Faced with a Nov. 1 deadline set by the commission’s own rules, regulators appeared divided on what to do, even after a two-and-a-half-hour meeting behind closed doors.

Commission Vice President Samuel Delgado proposed a rate of $5 per ounce, and Commissioner Maria Del Cid-Cosso proposed a rate of $10.

The $30-an-ounce rate appears to have failed to gain support, which Johnson estimates would lead to a 15% rise in consumer prices. In the end, commissioners voted to resolve the issue: The same rules that require them to make a decision by Nov. 1 also allow them to waive any part of the law.

“This will give the commission more time to gather more information, communicate with more stakeholders and organizations that represent businesses and people who will be directly impacted by this decision,” Commissioner Charles Barker said. “I think this decision will impact a lot of businesses, especially our small businesses that are just getting started.”

The Relationship Between Legal Weed Prices in New Jersey and Taxes

The SEEF tax is levied on cultivators and is then expected to be passed on to consumers, although some cultivators have taken on the tax instead in an attempt to keep prices low.

But neither option is a great option, says Joshua Crane, executive general manager of cultivator Vineland Garden Greens.

“Will I stay expensive and give up the market share I worked so hard to get? Or will I absorb it and immediately lose 10% of my income?” asked Crane.

Johnson estimates that a jump from $1.24 to $30 an ounce would lead to a 15% increase in point-of-sale customers. since most farmers will not be able to cover the costs themselves.

While the actual retail price of an ounce of legal weed makes this state one of the most expensive in the country, buyers also pay some of the lowest cannabis taxes in the country.

Cannabis is subject to three taxes: a state sales tax of 6.625%, a local user or transfer tax of 1% to 2% levied by municipalities on cannabis businesses within their borders, and a social equity excise tax. Under state law, this fee fluctuates depending on the average price of cannabis, from as little as $10 if an ounce of cannabis costs $350, to $60 if the price drops below $200.

The current excise tax rate is a relic of the original rate imposed when cannabis sales first began. The surge is enough to devastate cultivators because they cost more to operate and require more capital to even get started than dispensaries, Johnson said.

“This hurts independent farmers far more than any other group of companies in the supply chain,” Johnson said. “None of them have been open for more than a year and they still have investors to pay off. Now you want to pounce on them with this tax?”

Lawmakers designed a unique excise tax structure to allow tax dollars to continue flowing even as prices fell, as has happened in every state over the years.

This was an important part of the fight against legal marijuana in 2019 and 2020. Back then, the coalition that pushed to legalize marijuana in New Jersey championed the policy as a way to stop marijuana arrests that disproportionately affect black people and provide a pathway for them. enter the legal market.

Under state marijuana legalization laws, 70% of all tax revenues, including all Social Security excise tax revenues, must go toward investments in “impact zones.” These are cities with populations of 120,000 or more or meeting a range of demographic and criminal justice measures, including high unemployment rates, crime rates, and high rates of marijuana arrests prior to legalization.

But since the first legal sales of marijuana for adult use began in April 2022, the excise tax has brought in just over $4.5 million, including $673,000 in the first quarter of 2024, versus $1.4 billion from cannabis sales consumed by adults. The Cannabis Regulatory Commission did not release tax data for the second quarter, but estimated 2024 excise tax revenue at $2.6 million.

During this time, the excise tax never exceeded $1.52 per ounce, as was levied last year. Austin Edwards, senior policy adviser for the religious racial justice nonprofit Salvation and Social Justice, called on the commission to raise the social justice tax to $60 an ounce.

“We will not undo the harm done to Black people in this state unless we are intentional about investing in restoration and wealth creation programs,” Edwards said.

Disagreement among marijuana lovers

The decision on the size of the tax on legal weed has created friction among activists who have been largely moving in the same direction since 2018.

On one side are social justice advocates who have called on the Cannabis Regulatory Commission to “fully fund” the social justice excise tax by raising the tax to $30, in line with state law. Failure to do so would set a dangerous precedent for future commissioners who would “ignore the reparative goals of cannabis legalization,” said American Civil Liberties Union of New Jersey campaign strategist Ami Cachalia.

“This has always been one of the most important pillars of working to ensure community reinvestment,” Cachalia said. “I hope that when the final decision is made, we don’t leave millions of dollars on the table that should be invested back into Black and Latino communities.”

But cannabis entrepreneurs are opposed to such a move.

“There just isn’t enough profit in their business models right now,” Johnson said. “They don’t have that flexibility.”

Increasing the social security fee, even to $5 an ounce, would drive up prices, forcing consumers to seek alternatives such as the black market or neighborhood gas stations, bodegas and tobacco shops that sell intoxicating cannabis products, Johnson said.

It is these hemp products that cannabis entrepreneurs are focusing their ire on, especially in light of the higher tax. In September, Murphy signed a bill that would effectively remove intoxicating cannabis products like Delta-8 and THC-infused seltzers from shelves until the Cannabis Regulatory Commission could develop rules and regulations for them. But a coalition of businesses sued under the law, and in October a federal judge threw out enough parts of the law to leave regulators and businesses scrambling for answers about what exactly is legal.

On the day hemp products were scheduled to be pulled from shelves, the commission announced that it would only impose a new age limit on the products.

Bill Caruso, a longtime lobbyist and supporter of cannabis legalization, called on commissioners and activists to instead ask lawmakers to craft a new bill that would finally allow intoxicating hemp products to be sold and taxed like cannabis.

“If you want to raise money for SEEF, go back to the Legislature and tell them to tax hemp the same way they tax cannabis,” Caruso said. “These people want to be on the shelves too.”

Mike Davis has spent the last decade covering local New Jersey news, marijuana legalization, transportation and more. He won several awards, which made his parents very proud. Contact him at [email protected] or @byMikeDavis on Twitter..

Legal marijuana prices in New Jersey could jump if taxes increase

The Relationship Between Legal Weed Prices in New Jersey and Taxes

Disagreement among marijuana lovers

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