Month: November 2020

What does New Jersey’s marijuana vote mean to me?

Seven out of ten New Jersey voters this month affirmed that we must decriminalize marijuana. The state’s Attorney General quickly announced that all marijuana prosecutions are paused while we wait for cannabis industry legislation. Now the state government is scrambling to find ways to generate massive amounts of tax revenue from the drug. Much regulation will follow within a year or so. Meanwhile, what does this mean to us?

Note these ten key points that summarize how the change will affect us:

1. Government’s specific intent is to generate lots of tax revenue from this legal change. That means much new regulation, administration and enforcement is required. It will take time -perhaps a year or so – for this regulation and functional transition to occur.

2. New Jersey lawmakers have a vested interest in keeping the price of marijuana low to maximize tax revenue.

3. New Jersey policymakers have announced their intention to make opportunities available to small businesses, minorities and women. That is a significant change in direction for the industry and effectively means “affirmative action”.

4. New Jersey policymakers want the new industry to boost depressed neighborhoods (like ours in a Millville and Bridgeton) but local government may be less enthusiastic. Some local governments have already taken action to block marijuana businesses from struggling downtown areas.

5. The untaxed illegal black market will always be the major market force. An estimate of 70% is reasonable. Taxes will be the greatest economic driver of future growth of the illegal market.

6. States that border New Jersey do not have a viable plan to legalize marijuana in the near future, so interstate transactions including “marijuana tourism” will be significant.

7. Marijuana must be grown in New Jersey to be legal in New Jersey. Importation will still be a crime (not to mention issues of exportation that would be prosecuted under other states’ laws). The point is that cannabis will be a modern agricultural industry here.

8. There are plenty of economic risks. New Jersey is well positioned to learn from the lessons and problems that surfaced in California and Colorado.

9. Home grow interest will surge. That impact is being felt already. Major companies like Scott’s are already ahead of the curve in developing a division to cater to this market. Much opportunity still exists.

10. The NJCPA Cannabis Interest Group has been a major force in the education process in this state transition and continues to draft and influence future state regulation. The focus right now is to “decouple” state tax law surrounding cannabis from federal ta law. The second major emphasis is to advise small businesses entering the market.

Disclosures: I am a member of the NJCPA Cannabis Interest Group because this issue significantly impacts the future of small businesses. I am a contributor to the NJCPA Political Action Committee that attempts to influence education on cannabis issues. I do not use or endorse the use of cannabis but I do have personal and professional interests in the emerging cannabis industry.

Cannabis programming in New Jersey

The New Jersey Society of CPAs is moving at a rapid pace following passage of the legalization referendum on November 5, 2020. I’ve been a member of the Cannabis Interest Group at @NJCPA since its inception. My @potCPA business practice is narrowly focused but I am pleased to see that they have adopted the following broad cannabis program scheduling timeline:

November 2020
Ongoing user group updates about anticipated legislation
Article from NJBIA about workplace safeguards
Podcast about cannabis legislation
Blog about cannabis sales tax issues

December 2020
Webinar for CPAs serving the cannabis clients

January 2021
Webinar on legalized cannabis considerations for employers

February 2021
Article about payment processing for cannabis industry
Webinar about tax issues for cannabis industry

March 2021
Article in New Jersey CPA magazine on numerous cannabis-related issues

Tax Change Needed to Level the Playing Field for Small Businesses, Minorities and Women in Cannabis Marketplace  

This statement was released 11/5/2020 by Ralph Albert Thomas, CPA (DC), CGMA, CEO and Executive Director New Jersey Society of Certified Public Accountants.
 
“On Tuesday, New Jersey voters approved a constitutional amendment to legalize cannabis. That was just step one in allowing cannabis sales to proceed in New Jersey. Steps two and three will be the passage of enabling legislation and then the regulatory framework that will be drafted by the Cannabis Regulatory Commission.
 
To ensure New Jersey small businesses, minorities and women can compete in the cannabis market, it’s critical that the state change an obscure section of its tax statute. Otherwise, this new market will be dominated by large and already established players, many of which will come from out of state.
 
Deducting business expenses is a routine and integral part of operating a business and is critical for a company to be profitable. However, cannabis businesses do not have access to this tax benefit even though it is available to all other New Jersey businesses. And that’s because New Jersey “piggybacks” onto Internal Revenue Code Section 280E, which prohibits any company illegally engaged in drug trafficking from deducting business expenses on personal or corporate income tax returns. Since cannabis is still illegal on a federal level, this makes sense for federal taxes, but not here in New Jersey where it’s now legal.
 
That’s why the New Jersey Society of CPAs (NJCPA) is calling on state lawmakers to decouple New Jersey from §280E. While we would prefer decoupling for all cannabis businesses, it is most important for small businesses, many of which are minority- and women-owned. Larger operators generally have enough cash on hand to withstand the drain on profits that §280E will cause in initial years, but smaller businesses often do not. It could literally stifle the ability of small cannabis businesses to get off the ground.
 
Many of the states that have legalized cannabis have decoupled from §280E. Of the 10 states with an adult-use market, two have specifically decoupled completely, one has specifically decoupled corporations, and two have no state tax at the business level thus decoupling by default. The states that have the most robust cannabis industry, Colorado and Oregon, have specifically decoupled.
 
In a survey of NJCPA members, 66 percent of respondents indicated that having a commercial cannabis industry in New Jersey will help the state’s economy. If lawmakers and the public want a prosperous cannabis industry, with small businesses participating and thriving, then New Jersey needs to decouple from §280E. This needs to be done now, before the issue gets buried in the process of passing enabling legislation and drafting regulations for this promising new industry”.

What does New Jersey’s pot vote mean to me right now?

Going forward, cannabis will primarily be a revenue issue and not so much a criminal issue in New Jersey. But what does that mean to the individual user or the spiriting cannabis small business entrepreneur right now?

A logical concerned person needs a way to help guide their immediate actions and decisions in the uncertain and evolving legal climate. Look to these two documents documents coming for guidance.

Criminal issues: The state’ Attorney General issued a statement on transitional policy. In short, nothing has changed yet but an announcement is coming soon.

Tax issues: The NJCPA will release a statement at 8 AM this morning on the work that’s been going on for a long time behind the scenes regarding the legal changes on the tax revenue issues.

Business regulation issues: Nothing is expected for up to a year.

The two upcoming announcements taken together: 1) the AG’s soon to be released directive to police and prosecutors on changes to criminal procedures and 2) the NJCPA’s endorsement of proposed tax law changes, will form the basis of business and personal legal planning for many who expect to be involved in the recreational pot in the immediate future. In reality, it will likely take a long time until we have laws of tough issues like home grow and recreational possession limits.

As a member of the NJCPA’s Cannabis Interest Group, I want to help spread the word that much good work has gone into planning for this eventuality, and that it will move forward in as ‘sane’ a way as is possible within our complex and often ‘whacko’ state government system.

Finally, be aware that nothing compels a police officer, a local prosecutor or state revenue agent to abide by changes in official policy and that we have seen a recent trend, especially in Cape May county and rural southern regions, for some officials to deliberately oppose state policy on ‘hot button’ issues. So, in other words, you could still be arrested and prosecuted here for possessing a joint even if the charge could eventually be overturned.