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:
Ongoing user group updates about anticipated legislation
Article from NJBIA about workplace safeguards
Podcast about cannabis legislation
Blog about cannabis sales tax issues
Webinar for CPAs serving the cannabis clients
Webinar on legalized cannabis considerations for employers
Article about payment processing for cannabis industry
Webinar about tax issues for cannabis industry
Article in New Jersey CPA magazine on numerous cannabis-related issues
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”.
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.
New Jersey voters will decide if pot should be decriminalized in the November 3 election. Every indication is that the decriminalization measure will pass.
One of the loudest opponents of the New Jersey decriminalization ballot referendum also happens to be (presumably) one of the largest black market operators. No surprise there. The vote will disrupt his business model.
The largest spender advocating for passage of the measure is a large privately owned lawn fertilizer company, that has established a home-grow division to accommodate the new emerging market.
But the big point here, IMO, is that if you take both points together than you can begin to form an opinion that the new pot industry may not generate as much tax revenue as forecast. But will it generate more tax and licensing prosecutions? Absolutely.