New Jersey Cannabis: Initial Rules for Adult Use Program – Part 1

30 Aug New Jersey Cannabis: Initial Rules for Adult Use Program – Part 1

On August 19, 2021, New Jersey’s Cannabis Regulatory Commission (CRC) released its “Initial Rules for Personal-Use of Cannabis” (Initial Rules). Th Initial Rules were much anticipated, more so given New Jersey’s proximity to New York and the potential impact these rules could have on New York’s pending program.

The Initial Rules cover all aspects of recreational cannabis in New Jersey, including the license application process, social equity, and the role of municipalities will have on shaping the practical effects of legalizing recreational cannabis. The CRC published a handy summary of the Initial Rules, broken down between overall goals and key provisions per chapter.

The Initial Rules contain a ton of information, so we will break our summary into two posts, the first on the stated goals of the Initial Rules and the second on the key provisions per chapter.

Equity

The stated goal is to increase opportunities in the cannabis industry for people from targeted communities. The Initial Rules establish three types of cannabis businesses that will receive priority review and approval:

1. Social Equity Businesses, which are owned by people who live in economically disadvantaged areas in New Jersey or who have past convictions for cannabis offenses;
2. Diversity Owned Businesses, which are minority-owned, woman-owned, or disabled veteran-owned and have been certified as such by the New Jersey Department of the Treasury; and
3. Impact Zone Businesses, which are located in an Impact Zone, owned by people from Impact Zones, or employ residents from Impact Zones. Impact Zones are defined as municipalities with a large population, high unemployment, or high numbers of crime or arrests for marijuana.

In terms of the practical impact of priority review, each category of equity applicants will have their applications reviewed before non-equity applications, regardless of when applications are submitted.

Another important note: the Initial Rules provide that the CRC is to establish a Social Equity Excise Fee, which is a fee on cultivation that may increase as consumer prices increase. The revenue generated from the Social Equity Excise Fee will be used to fund economic and social services in Impact Zones.

Safety

The Initial Rules focus on preventing cannabis use by those 21 and under. This includes advertising. There are also physical requirements regarding containing odors and mandating communication with neighbors. To that end, the Initial Rules require each business to have a staff member responsible for receiving neighbor complaints.

From an operations perspective, businesses will be required to have consumer education materials available, including information on substance abuse risks and side effects of cannabis use. Products must have meticulous labeling, including statements about potential health risks. Packaging must be “child proof” in both form (no cartoons, trademarks, etc.) and substance (physically).

A significant rule: cookies, brownies, and other edible products resembling food are prohibited.

Small Business Prioritization

Most noteworthy in the CRC summary is that the Initial Rules include a conditional licenses process. Small businesses will have the option of submitting a conditional application that only requires a background disclosure, a business plan, and a regulatory compliance plan. If approved, the conditional applicant will have 120 days to find an appropriate site, obtain municipal approval, and apply for a conversion to a full license. Small business will also not need to demonstrate past experience in a regulated cannabis industry.

Municipal Participation

The CRC has effectively codified participation of municipalities. Cannabis business will only be licensed if the applicant can demonstrate:

1. Support from the municipality in which they intend to operate;
2. Zoning approval; and
3. That they have been verified to operate in compliance with any municipal restriction.

Municipalities are empowered to determine hours of operation, the number and types of business allowed to operate, and whether to enact a 2% transfer tax on any sales between cannabis businesses. Municipalities can also enact any other restriction or requirement that applies to any other business type.

On balance, it is apparent that CRC is focusing on boosting the prospects of equity applicants and small businesses, while also engendering the support of local municipalities. Stay tuned for our breakdown of the Initial Rules’ key provision in Part 2.