Understanding the role of local government is critical to the success of potential legal cannabis businesses. Not only will cannabis businesses need to obtain a license to operate from the Division of Marijuana Enforcement (“DME”), but cannabis businesses will also have to navigate regulations and ordinances set by local governments.
A provision of Senator Scutari’s Bill (“the Bill”) that will invariably cause headaches for legal cannabis entrepreneurs is the local governments section. The Bill, § 11. The most complicating aspect of this section of the Bill is that it allows a local government to decide whether it will allow legal cannabis businesses in its borders. In other words, even if cannabis businesses are deemed legal by the State of New Jersey, individual towns have the right to prohibit them. Towns are given one year from the date Governor-Elect Murphy signs the Bill into law to decide if legal cannabis businesses will be able to operate in their borders. If a town does not make a call one way or another, legal cannabis businesses are allowed to operate in the town for five years, and at the end of the five year period, the town is given the opportunity to prohibit the operation of a cannabis business.
While local governments have the option of saying no to legal cannabis business, doing so would come at an economic cost. The Bill provides towns with strong economic incentives to allow legal cannabis businesses to operate, and simply put, towns that prohibit legal cannabis businesses will suffer financially relative to neighboring towns that allow legal cannabis businesses. The Bill provides that a portion of the tax revenue New Jersey collects from legal cannabis sales will be allocated to local governments as follows:
Year 1 of tax collection: 1% of tax collected from a cannabis business will be allocated to the local government entity where the business is located
Year 2 of tax collection: 2% will be allocated to the local government entity
Year 3 (and all subsequent years): 3% will be allocated to the local government entity
See The Bill, § 10(g).
The Bill also provides local governments with the potential ability to process license applications and collect the corresponding license application fees. If the DME fails to adopt cannabis regulations within one year of the date of the Bill being enacted into law, applicants may submit their applications to the local government where the business plans to operate. See The Bill, § 12(c). The local government will then be afforded the opportunity to rule on the application based on whether the proposed business violates any of its ordinances.
Another option for local governments to participate in the licensing process can arise if the DME does not timely act on a license application. If the DME fails to approve or deny an application in the 90 days it is allotted to do so, a prospective legal cannabis business has the option of submitting its application directly to the local government entity, which must process the application in 90 days of receipt. See The Bill, § 12(b).
Assuming that a town allows legal cannabis businesses to operate, the town is given one year to enact ordinances or regulations (that do not conflict with the Bill) to determine:
1) the time, place, manner and number of marijuana establishments;
2) licensing procedures;
3) local operation fee schedules; and
4) civil penalties for violating ordinances.
See The Bill, § 11(b).
The upshot of the significant powers that will be granted to local governments is that cannabis entrepreneurs do not only have to worry about the DME. Strong relationships with local governments will be integral to the success of legal cannabis businesses.
Recent articles have suggested that Lodi, NJ is one of the towns that is considering cannabis regulations. This discussion, however, is simply a discussion that has been made public. Every town in New Jersey will have to conduct the same analysis to determine whether it will be cannabis friendly. We will update this blog as new towns publicly announce their position on legal cannabis.
Alex concentrates his practice on business litigation and counseling. Alex is the author of the New Jersey Cannabis Counsel blog where he tracks and analyzes developments in New Jersey’s efforts to legalize recreational cannabis and the potential impact on cannabis businesses in New Jersey. Alex is also a member of the New Jersey Cannabusiness Association.