New Jersey Cannabis Marketplace: Legal & Accounting Variables to Consider

April 18, 2021 Cannabis Business, Entrepreneurs, Legalization

Adult-use cannabis is now legal in New Jersey following Governor Murphy signing the New Jersey Cannabis Regulatory Enforcement Assistance and Modernization Act (CREAMMA) on February 22, 2021. Cannabis possession in small amounts has been decriminalized, too. And we’re expecting a successfully regulated cannabis marketplace in New Jersey to come as a result of this legislature.

Legacy operators in New Jersey will also begin to phase out. However, this will take some time.

But besides the new cannabis business developments in New Jersey, there’s a lot to consider by accountants and lawyers. New Jersey business owners interested in running an adult-use cannabis dispensary, leasing property to cannabis business operators, or manufacturing hemp-derived cannabidiol (CBD) products will have federal and state rules to consider.

Once federal legalization happens, the issues revolving around the New Jersey cannabis marketplace will be less complex. However, we could find ourselves waiting years for that to happen.

At this point, fifteen states have legalized recreational cannabis. New Jersey is one of the states to most recently hop into the adult-use cannabis marketplace. Nearly every state has a medical marijuana program, which usually means the state accepts some level of cannabis use.

As we see the politics surrounding cannabis change, the taboo surrounding the herb is beginning to disappear. It’s becoming more common throughout all groups, encouraging the federal change we’d like to see with the Biden Administration.

The Biden Administration’s platform is generally more supportive of rescheduling cannabis. This would take it out of the list of Schedule 1 substances and could open the U.S. cannabis marketplace to begin operating across state borders legally.

We recently saw Vice President Kamala Harris sponsor a bill, the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act. If passed, this would take cannabis from the Controlled Substances Act schedules, which would make tax season easier on cannabis business owners.

The New York Stock Exchange and NASDAQ are also beginning to accept cannabis stock listings. There are now at least 24 cannabis stocks listed, and we’ve observed more U.S. support for cannabis operation development. These efforts will eventually encourage federal legalization to pass.

Interested in becoming established in the New Jersey cannabis marketplace? Contact us today to learn more about how we can help.

new jersey cannabis marketplace

Understanding the Differences in Cannabis Operations

Adult-use cannabis business operators face different challenges than licensed hemp business operators. Even though New Jersey state law allows adult-use cannabis businesses to operate, federal law prohibits these endeavors. However, licensed hemp businesses are legal under New Jersey state law and federal law. It’s crucial to consider the issues surrounding operating a business going against federal law, though.

Cannabis businesses in New Jersey will become increasingly common over the next few years. We’re going to need CPAs and attorneys working together to handle the issues surrounding these operations. Something as simple as getting the appropriate retail license will require a would-be business owner to apply and prove the financial ability to sustain the business.

The main issue here is that the majority of startups operating in cannabis must operate on a cash basis. Since many banks are reluctant to give traditional financial or banking services to cannabis business operators, this is a hurdle that takes some ingenuity to overcome.

Banks are reluctant because most of them are insured federally. This means federal regulators oversee them and their operations, and they must comply with federal regulations. Of course, this includes federal laws prohibiting cannabis business operations. Thus, at this point, we’ll have to find other methods of obtaining these services until federally regulated banks receive protection.

One such legislation that offers protection, the SAFE Banking Act, exemplifies what’s possible. The SAFE Banking Act ensures federal banking regulators cannot:

  • Terminate or limit deposit insurance when a bank provides financial services to cannabis-related legitimate businesses or ancillary service providers.
  • Prohibit, penalize, or discourage banks from providing financial services to cannabis-related legitimate businesses or ancillary providers.
  • Recommend, incentivize, or encourage banks to avoid offering, downgrade, or cancel financial services because the business operates in cannabis.
  • Take adverse action on loans given to a cannabis-related legitimate business or its employee, owner, or operator, nor against an owner or operator of equipment or real estate that’s been leased to cannabis-related legitimate businesses.

While limited, these protections have made operating legitimate cannabis businesses easier. However, these provisions aren’t enough; we still need federal legalization to happen for the New Jersey cannabis marketplace to work as effectively as possible.

We expect New Jersey’s Cannabis Regulatory Commission (CRC) to create another round of applications for cannabis licenses within six months of the February 22 legislation. While there’s a lot of work to be done, we won’t know what the process is like until the new legislation is released.

At this point, we have six main classes of licenses available under CREAMMA. These include Class 1 Cultivator license, Class 2 Manufacturer license, Class 3 Wholesaler license, Class 4 Distributor license, Class 5 Retailer license, and Class 6 Delivery license. While these license offerings will set the foundation for New Jersey’s cannabis marketplace, we’re still in the dark as to how many of each type of license will be offered during this initial round of licensing.

new jersey cannabis marketplace products

Key Differences Between Cannabis Products

The New Jersey cannabis marketplace will have to consider product differences. For instance, federal law bans marijuana, which is cannabis containing beyond 0.3 percent of tetrahydrocannabinol (THC). This is the psychoactive cannabinoid (cannabis compound) found in cannabis.

Since THC is still listed on the Schedule 1 drug list, marijuana containing beyond 0.3 percent THC is prohibited federally. With this being the case, it’s crucial to know the difference if you’re considering becoming involved in the newly-formed New Jersey cannabis marketplace.

If you’re planning for your cannabis business to operate across state lines, it’s vital to consider state and federal issues. While you cannot cross state lines while carrying or distributing marijuana, you can do so with hemp. The main difference is that hemp doesn’t contain beyond 0.3 percent THC.

For instance, if your company purchases hemp from Florida, you can bring it to another company in Georgia. But if you plan to do this, you’ll need to have the right source documentation, meaning lab certifications. This is how you’ll be able to prove and substantiate that everything you’re traveling with is hemp or hemp-derived. 

Getting Involved in New Jersey Cannabis

Interested in establishing your cannabis business in New Jersey? Contact us today for expert assistance.