Murphy’s office, Senate reach deal on new cannabis cultivation tax (updated)

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The governor’s office and state Senate on Monday struck a deal on a so-called “cannabis cultivation tax,” knocking down a major hurdle for passing a bill to legalize, regulate and tax adult-use recreational marijuana.

Several sources who requested anonymity to speak freely on the discussion said that the two often-warring sides “have come to a loose agreement” around this potential tax rate.

One of the chief sponsors of the bill, Senate President Stephen Sweeney, D-3rd District, said that the bill is scheduled for a Thursday committee vote, followed by a full floor vote in both chambers next Monday.

The five-member Cannabis Regulatory Commission would levy that rate – a fraction of a percent – on top of the 6.625% sales tax, and 2% excise tax which cities and towns would have an option to tack onto transactions within their borders.

It comes out to roughly 7% for cultivators to pay, according to one person in the governor’s office. The fee is set once a year, and depends on the market rate for marijuana, according to one person in the state Senate. It goes up as the price goes down and vice versa.

Sweeney said that would generate between $3 million and $4 million in the next 9 months, while the state would make $125 million a year from taxing cannabis transactions at the standard sales tax.

After the first 9 months following the bill’s enactment, the CRC would meet annually to determine the rate, according to Sweeney.

“They’re punting this to the current commission, and the current commission will divvy up the details,” added one person with direct knowledge of the discussion.

The deal was still a “vast departure from where the governor wanted to be” but last week, being pitted against the racial and social justice advocates is what brought him back to the table to say maybe they would just punt it,” this person added.

“The goal is to create an industry that’s healthy,” the Senate President told reporters on Monday. “I want to see 43,000 people work in this industry.”

Assembly Speaker Craig Coughlin, D-19th District, said last week that he wants the enabling legislation to include an additional “user fee” on top of the sales tax and local excise tax, “that will help to reduce the financial burden on New Jersey’s taxpayers and specifically on its urban communities.”

That ultimately caused the bill to be pulled from a Thursday committee vote, marking the first delay since voters overwhelmingly approved a ballot question Nov. 3.

“The speaker is reviewing the proposal,” said Kevin McArdle, a spokesperson for Coughlin.

One person in the governor’s office said that lawmakers and the governor’s office were still at odds over whether to cap the number of licenses.

There are six proposed licenses in the 216-page bill, for growers, wholesale, distribution and transportation, retail, delivery, and processors such as manufacturing and preparation.

Sen. Nicholas Scutari, D-22nd District, another main sponsor, long-maintained that he was wary that too high a tax rate would keep the regulated market from taking off and competing against the much cheaper black market.

But the additional tax as laid out in the Monday deal would “allow the business to grow,” he told reporters that afternoon.

“I’m satisfied that the way that we’re going to grade the cultivation and excise tax, that it’s linked to the average price of it, so we’re going to be able to lower the prices to compete with the illicit market,” he added.

An accompanying bill decriminalizing possession of up to 6 ounces of marijuana was pulled from the Assembly agenda but passed in the Senate by a 29-4 vote.

The five-member CRC would oversee the market, as well as the 12 medicinal dispensaries. Under the bill, they would be able to begin selling recreational products, so long as they still prioritize getting cannabis to their patients.

Editor’s Note: This article was updated on Nov. 16, 2020 at 3:33 p.m. EST to include comments from Sens. Steve Sweeney and Nicholas Scutari.