NJ Lawmakers Pass S.21 and Finalize How Legalized Recreational Marijuana Will Be Taxed

by Mike Goral, Ken Teasdale, Jeremy Sucharski
December 22, 2020

On December 17, 2020, the New Jersey Senate and House passed Bill S.21, which outlines how recreational marijuana will be taxed in the state. (The vote was 23-17 in the Senate and 49-24 in the House.) The bill calls for adult-use cannabis to be taxed at the state’s 6.625% sales tax rate, with local jurisdictions having the option to tack on a tax up to a maximum of 2%. The imposed tax mechanism is expected to generate approximately $126 million in sales tax revenue based on cannabis sales of $1.9 billion, according to government sources.

This method of taxing adult-use cannabis on a flat sales tax rate with a local option rate that is capped at 2% mimics how other tangible goods are taxed in the Garden State. This is welcome news to cannabis operators, who were concerned that the state might adopt a more complicated taxing mechanism used in other states such as California.

The bill is expected to be signed by Gov. Phil Murphy, who has been a strong supporter of adult-use cannabis legislation. Upon the governor’s signature, 70% of tax revenue will be allocated to municipalities identified as “impact zones” due to their adverse impact from marijuana-related arrests. The bill also directs the remaining revenue be allocated to the state Department of Health for medical marijuana expansion of funds used for reimbursement of counties for marijuana-related arrests, and finally, directs any remaining funds to New Jersey’s general fund.

Both chambers also passed a bill to decriminalize marijuana, since current state law makes even possession of small quantities of cannabis illegal. It is important to note that some have already criticized that the bill does not go far enough to protect those who were harmed during the war on drugs transgressions of the past.

To learn more about cannabis industry-related topics, reach out to our experts.

December 22, 2020

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