Two bills affecting New Jersey cannabis companies’ taxes and investment passed a legislative committee in the State house today.
A bill allowing cannabis companies to deduct their business expenses from their state taxes passed a New Jersey legislative committee.
A 3946 was introduced by Assemblywoman Annette Quijano (D-Union) and passed the NJ Assembly Oversight, Reform, and Federal Relations Committee.
Quijano explained the Reagan administration enacted the barrier in Section 280-E of the IRS Tax Code, which prohibits drug traffickers from deducting their expenses.
(More on this in my book Cannabis 101!)
“New Jersey and many other states prohibited deducting common business expenses from the state business taxes also,” she noted.
Quijano said New York, California, Massachusetts, Oregon, and Colorado have enacted similar bills.
Initially, the bill was limited to cannabis companies making less than $15 million, but the cap was eliminated.
“The legislature worked hard to ensure the cannabis industry was a source of economic development for diverse communities across the State. We should not artificially cap the growth opportunities for these businesses and the communities they call home,” Quijano said.
She claimed it would increase “access for patients and lower the cost to the consumer.”
“That is a result of hearing everybody in the industry and the community,” Committee Chair Joe Danielson (D-Somerset, Middlesex) said regarding the removal of the cap.
The Coalition of Medical Marijuana of NJ’s (CMMNJ) Executive Director Ken Wolski spoke in favor of the bill.
“It is entirely inappropriate to withhold rightful business deductions from that company. There is no need to restrict this bill to cannabis companies with less than 15 million in receipts. A $15 million cap is arbitrary and capricious to the industry,” he said.
“New Jersey must continue to end the restrictions and penalties on marijuana sales and use,” Wolski added. “The federal government has been misinforming the public on marijuana for about 80 years. The federal government has been exaggerating the dangers associated with it and continues to do so to this day. Marijuana prohibition rests on a lie.”
Helping NJ Cannabis Companies with Taxes
Brian Murray, Vice President of Government Relations Acreage Holdings, owner of Botanist, which has two dispensaries in South Jersey, said many companies in the industry are struggling.
“They’re not able to reinvest in their operations, their communities,” he added. “The effective tax rate then is near 70 percent.”
The nature of the high tax rate for cannabis companies versus a large corporation paying no taxes is a great example of the complicated nature of American taxes and the way specialists and their interest groups make themselves valuable.
“(The adult-use cannabis legalization bill) CREAMMA seeks to cut into the illicit market. However, with the 280-E… if our operations are more expensive than the illicit market, our prices remain more expensive,” he said.
Murray added there is a 15 percent difference “which will cause someone to abandon the regulated market.”
He noted it also hurts their ability to work with ancillary companies.
It remains to be seen if they will lower the price or take the money for themselves should cannabis companies be allowed more net profit.
Melissa Dardani of the NJ Society of Certified Public Accountants endorsed the bill. Their endorsements likely helped the process greatly.
She said that 280-E is “the result is an insufferable balance of income tax due on something far greater than income. It’s unfair at best and unconstitutional at worst.”
“We in New Jersey cannot perpetuate the discrimination with an income cap which would only serve to divide the industry,” Dardani said.
She said it especially hurts small businesses.
“We do agree a cap is unfair,” UFCW union leader Hugh Giordano said.
“When we give tax incentives, we ask that these incentives go to high road cannabis employers, folks who provide living wages, folks who provide health care, folks who have active peace agreements with a bona fide labor union and have an active collective bargaining agreement providing and guaranteeing those wages and benefits,” he said.
Giordano said a similar bill is pending in California.
“We want to make sure our employers represented by the UFCW and provide good jobs and benefits are able to continue to do so and flourish. We need good operators,” he said.
Giordano said that when there is a transfer of cannabis licenses, they should perform background checks and investigate the investment funds and buyers to ensure they do not have unfair labor charges in other states.
“A cap disincentivizes the growth of small businesses. It sets up divisions where none should exist,” cannabis consultant Susanna Short said.
“We’re not in competition with each other as we are with the illicit market. The best way we can compete with the illicit market is to reduce taxes,” she added.
The underground market also offers a far better range of stronger products. Even before taxes, cannabis prices are steep in New Jersey.
Short said licensed cannabis companies can’t even deduct from their expenses their charitable works.
“This legislation is desperately needed at the federal level,” she added.
Michael Turner of the NJ CannaBusiness Association argued it’s a part of the cannabis normalization goal to walk past a cannabis dispensary like a bar without thinking a second thought. This is part of that goal.
He said it will keep New Jersey competitive with the New York and Massachusetts cannabis markets.
It passed unanimously.
The bill does not yet have a State Senate companion bill necessary for it to be signed into law should both bills pass their respective chambers.
Investment in the Industry
A 4151, a bill that included a provision on investment in cannabis companies was passed as well. It allows companies to invest up to 35 percent in seven minority or woman or disabled veteran-owned businesses.
It is sponsored by Assembly members Verlina Reynolds-Jackson (D-Mercer), Anthony Verrelli (D-Mercer), and Benji Wimberly (D-Passaic).
State Senator Troy Singleton (D-Burlington) has been working on the issue. He is sponsoring the State Senate companion bill S 2766.
“The point of the bill is to prepare those licenses to concede rather than succeed,” NJ CannaBusiness Association (NJCBA) President Ed DeVeaux said. “Our legislative and regulatory intent was to provide a path to success for the formerly incarcerated, small, minority, women-owned and serviced disabled veteran New Jersey-based businesses.”
He said the bill “opens the door to out-of-state entities to assume the licenses of those who we wish to protect.”
DeVeaux said it should be amended. He noted the NJCRC takes great pains to validate cannabis applicants.
“The same if not greater level of scrutiny be used to validate that the investors, investor groups, and funds are in fact minority, woman, and disabled vet owned enterprises and not Fronts for Multi-State Operators (MSOs) who seek to franchise their operations and strengthen their portfolios to expand their cannabis operations elsewhere,” DeVeaux said.
He said the NJCRC and forensic accounts should do the background checks.
“The principals of those entities should submit to personal history disclosures and background checks,” he said.
“You see this bill as making a remarkable change to the qualifies of who can a cannabis license or a partial license and who can influence in a backdoor way to get into the business?” Danielson asked.
“We view the language currently in the bill as a way to create a Trojan Horse,” DeVeaux said. “What the bill does not do is qualify who they really are, where they’re really from, and what the original intent is.”
“We should really be looking at ways to modify the bill to address the fact that we could have Fronts for other enterprises and protect those small and minority business licenses that we strove to get into this business,” he added.
“This bill is still a work in progress and leadership and the sponsors are keenly aware of your objections,” Danielson said.
“We come to voice our support,” said Todd Johnson of Justice Grown dispensary in Ewing and the NJ Cannabis Trade Association (NJTA).
“Access to capital remains increasingly difficult notwithstanding the license opportunity increase here in New Jersey,” Johnson said.
Johnson said it should be amended to expand the eligibility to include Social Equity applicants.
Social Equity applicants had two misdemeanors or one felony related to cannabis.
Danielson noted he worked on cannabis legislation in the past to change it from the cannabis industry consisting of “criminals and wealthy white men.”
“I know it’s a work in progress. I’m talking to the stakeholders and I’m comfortable moving it forward,” he said.
It also passed unanimously.