The New Jersey Society of Certified Public Accountants (CPAs) virtual conference earlier this month featured New Jersey cannabis experts discussing issues in the market, including Social Equity.
NJ Cannabis Regulatory Commission (NJCRC) Vice Chair Sam Delgado first went over the basics of the New Jersey adult-use cannabis market and the license application process.
“New Jersey is very much a local control state, he said. “Municipalities are very powerful.”
Attorneys Ron Mondello and Mike McQueeny, along with consultant Hasaan Austin discussed significant issues in the New Jersey cannabis market.
McQueeny noted the problem with the IRS tax code and Section 280 E, whereby cannabis plant-touching businesses cannot deduct their business expenses from the total they need to pay in taxes. That creates a very high tax burden for companies that the cannabis industry. Many are exceedingly eager to have the issue addressed.
The NJCPA has endorsed S 340, “Decouples State tax provisions from federal prohibition on cannabis business deductions, but only for businesses with less than $15 million of gross receipts,” sponsored by State Senators Troy Singleton (D-Burlington) and Shirley Turner (D-Mercer). Assemblywoman Annette Quijano (D-Union) is sponsoring its companion bill, A 3946. Both bills have yet to pass a committee, the second and often most difficult part of the legislative process.
Quijano and Clinton Calabrese (D-Bergen) also introduced A 1676 “Decouples State tax provisions from the federal prohibition on cannabis business expense deductions,” which the NJCPA has endorsed. Unfortunately, it does not yet have a companion bill in the State Senate. A companion is necessary for it to become law.
Cannabis and Public Policy
The NJCPA has been lobbying NJ Senate President Nick Scutari (D-Union) to move the bills. However, it’s been difficult due to other issues in cannabis taking precedence.
“Decoupling… is bringing into reality the expectations of the citizens of New Jersey … this is a legitimate business,” McQueeny said.
Mondello said he heard from a Washington, DC source that “280-E is not going away for at least eight years. The government makes an awful lot of money on 280-E.”
He noted they would want a replacement revenue stream for that pool of money.
“100 percent. Cannabis was passed to help the budget,” McQueeny said.
“New Jersey, for all its flaws and warts, is trying to get it right,” he said about barriers to entry on the state level.
“Their first resource they’re going to is their accountant or their lawyer,” McQueeny said about applicants.
Town Issues
There are limits when only one or two cannabis companies are allowed within a town he noted. It is made worse when a majority of towns in New Jersey still do not allow them at all.
It makes it difficult for companies that do not have a lobbyist to persuade a mayor and a city council. While an applicant can be their own advocate, it is easier to do so when there more opportunities.
“This winner-take-all Super Bowl-style competition has moved from the state to the town level,” McQueeny noted. “We see towns literally build the plane as they fly it.”
He said it is an “admittedly conservative” process.
“If the town is only going to allow five, you need to make sure you’re not number,” Mondello said.
He noted lawyers told the NJ League of Municipalities to ban cannabis companies prematurely. They wanted to be safe from provisions that would have prevented them from devising their own legalization implementation laws. No one enforced those provisions.
New Jersey Cannabis Social Equity & Community Benefit Agreements
Austin noted the difficulty of establishing Social Equity applicants’ companies.
“Consider a value-added approach,” he said.
“Social Equity is a very complex concept. If you ask ten people what Social Equity means, you will likely get ten different answers,” Austin noted. “It’s more of a moral mandate.”
The NJCRC defined Social Equity applicants with two cannabis-related misdemeanors or a felony below a certain income level who have lived in an Economically Disadvantaged Area.
He urged applicants to offer charitable benefits through a Community Benefits Agreement (CBA). This has been occurring in Jersey City and Hoboken. However, in Hoboken, they want cannabis companies to fund the cost of a police officer.
Austin noted large companies contribute material and capital into an incubator as part of their CBAs in South Orange.
Since there’s a finite amount of space, only a few companies can be incubated.
Austin advised applicants to consider offering CBAs to towns.
“Municipalities should not be trying to box out underserved populations… infringing on Social Equity mandates. It certainly can create a liability on the local level,” he said.
Next Mondello noted Newark is not permitting conditional license applicants, despite their initial ordinance with low barriers to entry.
Austin noted many towns are boxing out underserved communities.
“That has occurred in the city of Newark, unfortunately. It has more to do with unintended consequences,” he said. “There’s some opportunity there to correct some of those unintended consequences.”
“In the biggest city in New Jersey, you do see some barriers to entry that shouldn’t be there. I understand there are some measures to correct that. How it’s going to be done? We don’t know,” Austin added.
