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NJ Senate Budget Committee Passes Cannabis Business Tax Bill

The New Jersey State Senate Budget and Appropriations Committee passed a cannabis business tax bill yesterday. It was designed to address the fact that licensed cannabis companies cannot deduct their expenses from their taxes, a common practice.

The cannabis business tax bill is 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.”

It was sponsored by Senator Troy Singleton (D-Burlington) and Shirley Turner (D-Mercer).

They seek to address the federal IRS tax code Section 280-E, which prohibits it.

It would be called a “research expense” in New Jersey tax law.

An aide noted there were minor amendments to make it the same as the Assembly companion bill, which is necessary for it to be signed into law. The cannabis business tax companion bill A 3946 was passed by the NJ Assembly Oversight Committee last September and the full Assembly in October 60-6, with 8 not voting and 6 absent.

Several noted lobbyists were said by Committee Chair Paul Sarlo (D-Bergen)

to support the bill but did not want to testify.

Cannabis Business Tax Bill Hearing Testimony

Noted cannabis lobbyist Bill Caruso of the NJ United for Marijuana Reform (NJUMR) coalition (where I represent the Latino Action Network, full disclosure) testified.

“I’m not here shilling for any individual client. I’m here with my thoughts as a thought leader and really to come say thank you,” he said.

“I know this is not your favorite topic,” Caruso said to Sarlo.

“This bill helps all companies in the cannabis space. We have built an engine here that is second to none in terms of what the potential can come,” he explained.

Caruso noted that cannabis corporations that are Multi-State Operators (MSOs) currently dominate the New Jersey cannabis market as they have done for years.

“You’re also seeing a whole new crop of craft cannabis companies that are gonna be Jersey-based, Jersey entrepreneurs,” he said. “This engine won’t go without gas in the tank.”

Supporting the Cannabis Industry

Caruso noted the need for federal legalization to address 280-E for the cannabis industry to thrive.

“We need to start advocating with our federal friends, our US Senators, our Members of Congress on a bipartisan basis to protect what we have,” he said.

New Jersey Society of Certified Public Accountants Cannabis Interest Group Chair Alex Krasnomowitz testified next.

“The cannabis industry has generated tremendous interest among our clients. So much interest, in fact, that the largest most interested committees is the cannabis group in the state society,” he said.

Krasnomowitz noted many cannabis entrepreneurs are struggling financially. The NJ Economic Development Authority is working on a grant program to help.

He noted since cannabis is federally illegal, every licensed cannabis company is an Organized Crime operation in the eyes of Uncle Sam.

“It’s unfair and irrational in New Jersey where cannabis is legal,” Krasnomowitz argued. “There’s a tremendous barrier to entry to the market and success. Preventing deductions on the state level compounds this problem.”

He wanted the bill to include companies making more than $15 million a year, which the bill does not do.

“We strongly believe this cap should be amended out as it was in the Assembly companion bill. Such a cap hurts the entire industry,” Krasnomowitz said.

Helping Small Cannabis Companies

“Does removing the cap have a negative impact on our smaller cannabis companies?” State Senator Andrew Zwicker (D-Middlesex, Hunterdon) asked about the cannabis business tax bill.

“Our industry is now run by major cannabis companies, referred to as MSOs, Multi-State Operators,” Krasnomowitz said. “I don’t think it will affect the small, let’s say, micro dispensary. It’s a tough industry to get into. It’s costly. The fact that New Jersey chose to go with the MSOs, it would be nice to rewind that and start again.”

“Are all the dispensary licenses issued now to MSOs in the state?” Sarlo asked.

Caruso explained there are the 2012-2018 medical licenses of mostly MSOs that mostly converted to adult-use, those medical licenses awarded in 2021 from the 2019 round, and the adult-use cannabis licenses awarded in 2022.

“They’re coming out. They’re a mix,” he said.

NJ Cannabis Market Details

“All of the licenses out there right now have an affiliation with an MSO?” Sarlo asked.

“The adult-use operators that are currently operating are, yes,” Caruso said. “Keeping one down is not going to help another. It’s harder to hire more people if you don’t have the money to do it. You’re building a multi-tier system.”

“I’ve had concerns with this industry and the beginning of this industry, although it seems it’s really taken off. My concerns still always lie with employer and employee protections. I’m still waiting for this regulatory commission to come out with defined rules to protect employers, especially those who work with dangerous facilities or dangerous areas, and to protect the employees,” Sarlo said. “This is good tax policy for an industry that’s getting off the ground.”

He noted the efforts to encourage small business entrepreneurs to enter the New Jersey cannabis industry.

“My concern is around creating an equitable system for our smaller businesses and ensuring we’re proving them with not just an ecosystem but incentives and the ability to get off the ground,” Zwicker said.

The NJ Senate Budget Committee passed it 10-0, with 2 not voting and one abstaining.

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