October 14, 2021

Main Street Gets the Green Light

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Last week was a big week for New Jersey's burgeoning cannabis industry, as the Cannabis Regulatory Commission ("CRC") adopted its first set of rules to regulate adult-use cannabis in the Garden State.  The 160 pages of rules cover a wide range of topics, including social equity, safety, market access, licensing priorities, and municipal authority.  With respect to municipal authority, one of the most interesting takeaways from the rules is the amount of discretion delegated to municipalities to restrict and regulate cannabis markets at the local level.

The Power to Regulate

Subchapter 5 of the rules empowers municipalities to enact ordinances that regulate the way cannabis is grown, manufactured, and sold locally.  Importantly, the rules expressly recognize that municipalities that enacted legislation regulating or banning cannabis businesses by the State-imposed August 21, 2021 deadline can update their ordinances at any time, further tailoring local laws to suit local needs.

Under the rules, municipalities may set limits on the number of cannabis businesses in town and even restrict the types of cannabis businesses allowed to operate.  The latter may be particularly appealing to municipalities willing to take a chance on more discrete cannabis operations for the cultivation or manufacturing of cannabis, but unwilling to gamble on the retail sale of cannabis with an electorate either not entirely sold on the idea or driven by NIMBYism despite the 2020 referendum results.  

Where cannabis businesses are permitted, municipalities can further restrict the location of such businesses through zoning and the police power.  For example,  municipalities can limit cannabis businesses to zones or districts and enact appropriate use and bulk regulations governing such uses.  Municipalities can also establish proximity limitations from certain protected uses, such as school zones, public parks, and places of worship, and can restrict hours of operation to manage traffic through neighborhoods and mitigate other operational impacts.

The Power to Tax

New Jersey has rarely met a tax it does not like, and cannabis is no exception.  In addition to mandatory taxes and social excise fees imposed at the State level, municipalities wield the power to impose a cannabis transfer tax on cannabis or cannabis product transferred by businesses within the jurisdiction.  Local cannabis transfer taxes are capped at 2% for cultivation, manufacturing, and retail operations, and 1% for cannabis wholesalers. 

The Power to Collect

But not to worry, there may be additional ways for municipalities to add a bit more green to their local coffers.  The rules permit municipalities to implement their own local licensing requirements for cannabis businesses, which may include application fees and annual licensing fees.  Although the rules permit municipalities to create their own licensing schemes, there remains many open questions regarding how far municipalities may go in regulating cannabis businesses at the local level.  Municipalities also do so at their own risk, given how much litigation the State's 2018 and 2019 medical cannabis application processes generated. 

Under the rules, municipalities can also impose reasonable fees for zoning permits, certifications, and authorizations and establish civil penalties for violations of any cannabis related ordinances or regulations on the books once cannabis businesses are up and running. 

The Power to Influence

Last but not least, the rules authorize municipalities to communicate preferences for licensure directly to the CRC.  While municipal support has always been and will continue to be an essential component of any competitive license application, this provision extends beyond the concept of municipal support. Under the rules, municipalities can hypothetically communicate its preference for one potential cannabis "suitor" over another.  Elected officials statewide will likely relish this newfound power.  But not so fast - the rules also expressly prohibit elected officials from soliciting anything from a cannabis businesses, and likewise, prohibit cannabis businesses from offering anything of value for local support or zoning approval.

If you have any questions on this article, please contact the authors Ryan M. Magee at [email protected], Diane N. Hickey at [email protected], or any other member of Riker Danzig's Cannabis Law Group

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

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