New Jersey marijuana deal may impact its 2020 budget

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New Jersey Gov. Phil Murphy and a coalition of state lawmakers forged an agreement on legalizing recreational marijuana that sets up a vote on the revenue-raising measure prior to adoption of the 2020 fiscal year budget.

The deal announced Tuesday morning would subject adult-use marijuana to an excise tax of $42 per ounce imposed when the cannabis plants are grown. The amount of projected revenue New Jersey would receive was not included in the announcement. A budget document for Murphy’s $38.6 billion budget proposal estimated only $60 million of state revenue from legalized weed in 2020, far less than the $300 million he estimated while running for governor in 2017.

“This plan will allow for the adult use of cannabis in a responsible way,” Senate President Steve Sweeney, D-Gloucester, said in a statement. “It will bring marijuana out of the underground market so that it can be controlled, regulated and taxed, just as alcohol has been since the end of Prohibition.”

Murphy first sought to legalize cannabis last year soon after assuming office in hopes of establishing new revenues for the current 2019 budget. Structural budget challenges coupled with a steep pension burden have dragged down New Jersey’s bond ratings to the second-lowest among U.S. states. The Garden State’s general obligation debt is rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency.

“After months of hard work and thoughtful negotiations, I’m thrilled to announce an agreement with my partners in the Legislature on the broad outlines of adult-use marijuana legislation,” said Murphy in a statement. “I believe that this legislation will establish an industry that brings fairness and economic opportunity to all of our communities, while promoting public safety by ensuring a safe product and allowing law enforcement to focus their resources on serious crimes.”

While Democrats control both chambers of the state legislature and the governor’s mansion, the fate of the new bill is uncertain because some lawmakers from both parties have spoken against legalizing weed. The legislature is scheduled to return to session on March 25. The 2020 budget year begins July 1.

“Marijuana will not bring in enough money to fill the holes in Murphy’s proposed budget,” State Sen. Gerald Cardinale, R-Demarest, said in a statement. “In just a few years, the social problems created by legalization such as homelessness, as well as widespread crime, will eat up that revenue.”

In addition to the excise tax, the proposal would also enable host municipalities of the cultivator or manufacturer to receive revenue from a 2% tax on the product. Localities with wholesalers will receive the revenue from a 1% tax within their jurisdiction while those who are home to retailers would get a 3% tax.

The bill would establish an independent five-member Cannabis Regulatory Commission featuring three commissioners appointed by the governor with the other two coming from the senate president and assembly speaker. The commission would be charged with setting up all regulations to govern the industry and oversee applications for licensing of adult-use marijuana dispensaries.

The legislation, which is expected to be released with final edits in the coming days, sets up provisions for expedited expungements of low-level marijuana offenses and would automatically prevent them from disqualifying someone for various educational, housing and job opportunities. The measure also aims to ensure “broad-based participation” in the new legalized cannabis industry for minority and women-owned business enterprises and disadvantaged communities.

New Jersey is seeking to become just the 11th state to legalize adult cannabis. All of them, with the exception of Vermont, enacted the policy through a referendum vote instead of the legislative process. Legalized cannabis has not yet provided a revenue windfall for states like California.

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State budgets Marijuana industry Phil Murphy State of New Jersey New Jersey