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Legalization of Recreational Cannabis Use could result in a windfall to the State exceeding $1 billion


NJ Deficits Could Go Up in Smoke 

December 26,2017

the staff of the Ridgewood blog

ROSELAND NJ,  Upon the release of its White Paper exploring what it calls “The most complex environment ever to legalize recreational cannabis use,” lawyers at Brach Eichler observed that the initial organization of the industry could result in a windfall to the State exceeding $1 billion — before a single ounce is delivered.
The figure is based on the State creating an aggressive privatization of the industry in which large technology, testing, cultivation, transportation and other industry participants compete for roles and pay upfront licensing, franchising, and other fees.

“The State needs $3 billion to close its budget gap and it so far has identified cannabis as contributing $300 million from sales tax,” says John D. Fanburg, Managing Member and Chair of the Health Law Practice at Brach Eichler. “Presumptively, if there is a $2 billion recreational cannabis market in New Jersey, privatized functions could be offered in RFPs that provide lengthy contracts – the type that attract investors who pay-up for predictable returns. A billion dollars is probably a modest estimate of the opportunity New Jersey can potentially realize as it legalizes recreational cannabis.”

The White Paper, The Business, Regulatory and Legal Challenges — and Opportunity — of Legalized Cannabis in New Jersey, which explores the differences between New Jersey’s presumed recreational cannabis legalization versus circumstances in states with existing programs, warns that “New Jersey holds complexities not faced by other states unrelated to the production, distribution, sale, and use of marijuana, but attributed to a simple fact of life: this is New Jersey, and almost everything is harder here.”
“Home rule is the principal culprit,” says Charles X. Gormally, Member and Chair of the Litigation Practice for Brach Eichler. “It’s the third rail of New Jersey politics, so great care will be taken to protect the will of municipalities in drafting the Cannabis Statute.

“Part of the social justice initiative will be to provide economic opportunities in urban communities, which will be very appealing to some municipalities. However, it’s inevitable that there will be great tension between local officials and regulators about who gets what part of the pie – and why.”

The White Paper observes solutions developed in other states around not only Industry Structure, but a variety of oversight, taxation, and participation issues, including sections on Home Rule, Property Taxes, Delivery, Banking, Commerce, Public Health, Testing Product Safety, Regulatory Authority, Criminality, and Cannabis as Tourism. While the Administration has not indicated any specific direction on any of the issues broached in the White Paper, Mr. Gormally says it will be “unavoidable” that fiscal issues dominate the dialogue.

“The ultimate social justice would be to immediately decriminalize possession, but that does not provide the long-term political leverage that will lead to a healthy industry and a leveraging of the state’s interests. You have a lot of smart people in the incoming Administration who have already seen that current legislative proposals will not generate the $300 million they already have allocated to programs they are committed to enact immediately.

“At the edges of this industry you have a black-market cohort that wants to legitimize its crop and reduce the risks of its current distribution program; and another cohort with access to a massive pool of capital if margins are protected,” says Mr. Fanburg. “In the middle is a new administration desperate to lead the State back to economic relevance and a legislature determined to protect programs that are threatened by fiscal realities. So, while it is unlikely that the state goes all the way and monetizes every component of the industry, as they start to tinker with a new Statute, the opportunity to generate upfront cash will prove at least partially irresistible.”