New Jersey Gets Legalization Right

Written by Adam English
Posted March 19, 2019

Good news from Trenton, New Jersey came through yesterday.

A bill to legalize recreational marijuana use cleared two legislative committees and is now set to be voted on next week.

This would be a big boost to the current roster of states that allow recreational use.

New Jersey would be joining a roster of 10 states, adding about 9 million people to the total population, good for an 11% increase and recreational use would be available to 25% of the total U.S. population.

This is notable on its own, but it is also worth digging into the news a bit. I expect this to be a great example of the kind of legislation we’ll see going forward.

Boilerplate Best Practices

The New Jersey bill, actually bills — more on that in a second — essentially look like a template built from all previous legislation and regulation.

The early days of marijuana legalization involved trailblazing into unknown territory. Those days are long gone.

It has been seven years since Colorado and Washington legalized recreational use, and five years since sales started.

There is good data and precedent on how to set up the cannabis industry, what works and what doesn’t, and what is easier to address all at once, rather than piecemeal over years.

First up, the basic template:

  • The bill would allow possession and personal use of up to an ounce of marijuana.
  • It would set up a taxable industry of growers, processors, wholesalers, and retailers.
  • Smoking or consumption would be legal in private residences or sanctioned lounges.
  • A regulatory commission appointed by the Governor and legislative leaders would set finer rules.
  • The commission would have six months to establish rules and then six months to start sales.
  • Municipalities would be able to ban such businesses but not possession or consumption.

This is a pretty good sample of best practices as seen in other states. Here is where New Jersey takes it further…

Learning From Past Mistakes

The bill will also immediately allow for people with low-level marijuana convictions to wipe away their records.

This has been a contentious issue addressed after the fact in states that have legalized or decriminalized. It is far easier to pass this now than let expensive cases work through courts or have politicians wring their hands over “not tough on crime” election rhetoric when it wouldn’t even be a crime anymore.

The state tax is applied to growers and passed down through the supply chain. Taxation systems have been confusing and onerous in the past. This goes straight to the source where the state will already be watching how much is moved to processors and wholesalers.

The bill simplifies local taxation and makes the “opt out” provision apply to the revenue, too. Towns that have pot shops would be able to impose a 3% tax on items sold, those with growers could charge a 2% tax, and those with wholesalers could charge a 1% tax.

Plus, the bill explicitly allows retailers to deliver to consumers as long as a certified employee does the work.

It also doesn’t impose a set limit on the number of retailers, which has been an absolute mess for other states.

Setting A New Standard?

Recreational marijuana has come a long way on both fronts — government and the businesses themselves.

More and more states will be legalizing, and there is going to be strong pressure during the 2020 election to push through a federal law as well.

As New Jersey is proving, it is also getting easier to build on the experiences of states that have come before.

We can and should expect this to continue, accelerating the process and removing the hurdles before they are an issue.

The problems with regulatory approval in Canada and California? We won’t be seeing those in the future elsewhere. Same with arbitrary limitations that have undermined retail sales and availability.

The businesses themselves will do better as a result. There will be clearer paths to profitability, accurate sales forecasting, less wasted capital, and quicker returns on investments.

States that legalize will see a quick flood of money from both big businesses and investors alike that are keenly interested in the potential but couldn't or wouldn't accept the risk of uncertainty.

Now’s a great time to be involved, and it is only getting better.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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