Written Testimony Before the New Jersey State Legislature Assembly Appropriations Committee
Public Testimony Concerning Inclusion of Social Justice and Social Equity provisions in Bill S21/A21
By: New Jersey Cannabis Trade Association (NJCTA)
Thank you, Chairperson Burzichelli and distinguished committee members, for the opportunity to submit comment on the implementation of personal, non-medical use of cannabis by adults age 21 or older and the creation of a regulated cannabis marketplace in New Jersey. We write to you today as the New Jersey Cannabis Trade Association (“NJCTA”), representing the twelve existing Alternative Treatment Center (“ATC”) operators in the New Jersey Medical Marijuana Program.
We applaud the New Jersey State Legislature for the strong commitment that it has displayed in honoring the will of the people as it relates to Public Question #1 and the legalization and implementation of an adult-use cannabis program in our state. We also applaud the Legislature for understanding when it was time to take a step back to ensure that all current and potential stakeholders in New Jersey’s adult-use cannabis program have their voices and concerns heard and addressed, in the spirit of creating a program that works for everyone – especially those who have been disproportionately impacted by the War on Drugs.
As such, we are using our testimony to comment on three extremely important issues: (i) the inclusion of social justice initiatives including clemency and record expungement for non-violent cannabis offenders, (ii) the creation and implementation of a robust and viable social equity program, and (iii) the protection of affordable access for all New Jersey medical cannabis patients.
Social justice and social equity measures have rightfully become central to cannabis legalization, as society seeks to correct the harms done by the misguided War on Drugs, which has disproportionately impacted Black and brown people. In fact, a disproportionate number of Black and brown individuals are still serving prison sentences to this day for an activity that will be considered fully legal under New Jersey’s adult-use cannabis laws. The War on Drugs has also had a devastating economic impact on communities of color, when factoring in lost income due to imprisonment and the difficulties of finding gainful employment with a cannabis-related felony on an individual’s record. According to the Brennan Center for Justice, people who were imprisoned early in their lives earn roughly half as much annually as socioeconomically similar people untouched by the criminal justice system.
For these reasons, we previously submitted testimony to the New Jersey Senate Judiciary Committee on Monday November 9, 2020 that stated that implementation legislation must include clemency and record expungements for all non-violent cannabis offenders. This is not only rational because of the fact that these offenders were originally imprisoned for an activity that will now be legal but also fair because it gives many disproportionately impacted individuals the ability to seek broader employment opportunities without cannabis-related convictions on their record.
The implementation of a social equity program within New Jersey’s adult use cannabis program would go a step further in beginning to correct the injustices of the past. We urge the state to create a program that includes specific licenses for disproportionately impacted individuals and a fund that invests in and concurrently supports the success of these social equity businesses. New Jersey has the opportunity to help create sustainable business and generational wealth for these individuals and their respective communities disproportionally impacted by the War on Drugs.
Respectfully but plainly stated, the currently posted draft of S21/A21 does not adequately address the creation of a comprehensive social equity program in New Jersey. The bill proposes the creation of microbusiness licenses, which may be well-intentioned to create opportunities for small business owners in New Jersey, but in reality, these types of licenses introduce burdensome restrictions that raise the barrier to entry and limit the potential growth of a business. The tight constraints on the geographic location and number of employees, for example, artificially limit the size and scale that a social equity-type business can achieve. We recommend that the microbusiness license type be re-evaluated to truly create opportunity for small businesses and to specifically provide support for social equity applicants and owners. We welcome the opportunity to collaboratively develop solutions with various stakeholders.
Separately, there is a need for a mechanism to raise funds for social equity programs. However, the mechanism to raise those funds must be carefully considered. NJCTA is in support of higher taxes as one way to achieve that goal, but while simultaneously keeping them low enough to disincentivize illicit market activity.
Conversations around a proposed cultivation tax miss a critical issue that cannot be understated: When cannabis is taxed earlier in the supply chain instead of just at the point of retail sale, that cost is carried through on all products, including medical cannabis that is meeting the needs of the steadily rising patient population of close to 100,000 patients in New Jersey. All adult use taxes must be kept at the point of retail sale so that taxes intended to be levied only on adult use products are not passed along to patients. We welcome the opportunity to further discuss the specifics of tax structures and the pitfalls of a dual supply chain.
We have seen this exact scenario play out elsewhere in the country. In California, a state with a similarly entrenched illicit market, high taxes levied throughout the cannabis supply chain led to significantly higher prices at the point of sale for consumers. Rather than continuing to pay these artificially high prices, California consumers largely turned back to their untaxed illicit sources. As a result, cannabis revenue in the state actually dropped from $3 billion in 2017 to $2.5 billion in 2018, resulting in the state falling well short of its own tax revenue projections and a severely underfunded Bureau of Cannabis Control having to put many of its own initiatives on hold.
In applying lessons learned, this means that over-taxing cannabis at the cultivation level seriously runs the risk of lowering the tax revenue that the State can expect to receive, rather than the intended consequence of bringing in more revenue to fund programs. New Jersey can do more and has the opportunity to set the gold standard for in a program that works for all.
From a patient point of view, the increased prices of medical cannabis can be extremely detrimental to affordable access. Cannabis operators are already operating at a major disadvantage due its Schedule 1 designation under the Controlled Substances Act, which invokes section 280E of the federal tax code and does not allow cannabis operators to deduct the costs of doing business. These costs add up very quickly for operators and often end up being partially passed along to the consumer. We request that the Legislature consider decoupling from 280E for the benefit of New Jersey cannabis businesses of all sizes.
Taxation is not the only opportunity to generate funds for social equity programs. As an organization, we recommend an alternative path to raise funds for a real social equity program, with funds specifically earmarked to support social equity applicants and reinvest in communities disproportionally harmed by the War on Drugs.
A model we have seen in other states, which could be optimized for the New Jersey market, is the creation of a social equity program funded largely by incumbent cannabis operators in the state through upfront licensing fees.
This would provide the State with immediate funds to build a social equity program and directly provide application fee waivers and decreased upfront costs for social equity applicants and eventual license holders. This approach also holds the benefits of helping a program to get immediately off the ground as opposed to fund building up via taxes over a span of multiple years.
Once social equity licensed businesses are in place, putting those businesses in a position to succeed will be crucial. As such, we strongly recommend that S21/A21 maintain license caps. Learning from history, the removal of cannabis license caps in Oregon flooded the market with more cultivators and retail locations than the market could handle, and subsequently crashed the price of cannabis, making it exceedingly difficult for all but the largest operators in the state to compete. The state’s legislature later had to change course and cap licenses once again. While large, incumbent operators have the scale to withstand such an occurrence, newer operators, as the social equity businesses would be, would have a much more difficult time generating the margins needed to survive and thrive.
We urge the Legislature to strongly consider including these measures in A21 / S21. It is a crucial step forward that begins to create a more fair and equitable cannabis marketplace. We look forward to working with the Legislature and other key stakeholders in New Jersey to make these initiatives happen.
We appreciate your consideration.
The New Jersey Cannabis Trade Association
Breakwater Alternative Treatment Center
Garden State Dispensary
Green Thumb Industries
Harmony Foundation of New Jersey
iAnthus Capital Holdings
 Brennan Center for Justice. “Lost Earnings by the Numbers.” http://www.brennancenter.org, September 1, 2020. https://www.brennancenter.org/sites/default/files/2020-09/01_Lost%20Wages%20Fact%20Sheet.pdf
 Chappell, B. (2019, August 23). California Says Its Cannabis Revenue Has Fallen Short Of Estimates, Despite Gains. Retrieved November 08, 2020, from https://www.npr.org/2019/08/23/753791322/california-says-its-cannabis-revenue-has-fallen-short-of-estimates-despite-gains  Brochstein, Alan. “This Is Weighing Down Multi-State Cannabis Operator Profitability,” New Cannabis Ventures, August 17, 2020, https://www.newcannabisventures.com/this-is-weighing-down-multi-state-cannabis-operator-profitability/  Roig, Suzanne. “Overproduction of Marijuana Floods Market.” The Bend Bulletin, January 31, 2020. https://www.bendbulletin.com/business/overproduction-of-marijuana-floods-market/article_750da5bf-204b-5aba-b7b4-a90dfffb0c2c.html