Recreational Marijuana in New Jersey

Last May, Democratic State Senator Nicholas Scutari introduced a bill to legalize recreational marijuana in New Jersey, patterned after Colorado's successful legalization initiative. There is no way to fully understand the limitations that the New Jersey Senate will place on the recreational marijuana bill until the bill passes. However, Scutari's proposed bill would impose a 7% sales tax on marijuana and marijuana products, escalating to 25% after five years. The senator estimates New Jersey would realize $300 million to $500 million a year in new tax revenue after the tax is fully phased in. Proponents say New Jersey could see $2-$3 billion in annual marijuana sales, based on the experiences of other states (like Colorado) that have legalized the drug.

Based on that $2-$3 billion annual sale projection, there is no doubt that aspiring entrepreneurs will flock to the Garden State for their piece of the pie. As mentioned above, the real analysis of the bill would come after the bill passes; however, below are just a few of the legal challenges that an aspiring entrepreneur may face in opening up shop in local municipalities.

Zoning Issues

One of the biggest challenges will be finding a commercial/retail space that fits within an allowable zone in accordance with a local municipality's zoning map. As other states, like Colorado, have seen, marijuana businesses are likely to be narrowly zoned, primarily with the intent to ensure such businesses are unable to open. States have implemented certain zoning restrictions, such as requiring that marijuana businesses remain a certain distance from schools, hospitals, substance abuse treatment centers, daycare facilities and other sensitive-use entities. Additionally, some jurisdictions impose the restriction that marijuana business be separated from one another (some jurisdictions require a 500-foot limit). In a densely populated state, like New Jersey, this could dramatically limit the number of recreational marijuana business storefronts across the state.

Leasing Issues

Once an aspiring business owner finds a location within an allowable zone to set up shop, the owner must now be mindful that the sale of recreational marijuana may in fact be prohibited by private contracts between landlords and existing tenants. Many commercial leases include varying provisions that detail prohibited uses of the subject spaces by tenants. While a commerical landlord may try to distance himself from leasing space to a recreational marijuana storefront, such prohibitions are also negotiated strongly by tenants. Historically, larger retail tenants aggressively negotiate such prohibited uses in an attempt to ensure their neighboring tenants do not attract “unwanted consumers.” Most notably (and quite common) is a prohibition against so-called “head shops,” which sell drug paraphernalia but not drugs themselves. Such prohibitions could create an even more limited market for marijuana businesses to open.

Banking

Because marijuana is a Schedule I controlled substance under the Controlled Substances Act (21 U.S.C. §812 sched. 1(c)(10)(2012)), it is still a federal crime to use, possess or distribute marijuana. As such, marijuana businesses often cannot obtain bank accounts of any kind, unless the bank is willing to undergo strict compliance with federal guidelines passed down in a memorandum initiated during the Obama administration.