By Marion Wickersham, CFE

As of Jan. 1, 2021, a state constitutional amendment that legalized marijuana in New Jersey took effect. Sixty-seven percent of voters in New Jersey voted “yes”¹ in support of legalizing recreational marijuana for anyone over the age of 21. However, this was just the first step ahead in the long road to full legalization; there’s a lot more work that needs to be done.

The process started with passing legalization and decriminalization bills, which for the first few weeks of 2021, appeared to be a difficult feat. One of the holdups had been a disagreement on proposed fines for underage marijuana users, as some lawmakers felt the fines were too harsh on minors. However, on Feb. 22, 2021, Governor Phil Murphy simultaneously signed legislation that would both legalize cannabis for adult use and decriminalize marijuana possession in small amounts.

The next step is for New Jersey’s Cannabis Regulatory Commission to release regulations on marijuana sales, including licensing and taxation, as retail purchases are not yet available.² It could take up to 18 months for marijuana to actually start being sold in adult-use dispensaries in New Jersey. When sales do begin, New Jersey’s sales tax on marijuana will be 6.625%, which is the lowest tax rate in any of the legalized states. According to The Daily Princetonian, “Most states with excise taxes on marijuana charge 15%. In some states, the products are simply subject to a general sales tax, which in states like Washington can be as high as 37%.”³ It should be noted that there is a possibility that municipalities in New Jersey could add additional taxes.⁴

With the legalization of recreational marijuana in New Jersey, there is an increased pressure on both Pennsylvania and New York to move toward legalization. If they don’t, New Jersey is expected to corner the market. According to Curbed, “New Jersey is going to be the catalyst for Northeastern states … pointing to the tax revenue that bordering states stand to lose by having their residents purchase cannabis in New Jersey.”⁵

New Jersey CPAs also support the progress made in the Garden State regarding recreational marijuana. Approximately 66% of the New Jersey Society of Certified Public Accountants (NJCPA) members support the legalization and think it will benefit New Jersey’s economy.⁶ They even helped propose legislation introduced by Sen. Troy Singleton on Dec. 10, 2020, to dissociate from Section 280E of the tax law,⁷ which “…forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the ‘trafficking’ of Schedule I or II substances, as defined by the Controlled Substance Act.”⁸ NJCPA maintains that, with the legalization of marijuana in New Jersey, it makes sense to allow these businesses to deduct related expenses.⁹ As of March 4, 2021, this legislation is still pending, as no further actions have been made. If this legislation passes in New Jersey, it will help pave the way for other states, such as Pennsylvania and New York, to follow New Jersey’s lead. In fact, PICPA’s 2021 Fiscal Responsibility Task Force Report considers the state financial issues involved in legalization.

There remains a long road ahead for the states bordering on New Jersey before recreational marijuana is legalized, but New Jersey’s progress could have an impact on CPAs who practice on both sides of the Delaware River. For that reason, CPAs should stay well-informed of all changes to the industry by performing their due diligence through education, research, and networking.

¹ https://ballotpedia.org/New_Jersey_Public_Question_1,_Marijuana_Legalization_Amendment_(2020)
² https://www.marijuanadoctors.com/blog/new-jersey-cannabis-regulatory-commission-formed
³ https://www.rollingstone.com/culture/culture-features/new-jersey-cannabis-weed-legal-explainer-1101161
⁴ https://www.dailyprincetonian.com/article/2020/11/new-jersey-marijuana-legalization-cannabis-weed-explained-what-comes-next-when-is-weed-legal
⁵ https://www.curbed.com/article/new-jersey-cannabis-legalization-guide-new-york.html
⁶ https://www.accountingtoday.com/news/new-jersey-cpas-call-for-tax-change-after-voters-approve-cannabis-measure
⁷ https://www.njcpa.org/stayinformed/explore/topics/full-article/2020/12/11/legislation-introduced-to-conditionally-decouple-new-jersey-from-irc-section-280e
⁸ https://thecannabisindustry.org/uploads/2015-280E-White-Paper.pdf
⁹ https://www.njcpa.org/stayinformed/explore/topics/full-article/2020/12/11/legislation-introduced-to-conditionally-decouple-new-jersey-from-irc-section-280e

Marion Wickersham, CFE, is a senior associate at Forensic Resolutions Inc. She can be reached at mwickersham@forensicresolutions.com.

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