"February 2019 is when adult cannabis use will gain traction and become law."
Governor Phil Murphy and state legislative leaders have reached a deal in principle on how to tax and regulate marijuana in New Jersey, paving the way to bringing legal weed to the Garden State. The agreement would tax marijuana by the ounce, rather than by the sales tax method. This issue divided Murphy and state Senate President Stephen Sweeney.
The final bill would also address clearing marijuana convictions from criminal records — expungements. That’s a key component to the effort to legalize marijuana. Legislators have been crafting a new expungement bill. Another major sticking point was how the state’s new cannabis industry would be regulated. The tentative deal would put an independent commission in charge of most aspects. In recent weeks, Sweeney has publicly said Murphy, a fellow Democrat, has been reluctant to support this idea, so lawmakers agreed the governor could appoint three of the five members of the proposed Cannabis Regulatory Commission. (Both houses of the Democrat-controlled state Legislature — the Senate and Assembly — have to pass the bill before Murphy could sign it into law.)
Just a few weeks ago, the legal weed debate was locked in a stalemate, partly because of taxes. Sweeney had said he wouldn’t consider anything above a 12 percent sales tax, but Murphy was looking for a more significant number. This tax agreement helps on two fronts. First, since it’s a tax on weight, neither the governor nor the senate president had to cave on the sales tax rate. Second, the tax on weight hedges against drops in marijuana prices, which has happened in other states that have legalized. Murphy and legislative leaders were considering a tax on weight and that it could reignite marijuana talks in Trenton. Now it appears that making a deal on taxes was a priority for state leaders.
Here’s how it would work: A tax on weight protects against falling prices by keeping the tax the same regardless of cost. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it will stay the same whether the ounce cost $300 or $150 or even $50.
Under the excise tax method, consumers would pay a percentage of the sale in tax. At Sweeney’s proposed 12 percent, consumers would pay $36 in tax on a $300 ounce of cannabis. But if prices fall to $150 an ounce, the state’s only getting $18 in tax. With a sales tax, a drop in price, similar to what’s been seen in states like Colorado and Oregon, would significantly hurt the state’s tax revenue. The Colorado Department of Revenue reported last year that marijuana prices had fallen by about 70 percent since recreational sales began in 2014. That price drop hasn’t yet been reflected in the state’s revenue, but experts expect Colorado to start feeling the squeeze soon. Ounces of marijuana in Oregon is now selling for $50, way down from when the market became legal.
As our SP+GTM algorithm predicted in late 2017 and many times last year, that falling cannabis prices likely will put many players out of business, and cause significant damage to the states' revenue projects becasuse the excise tax method is outmoded.
New Jersey's approach echos what SP+GTM algorithm envisioned as "the best design for states revenue expectations and consumers ' preference for a "fair deal." A tax on weight protects against falling prices by keeping the tax the same regardless of price. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it will stay the same whether the ounce cost $300 or $150 or even $50. Under the excise tax, consumers would pay a percentage of the sale in tax. At Sweeney’s proposed 12 percent, consumers would pay $36 in tax on a $300 ounce of cannabis. But if prices fall to $150 an ounce, the state’s only getting $18 in tax.
With New Jersey on the precipice of legalizing recreational marijuana, 6 in 10 residents support making pot legal. Indeed, legalization will help the state’s economy and lead to a drop in other drug crimes has increased over the last year.
Support is most active among Democrats and younger residents. Seventy-two percent of Democrats and 61 percent of independents support legalization, but only 47 percent of Republicans do. Meanwhile, 81 percent of people age 18 to 34 back it, compared to 56 percent of people age 35 to 54 do, and 53 percent of people age 55 and
Among those who say this plan is good, 40 percent cite more tax revenue and a boosted economy as the main reason. Another 28 percent say prosecuting marijuana possession and jailing users is a waste of resources, 21 percent say marijuana is not harmful or at least not more harmful than alcohol, and 14 percent say there are medical benefits to using marijuana.
Among those who say the plan is terrible, 28 percent believe marijuana use is harmful or addictive, 21 percent cite a potential increase in car accidents and driving under its influence, and 9 percent see it as a gateway drug.
“A major reason for public support of the current proposal is the expectation it will boost tax revenues," Murray said. “The pressure is on, with nearby states also looking into legalization. New Jersey will need to stay ahead of the curve if it wants to maximize the expected economic benefits.”
Overall, 68 percent of New Jersey adults believe legalizing weed would boost the state’s economy — up from 60 percent last April. Only 11 percent feel it would hurt, while 16 percent say it would have no impact. Meanwhile, 29 percent legal pot would lead to an increase in other types of drug crime — which is similar to 32 percent from last year. But 32 percent say it would lead to a decrease in those offenses — up from 26 percent. And 74 percent support giving people who had been convicted of possessing small amounts of marijuana the chance for their records to be deleted, or cleared. Eighteen percent would be against this, even if New Jersey were to legalize pot.