Pot prices could rise with tax increase

State cannabis regulators mull raising excise fee

By: Mike Davis
Asbury Park Press
USA today Network - new Jersey

TRENTON - How high is "too high"?
..... In the cannabis industry, the answer is usually, with a laugh, that there's no such thing.
..... It's a drug with little to no evidence of overdosing. In New Jersey, there's no limit on the number of businesses. In fact, there are almost as many cultivators, manufacturers and dispensaries as Starbucks. And form entrepreneurs to activists to public officials, stakeholders are often bullish on the future of cannabis, as if there's nowhere to go but up.
..... But when it comes to raising taxes on cannabis businesses, a different chorus rings out: slow down. Pump the breaks.
..... "It was written by people who aren't business people and implemented by people who aren't business people," said Todd Johnson, executive director of the New Jersey Cannabis Trade Association. "And it's going to hurt business people.
..... This is the conundrum facing the state cannabis regulators as they weigh the possibility of raising the Social Equity Excise Fee, or SEEF, on legal weed.
..... Cannabis business lobbyists, social justice advocates and even the regulators themselves are split on how high is "too high."
..... On Wednesday [10/30/2024] the New Jersey Cannabis Regulatory Commission was scheduled to vote on raising the excise fee from $1.24 per ounce to $30 per ounce, in accordance with state statute and the commission's own regulations. But those same regulations only say the commission "may" increase the fee. It's not a requirement.
..... Facing a November 1 [2024] deadline imposed by the commission's own regulations, regulators seemed split on what to do, even after a 2 1/2-hour closed door session.
..... Commission vice Persistent Samuel Delgado proposed a $5 per ounce rate, and commissioner Maria Del Cid-Kosso proposed a $10 rate.
..... There did not seem to be support for the $30-per-ounce rate, which Johnson estimated would lead to a 15% hike in consumer prices. In the end, commissioners voted to punt the issue: The same regulators requiring them to decide by November 1 [2024] also allow them to waive any potion of the statute.
..... "This will afford the commission more time to gather more information, to speak to more stakeholders and organizations who represent the businesses and people who will be directly impacted by this decision," commissioner Charles Barker said. "I think this decision stands to impact a lot of businesses, especially our small businesses that are just on-boarding."

Prices and taxes

..... The SEEF tax is levied on cultivators and then expected to be passed on to consumers, though some cultivators have instead absorbed the tax themselves in an effort to keep prices lower.
..... But neither is a great option, said Joshua Krane, executive general manager of Vineland Cultivator Garden Greens.
..... "Do I stay expensive and give up the market share that I just worked so hard to get? Or do I absorb it and take an immediate 10% hit to my revenue?" Lrane asked.
..... Johnson estimated that the jump from $1.24 to $30 per ounce would result in a 15% increase on customers at the point of sale, as most cultivators would be unable to absorb the cost themselves.
..... While the actual retail price of an ounce of legal wee puts the state among the most expensive in the country, customers also pay among the country's lowest cannabis taxes.
..... Cannabis is subject to three taxes: the state sales tax of 6.625%, a local user or transfer tax of 1% to 2% levied by municipalities on cannabis businesses within their borders, and the Social Equity Excise Fee. under state law, that fee fluctuates depending on the average price of cannabis, form as little as $10 if an ounce of cannabis cost $350 to as high as $60 as the price falls under $200.
..... The existing excise fee rate is a holdover from the initial rate imposed when cannabis sales began. A drastic jump is enough to devastate cultivators, as it costs more to operate and requires more capital to get off the ground than dispensaries, Johnson said.
..... "It hurts the independent cultivators way more than any other cohort of business in the supply chain," Johnson said. "None of them have been open for more than a year, and they still have investors to payback. Now you want to jump on them with this tax?"
..... Legislators drafted the unique excise fee framework to allow tax dollars to continue flowing even as the price every state after a few years.
..... It was an important part of the fight over legal weed in 2019 and 2020. the coalition that pushed to legalize marijuana in New Jersey championed the policy as a way to stop marijuana arrests, which disproportionately affect Black people, and provide a path for them to enter the legal market.
..... Under the state marijuana legalization laws, 70% of all tax revenue - including all Social Equity Excise Fee revenue - is to be dedicated for investments in "impact zones." Those are towns with 120,000 or more people or that meet a series of demographic and criminal justice measures, including high unemployment rates. crime index and rates of marijuana arrests before legalization.
..... But since the first adult sue legal weed sales bean in April 2022, the excise fee has generated just $5.2 million, including $613,225 in the second quarter of 2024, against $1.4 billion in adult sue cannabis sales.
..... During that time, the excise fee has never been higher than $1.52 per ounce, which was levied last year. [2023] Austin Edwards, senior policy counsel at the faith-based racial justice nonprofit Salvation and Social Justice, encouraged the commission to raise the social equity tax as high as $60 per ounce.
..... "We won't repair the harm that was committed against Blacks in this state absent an intentional investment toward restorative and equity-building wealth programs," Edwards said.

Dissension in the ranks

..... The decision over how much to tax legal weed has led to friction between activists who have largely been pulling in the same direction since 2018.
..... On one side are the social justice advocates, who have called on the Cannabis Regulatory Commission to "fully fund" the Social Equity Excise Fee, raising the tax to $30 per state statute. Failing to do so would set a dangerous precedent for future commissioners to "disregard the preparative goals of cannabis legalization," said American Civil Liberties Union of New Jersey campaign strategies Ami Kachalia.
..... "This has always been one of the most important pillars of the work, to ensure community reinvestment," Kachalia said. "My hope is that when the final decision is made, we will not be leaving millions of dollars on the table that should be invested back into black and Latinx communities."
..... But cannabis entrepreneurs are against such a move.
..... "There's just not enough profit in their business model right now," Johnson said. "they don't have the kind of flexibility."
..... An increased social equity fee, even to $5 per ounce, would lead to price hikes that would send consumers in search of alternatives, such as the black market or neighborhood gas stations, bodegas and smoke shops selling intoxicating hemp products, Johnson said.
..... those hemp products are where cannabis entrepreneurs have focused their ire, especially in the fact of a higher tax. In September, [2024] Murphy singed a bill that would have effectively pulled intoxicating hemp products p such as delta-8 and THC seltzers - off shelves until the Cannabis regulatory Commission drew up rules and regulations for them. But a coalition of business filed suit over the law and in October, [2024] a federal judge tossed enough portions of the law that it left regulators and businesses scrambling for answers as to what, exactly, was legal.
..... On the day hemp products were due to be pulled from shelves, the commission announced that it would only be enforcing a new age restriction on the products.
..... Bill Caruso, a longtime cannabis lobbyist and legalization advocate, called on commissioners and activists alike to petition legislators to draft a new bill that would finally allow intoxicating hemp products to be sold - and taxed, like cannabis.
..... "If you want to raise money for the SEEF, go back to the Legislature and tell them to tax hemp the same way they've taxing cannabis," Caruso said. "Those folks want to be on shelves, too."

..... Contact Mike Davis at mdavis@gannettnj.com.

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