What are the potential revenue and costs of the three cannabis related bills that were approved by Senate and Assembly committees on Nov. 26?
The New Jersey Office of Legislative Services (OLS) provided the fiscal impact as part of statements released on each of the bills.
Here are the highlights from each statement:
S2703/A4497 (The New Jersey Cannabis Regulatory and Expungement Aid Modernization Act): Of the three bills, this one will have the biggest impact on both the expense and revenue sides.
Expenses: The biggest cost will be establishing a new regulatory body, the Cannabis Regulatory Commission and reimbursing local and county governments for police training costs.
The commission “is expected to increase State expenditures at the onset of the bill’s implementation by an indeterminate amount and will require funding each year during which the commission is in operation.” Funds will be needed to support its operations, including the development, regulation, reporting, and enforcement and tracking of activities associated with personal use of cannabis.
The commission is composed of five, full-time members. The chair of the commission is to receive a salary not in excess of $141,000 annually; and the other four members are to receive a salary not to exceed $125,000 annually. The combined salaries would be $641,000 annually if each member is paid the maximum statutory amount (not including fringe benefits). In addition, an executive director position ($125,000) and a separate director for the Office of Minority, Disabled Veterans, and Women Cannabis Business Development (not to exceed $125,000). Other employees may be needed as well. The OLS cannot predict the future personnel management process of the commission, and is unable to provide an accurate personnel cost projection.
The commission may require the state to purchase or lease property and to purchase the necessary furnishings for such property.
The commission may require an “annual appropriation by the Legislature until the revenues generated pursuant to the provisions of this bill allow for the commission to be self-sufficient.”
Revenue: The majority will come from the imposition of a sales tax and a new tax on recreational cannabis items. Municipalities, will benefit from the authorization to impose a local tax on receipts from the sale of cannabis and cannabis products between cannabis licensees and to retail customers.
The bill imposes the existing 6.625 percent sales tax and a new 5.375 percent tax on the retail sale of cannabis items by a cannabis retailer.
According to the Colorado Department of Revenue, retail cannabis sales, excluding medical cannabis, totaled $1.091 billion in calendar year 2017. Based on the most recent U.S. Census data, Colorado is estimated to have a population of roughly 5.607 million people. In comparison, New Jersey’s population is projected at 9.006 million people. Using Colorado retail cannabis sales data and Colorado population data, the OLS calculated the per person annual expenditure on retail cannabis to be approximately $194.61. If New Jersey experiences similar sales of recreational cannabis as Colorado, total retail cannabis sales for New Jersey could be approximately $1.753 billion. Applying the sales tax (6.625 percent) and new tax (5.375 percent) yields aggregate revenues of approximately $210.3 million annually.
The OLS did “caution that revenues will be significantly lower during the initial years of implementation.” For example, retail cannabis sales in Colorado during the first year (2014) of legalization totaled $303.2 million, 27.8 percent of total sales in 2017.
The state may benefit from out-of-state persons traveling to New Jersey to purchase recreational cannabis since neighboring states have not legalized recreational cannabis.
OLS also concludes that the legalization of recreational cannabis may lead to increased employment opportunities for New Jerseyans. As these new businesses are established, existing state taxes, such as the corporation business tax and the gross income tax, and local taxes, such as the property tax, could realize indirect growth as a result of this expansion.
S10/2426/A10/A3470/A3473 (Jake Honig Compassionate Use Medical Cannabis Act): Long-term, there will be a decrease in state sales tax revenue, “as the bill ultimately phases out imposition of the sales tax on the sale of medicinal cannabis.”
There will be accounting differences as the costs of the Medicinal Cannabis program shift from the Department of Health to the to-be-created Cannabis Regulatory Commission. The new commission “will incur indeterminate additional administrative expenses, beyond the existing DOH costs, due to the expansion of the program under the bill. It is unclear whether revenue generated under the program will offset a portion, or potentially all, of these expenses.”
For Fiscal Year 2018, the Department of Health spent approximately $2.4 million, of which $857,000 was appropriated from the General Fund and the remainder was generated from program revenues, to administer the program.
The expansion of the program under the provisions of the bill should increase the number of patients and caregivers – and the amount of registration fees collected. That revenue total will be limited since the fees were cut in half this year and more patients are eligible for discounted fees.
There is potential for more revenue from permit fee collections as more licenses are issued for medical marijuana businesses. “Assuming the CRC issues 10 permits in the first year following implementation, and the current $20,000 application fee is maintained, State revenue would increase by $200,000. The OLS cannot determine how and by what standard subsequent permit applications will be requested and issued by the CRC. It is likely, however, that demand for medical cannabis will fluctuate from year to year and ultimately plateau, and that this revenue will not be maintained annually.”
S3205/A4498 (expungement bill): OLS estimates that “the Judiciary would likely incur indeterminate costs to process additional expungement petitions.” Those costs will arise from an expected increase in requests, the need to make modifications to its automated systems in order to accommodate the bill’s provisions. OLS notes “that the bill provides for expungement of certain records without the need for a petition to be filed, which will reduce the workload of the Judiciary to an indeterminate extent. The net impact of these changes on costs of administering expungements is unclear.”
There could also be a decrease in revenue from the elimination of expungement petition filing fees – in 2017, $630,000 was collected for all expungement filing fees.
The Department of Law and Public Safety and local law enforcement agencies will also experience a workload increase to perform their respective roles in reviewing expungement petitions submitted and may incur additional expenditures, indeterminate in amount, as a result.