ISSUESWATCH PODCAST

Cannabis in New Jersey: What CPAs and Advisors Need to Know

August 17, 2021

What’s the latest on New Jersey’s cannabis regulations — and what do CPAs need to know to serve clients in the industry? A panel of experts weighs in.


Episode Transcript

Jeff Kaszerman: Hi, I'm Jeff Kaszerman, vice president of government relations at the New Jersey Society of CPAs. On Aug. 5, the NJCPA held its first Cannabis Conference, which provided updates on the adult-use cannabis industry and must know information for CPAs looking to serve cannabis clients in any part of the supply chain. While much of the guidance was applicable to cannabis businesses in any state, there was one session that focused specifically on New Jersey. I'd like to share some excerpts from that session with you today. The session was moderated by Jelani Gibson, assistant editor and content lead at NJ Cannabis Insider, the sponsor of the session. The panelists included Jennifer Cabrera, counsel at Vicente Sederberg’s New York, and New Jersey offices where she focuses on licensing and regulatory matters. We also had Ed DeVeaux, president of the NJ CannaBusiness Association. Rounding out our panel was Janice Kovach, mayor of Clinton and president of the New Jersey State League of Municipalities.

Decoupling New Jersey from IRC 280E

To kick this session off, Melissa Dardani, leader of the NJCPA Cannabis Interest Group, provided an update on legislation the NJCPA is strongly advocating for to provide a level tax playing field for cannabis businesses in New Jersey. Our Cannabis Interest Group wrote this legislation.

Melissa Dardani: The financial burden imposed by Internal Revenue Code Section 280E is founded on the basis of an outdated classification of cannabis under the Controlled Substances Act and can cause operations to be financially unfeasible, particularly in the startup years for non-producing retail establishments. The NJCPA supports the legislation, S3240, introduced by Senator Troy Singleton that decouples New Jersey from federal 280E for taxpayers with less than $15 million in gross receipts. The bill as written looks to the constructive ownership rules under Internal Revenue Code Section 448C to attempt to isolate the benefit under the bill, the proposed bill, to New Jersey startup enterprises.

I'm optimistic that the federal landscape will change in the near future under the Biden administration in order to provide relief to the industry as a whole. If this is not yet in the cards for us as a nation, then S3240 will really help level the playing field for small businesses, who have not had the benefit of early industry participation like the existing multi-state operators and will aid New Jersey-based businesses whose economic interests are aligned with those of other New Jersey residents. We will continue to monitor the progress of this bill and keep you all, and keep our members apprised of any updates as they come about.

What Does a Successful Cannabis Industry Look Like in New Jersey?

Jeff Kaszerman: We will definitely provide updates on this bill as it moves through the legislative process. We thank Melissa for all of her hard work on this issue. Moving into the panel presentation, Jelani kicked things off with a discussion about what's needed for a functioning and flourishing cannabis industry in New Jersey.

Jelani Gibson: Let's start with a more general question that I think is going to be very specific based on everybody's experience here. We can start with Mayor Kovach, Jennifer and then Ed. What exactly does a functioning New Jersey cannabis market look like to you?

Mayor Kovach: I think it's really going to depend on whether we're looking at the large multi-state operators or some of the micro licenses that may be out there, or some sort of a combination of the two. It's exciting because it is a new industry and it's something that coming to New Jersey, we're a little late to the game based on where other states are. What I'm hoping is that we get it right. We take the time to do what needs to be done and address everyone's concerns, everyone's issue so that it is an industry that can be fully integrated into whichever community they decide to move into.

Jennifer Cabrera: Thanks for the question, Jelani. I think what New Jersey should aim for is, number one, having enough supply to meet the demands of the market. Right now, there's not nearly enough supply to meet the demands of the medical market, let alone adult use. I think, number two, having enough of a robust system that allows new players to come and small businesses to open so that it's not just out-of-state money coming in. Also, that has enough local operators that can withstand federal change.

Edmund DeVeaux: What does the industry look like? Speaking as the state's cannabis chamber of commerce, two things: One is I think that the businesses, whether it's retail or commercial, meaning cultivation or processing, becomes part of the fabric of the community that they're in. If you're in retail, you could be walking down main street, and if you pass by a restaurant, you can either go in that restaurant or walk by it. You'll see a candle store. You can either walk in or walk by it. As an adult, you're going to walk by a dispensary. You can either walk in or pass by it. You won't think twice about it because it will be part of the fabric of the community that it's in.

The other aspect of the commercial side of things, to Mayor Kovach's point, we want to be able to see not just the high end, but we do want to see those businesses that are mom and pop, if you will. Most businesses around the country are mid- to small-sized businesses. I think the cannabis industry should be in the same boat. Yes, there's room for the large, multi-state operators, but at the same time, we've got to make room for the bodegas, if you will. There's got to be room for the mom and pop operations because that's what's going to carry the day. Those are the people that are going to make sure that the local economies are taken care of, that employment remains very much local and that the state and local communities are taken care of. That's how I see the growth of the industry and what a successful cannabis industry in New Jersey looks like.

Legislation and Regulations

Jeff Kaszerman: Next, Jelani focused on pending legislation at both of the New Jersey and national levels.

Jelani Gibson: Ed, you've been pretty vocal as always about some improvements in the legislation that still needs to be made in terms of actually making that vision possible. Go ahead and take us through some of that.

Edmund DeVeaux: Sure, Jelani. There have been any number of bills that have been passed or introduced that affect the cannabis economy. Well, first I'll start with the enabling legislation. There is no such thing as perfect policy. When you introduce legislation, it's a combination of catering to all sides. I think that the enabling legislation did a good job of catering to many of the concerns that were out there, regardless of community, regardless of political affiliation. What I was concerned with in later days, let's take number one. First, I do support Senator Singleton's bill that decouples smaller businesses from 280E. I think that's brilliant, but I did have some real concerns about the bill that he sponsored and did get passed that allowed multi-state operators to invest in smaller businesses. We were talking about investment of a pretty significant size. For me, when you look at these small businesses, they're going to jump at the access to capital, which is always a concern. We always have to make sure that we don't turn this into a vulture capitalism, that the loans that are going to the smaller businesses in the cannabis industry, in particular, minority women and disabled veteran-owned businesses that not only are they taking out a loan.

Trust me, one of my biggest pet peeves was that people that were supporting that bill refuse to use the term loan. They would always talk about a fund and they kept talking about a fund and half an hour later after being pushed, they would say, "Yeah, it's a loan." Not only do we have this loan scheme setup where you borrow the money, but you got to pay the money back. What could start off as a 15-year mortgage could balloon to a 30-year mortgage, if you're not that successful. The other aspect of that business or that legislation was that it also gave you equity. Not only were you loaning the money, getting money paid back with interest, but then you got equity, equity share into that minority business. Yes, I was really concerned about that.

With that, I have had conversations with the Governor's office. The authorities unit is working with our Cannabis Regulatory Commission. We're talking about creating public access to funds. I know that the Governor's notion of a state bank was very well-received and the cannabis industry should very much have been part of that discussion. We do need to create other opportunities for capital without risking that small business.

Jelani Gibson: Next up is Jennifer. Besides tax reform, what are some other local and national laws Vicente Sederberg is keeping your eyes on?

Jennifer Cabrera: That's a tough one because it's a whole long list of potential new laws. Tax reform would be great. I think that's probably the single most helpful change that could come for business operators. I think a lot of landlords and vendors think when they're dealing with a cannabis company that they're dealing with someone flushed with money, basically a license to print money and it's not the case, so much gets paid in taxes. Well, let's put that to the side.

Other issues that we're looking at, I would say at the local level in New Jersey: The cleanup bill allowing homegrown. I think we'd all really like to see that pass. I would like the cleanup bill to allow economic incentives. Right now, the law A21 excludes anyone from getting legal economic incentives from the state including under the Farmland Assessment Act, so that really restricts your ability to do outdoor cultivation, or if you're a farmer. Beyond that also, you're not able to participate if you are in an urban enterprise. These are state economic incentives that are really trying to help people. Now you're saying no, they can't participate in cannabis. It doesn't seem right.

Bigger picture, nationally, the big news is that that Senators Schumer, Wyden and Booker have put forth their proposal for federal legalization. Obviously, tracking that really closely. It would change the industry dramatically. One of the biggest issues with federal legalization is what effect it has on interstate commerce. The Schumer, Wyden, Booker legislation doesn't address it. It's silent and it asks for public comment. The fact is that a state like New Jersey could really be hurt by just the opening of state borders and the removal of any state protectionism that would come with that. Why would you make a massive infrastructure investment in cultivation manufacturing in a very small state when a few years down the line, you can just import it from Oregon. These are issues that need to come, but they can be handled more sensitively. It's interesting to see how it all plays out. Those are issues we're tracking closely.

New Jersey Towns

Jeff Kaszerman: With the Aug. 21 deadline looming for New Jersey towns to opt out of cannabis operations, Jelani turns to Mayor Kovach.

Jelani Gibson: I'm pretty sure everybody is wondering what is on the League of Municipalities mind as the deadline approaches?

Mayor Kovach: That's a good question. New Jersey has got 565 municipalities and each one has its own opinion on where they're going and what they're doing. I think the overall approach is we're here to support all the municipalities, whether they decide to opt in or opt out. I try to make sure that as I'm having conversations or I'm talking about it, we're not taking a position either way. You've got so many different opinions about where it's going. I think from my personal perspective, it is waiting to see what the regulations are going to look like. There's a lot of things that are up in the air, especially around zoning. This is a new industry and it's not a matter of being afraid of the industry.

Making sure that we have the ability to put it in locations in our communities where it's appropriate. That's where the League has taken that position, we're there to support whatever the municipality wants to do. An opt out doesn't mean an opt out forever. It's an opt out, "Let's see what the rules look like, so that when we opt in, we opt in with all of the information." Now the legislation is great, but it doesn't address some of the concerns that we've raised as municipalities.

Jelani Gibson: What are some tips you would give for businesses, accountants, lawyers, lobbyists, people who are engaging with municipalities on trying to get cannabis into town? What advice would you give them?

Mayor Kovach: Definitely know the town or the community that you want to go into. Understand the makeup, understand the existing business environment, and understand how the voters actually voted on the question. I think that is another key piece. While we know overall the state passed it overwhelmingly, there are communities that did not have it as overwhelming. Get to the local elected officials. Get their buy-in, get the community buy-in, so that it is a partnership right from the beginning.

Ultimately, you think about it, and this isn't unique to the cannabis industry. There's a lot of the, "Not in my backyard." People don't want things built in the backyards of their communities. They purchase their homes next to a piece of vacant land or to an empty storefront and expect it's going to stay empty. Then, all of a sudden, someone comes in. Do the homework and get to know and understand the concerns that get raised. Don't dismiss because those residents will come out and be vocal in their opinions. When it's a partnership, it goes much smoother and there's a willingness to work together.

Setting the Tone in New Jersey

Jeff Kaszerman: Next, Jelani asked the panelists what tone New Jersey should set within the bigger context of cannabis legalization around the country.

Mayor Kovach: New Jersey is unique in so many ways and the fact that we're a home rule state gives us some uniqueness. I think it's that openness, it's the fact that we voted overwhelmingly overall to legalize. Showing others that this isn't about being afraid of the industry. The fact that we are open to it, but we want to get it done right. We want to make sure the operators that we're dealing with are good community partners. From the local perspective, I think that's the best practice that we can share that we're open, we're willing. We make it about working together and not an “us versus them.”

Jennifer Cabrera: I would agree with that. I think that one thing, New Jersey is many things, one thing about the people here is we hustle. You have to fight to survive in this state. If you are going into this, we're scrappy and we work, it sounds cliche but I honestly think there's attitude that's been infused in the state.

One difference I see between New Jersey and Massachusetts is in Massachusetts, there was a puritanical aversion to cannabis as just like, "No, no, that's something bad. I don't approve of it." New Jersey doesn't have that culture in the same way. I think maybe because we're not part of New England. I think there's much more of a “live and let live” attitude. If you can make your business work, go for it. There's definitely the notion of, "I don't want it right next to me." If you can make it nice, I think people come along. I think that goes also to what Mayor Kovach was saying about winning over your community, which is so true. If you have neighbors, you win them over because otherwise they will make your life miserable. It's figuring out how do you ingratiate yourself to the people you're going to be around and how do you work with them.

Edmund DeVeaux: Jennifer, I think I love it. That was so spot on, because I like to say in New Jersey politics is a contact sport. You were so on top of it and that's why one of the areas that I think that we can lead in the nation is the fact that we are part of a regional economy. I think that what we show the rest of the nation is how we operate and successfully so in a tri-state region. Whether it's New York, New Jersey, Pennsylvania, or Connecticut. As I've always said that people ask in particular, how will New Jersey survive? Well look, Connecticut has passed legislation, New York has passed, although, they're struggling a little bit more these days about getting it done, but we have always had a regional economy, whether it's sports and entertainment, whether it's dining, whether it's the casino industry. We've always been part of a regional economy. I think what New Jersey has to offer is this success in a new industry, the cannabis industry in a regional setting. I think that we're well poised to do that. Not only are we leading the way with the establishment of our CRC, of the quality of our CRC and our ability to introduce and get legislation passed almost that will, I think that we are a very much a regional player and we can show the rest of the nation how we do it right.

Licensing Requirements

Jeff Kaszerman: A question came in from the audience about whether there are any free, easy-to-understand cheat sheets for licensing requirements in New Jersey.

Mayor Kovach: We're in New Jersey. Well, everything is condensed, I don't know about the easy. I know the League of Municipalities has some information that we put out on our website. It's all relative when you're dealing with licensing in New Jersey. I think any one of our organizations would probably have something up that's at least condensed.

Jennifer Cabrera: I'd say most law firms have some sort of summary of the law and what we know today that they can give you, if you pay them.

Jelani Gibson: Ed, you're the lone ranger here. Is there any free resource that NJCBA is putting together?

Edmund DeVeaux: We don't have anything as of yet with respect to, especially, we have to be careful between what the law says and the licensing requirements will be. I have seen in the chat feature that people are asking, "Well, how do I get a license or what do I do for this?" A lot of that is still pending. Many of the questions with respect to “how do you get it” is still part of what the CRC is in fact endeavoring to provide on Aug. 21. To jump ahead to the question “is the 21st the date” — again, our conversations with the Governor's office, our relationship is fantastic. August 21 is, in fact, a hard and fast date. Many of our questions with respect to licensing and how you get those licenses and the licensing process. What will be our phase or requests for applications look like are still pending?

Ongoing Questions

Jeff Kaszerman: We'll wrap things up with this question that Jelani posed to the panelists.

Jelani Gibson: Can all of you tell me the top question on your mind? The top question on your mind as all of this plays out. Let's go ahead and start with Jennifer.

Jennifer Cabrera: Will there be adult-use licenses? Will there be adult-use license applications available in September or October? That is my top question. Are they going to take that down the road?

Mayor Kovach: What are the 2019 medical licenses can be identified? I think that for a lot of us is the next question, and then we can look at the adult use, but what does the 2019 licensing look like?

Edmund DeVeaux: I would ask if we will, in fact, have another medical round. I think we've all heard of the shortage of supply and quality of supply in some cases. We've never ever talked about how we and rightly so and a good thing. We are not disbanding or abandoning the medical community, the patient community. That's how we got here. We always want to keep them at the forefront. My question is, will we have another medical round before we do anything else?

Closing

Jeff Kaszerman: Certainly, it's going to be interesting to see how the regulations roll out in New Jersey. CPA should continue to stay up-to-date and consider providing services to the cannabis industry. One way to do this is by joining the NJCPA Cannabis Interest Group. Visit njcpa.org/groups to do that.

Again, we thank NJ Cannabis Insider for sponsoring and hosting this session. To learn more about NJ Cannabis Insider, visit njcannabisinsider.nj.com. To learn more about the NJ CannaBusiness Association, visit newjerseycannabusiness.com.

We'll be back next week with a new A&A episode with Brad Muniz. In two weeks, tune in for my interview with Patrick Murray, who is the director of Rhe Polling Institute at Monmouth University. We'll be talking about how modern polling is conducted and what polls in New Jersey and the nation reveal about public opinion.

 


Edmund  DeVeaux

Edmund DeVeaux

Edmund DeVeaux is the president of the New Jersey CannaBusiness Association. A Rutgers University graduate and a commissioned officer in the Army, Ed began his professional career in New Jersey state government and worked as a capital budget analyst in the New Jersey Department of the Treasury – Office of Management and Budget. He also served as the aide to the mayor of New Brunswick and as special assistant to U.S. Sen. Bill Bradley. An accomplished executive, Ed currently is a part of Burton Trent Public Affairs. His corporate career includes leadership roles with the country’s largest multinational water-related service and environmental companies.
Janice  Kovach

Janice Kovach

Janice Kovach currently serves as mayor of Clinton, New Jersey, and the president of the New Jersey League of Municipalities. She has also served as the director of the New Jersey Division on Women, a position appointed by the Governor. Mayor Kovach attended Thomas Edison State College where she earned a degree in business administration.
Jeffrey  Kaszerman

Jeffrey Kaszerman

Jeff Kaszerman is the vice president of government relations for New Jersey Society of CPAs. He works with the CEO and board of trustees to create and implement advocacy initiatives that protect and promote the interests of the CPA profession, the business community and the public.

More content by Jeffrey Kaszerman:

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Jelani  Gibson

Jelani Gibson

Jelani Gibson is the content lead for NJ Cannabis Insider. He is an experienced communications professional in the writing and public relations industry skilled in photography, journalism, social media and research.
Melissa A. Dardani

Melissa A. Dardani

Melissa Dardani, CPA, MAcc, is the founder and managing member of MD Advisory, a boutique forensic firm. She is the leader of the NJCPA Cannabis Interest Group and a member of the Student Loan Debt Task Force and the Emerging Leaders Council. She can be reached at melissa.dardani@mdas.cpa.

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