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Gov. Phil Murphy and state legislative leaders have reached a deal in principle on how to tax and regulate marijuana in New Jersey after months of negotiations, paving the way to bringing legal weed to the Garden State.
Multiple legislative and industry sources confirmed an agreement was in place on a bill that would tax marijuana by the ounce, rather than the contentious sales tax that had divided Murphy and state Senate President Stephen Sweeney. Those sources requested anonymity because they weren’t authorized to speak publicly on the deal.
State Sen. Nicholas Scutari, D-Union, the prime sponsor of the legalization bill, refused to reveal any of the details of the negotiation. But he said they were as close as they had ever been in reaching an agreement.
“We don’t have a final deal,” Scutari told NJ Advance Media on Friday night. “There still are more details to be worked out, but the two sticking points (taxes and a commission regulating the industry), we are there. But we are not finalized.”
Sweeney, D-Gloucester, and a spokesman for Murphy declined comment. State Assembly Speaker Craig Coughlin, D-Middlesex, could not be reached for comment.
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.
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 that could be introduced as early as next week.
Once those agreements are in place, Murphy, Sweeney and Coughlin will have to start wrangling votes. Sweeney said in November that he wouldn’t post a legalization bill that he didn’t think could get the votes to pass.
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“We are counting on the governor to help us in the legislative process because we need help getting the votes,” Scutari added.
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 had seemed to be locked in 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 bigger 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.
NJ Advance Media reported last month that 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 price. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it would stay the same whether the ounce cost $300 or $150 or even $50.
Under the excise tax that was previously being discussed, 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 are now selling for $50, way down from when the market became legal.
Stanford University professor Keith Humphreys wrote in The Washington Post recently that dropping cannabis prices likely will put some entrepreneurs out of business, but added “the bigger financial hit will be felt by states that tax marijuana based on its price.”
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Payton Guion may be reached at PGuion@njadvancemedia.com. Follow him on Twitter @PaytonGuion. Find NJ.com on Facebook.
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