As New Jersey Marijuana Debate Drags On, New York Enters East Coast Race

(Bloomberg) -- One subway stop from Manhattan, two New Jersey cities stand to score big from recreational marijuana. But they may get scooped on sales as mayors push state lawmakers for more public-safety money and justice for residents with criminal pot records.

Legalization, which New Jersey Governor Phil Murphy wanted in 2018, has been mired in debates over taxation and how to erase existing marijuana-related convictions. Pressure to get a deal done has grown in recent weeks as the governors of New York and Pennsylvania called for legal pot, threatening New Jersey’s bid to be the first New York City-area state to offer sales.

As New Jersey Marijuana Debate Drags On, New York Enters East Coast Race

“We would be the economic engine for the state -- there’s no question -- but right now it’s not something I could support,” said Steve Fulop, Jersey City’s mayor and a former Wall Street trader.

While pot is already sold legally in five western U.S. states, the industry is eager for a market on the heavily populated East Coast. Massachusetts opened marijuana shops in November, and Vermont and Maine are hammering out taxation and regulation issues before legal sales begin. None of those states, though, has the New York area’s residential density and vast year-round tourism.

Pot Push

In October, publicly traded MariMed Inc. of Norwood, Massachusetts, acquired New Jersey-based BSC Group, a fellow cannabis consultant, with an eye toward operating in BSC’s home-state market, according to a MariMed press release. Two other public companies, Curaleaf and Acreage Holdings, have interests in South Jersey medical-marijuana dispensaries.

As New Jersey Marijuana Debate Drags On, New York Enters East Coast Race

Murphy, a Democrat who took office last January, added qualifying health conditions for medical treatment and doubled the number of dispensary permits. On recreational use, though, he and the Democratic-controlled legislature disagree on taxation and other issues. Pot will be among the topics discussed this week during a planned meeting of the governor, Assembly Speaker Craig Coughlin and Senate President Steve Sweeney.

Left hanging are Hoboken and Jersey City, the once-gritty Hudson River outposts whose multimillion-dollar brownstones and luxury condominiums lure buyers from Manhattan. Set in New Jersey’s most dense residential region and linked by mass transit to New York, they stand to gain more than most places from new pot-related jobs, store rents and tax revenue.

“New Jersey needs every dollar it can find -- there aren’t that many brand-new sources of revenue,” said Peter Barsoom, chief executive officer of Colorado-based 1906 Edibles, which makes pot-infused chocolate. A Jersey City native, he plans to grow medicinal pot at a property he owns near Liberty State Park in his hometown, then delve into recreational if it’s approved.

New Jersey Policy Perspective, a Trenton-based group that analyzes government spending, calculated a $300 million annual revenue stream for the state if pot were taxed at 25 percent, as Murphy wants. Last year, as New Jersey was facing a $3 billion budget gap, a study by Roseland law firm Brach Eichler figured a $1 billion take just on initial licensing, franchising and other fees.

As New Jersey Marijuana Debate Drags On, New York Enters East Coast Race

For the fiscal year that started July 1, Murphy was counting on $60 million in pot revenue. The governor and legislative leaders, though, disagreed on a tax rate, and some lawmakers didn’t want to sanction a federally outlawed drug or sought broader rules on erasing convictions.

With some tweaks -- including a 12 percent tax, less than half what Murphy wanted, plus 2 percent for the towns -- the bill appeared to be heading to the Senate and Assembly on Dec. 17. Instead, it never reached the floor.

“The high tax rate is going to keep the black market thriving and very healthy, and we don’t want that,” said Sweeney. “I started at 10 percent and went to 12 percent to compromise. I’m not going above that.”

The delay was a relief to Hoboken Mayor Ravinder Bhalla, who with Fulop and Newark Mayor Ras Baraka has pushed for a 5 percent excise tax for municipalities. Bhalla doesn’t want Hoboken to become a hard-partying pot destination after cracking down in recent years on holiday bar crawls organized by party promoters.

“Municipalities will bear the financial burden of the deregulation,” Bhalla said. “We should be provided with adequate resources to bear that burden.”

Who’s Next

New York Governor Andrew Cuomo, a Democrat, said in December he wanted to legalize pot sales in the first 90 days of 2019. Murphy says that’s of no concern.

“What New York does has no bearing on what we’re going to do in New Jersey,” Murphy said at a Dec. 19 news conference in Newark. “Our job is to do it right.”

Neither Jersey City nor Hoboken has projected marijuana revenues and they’re just starting to consider zoning and other matters. And it’s key, their mayors said, that people convicted of some marijuana crimes have chances to clear their records and work in the industry.

As early as 1995, the U.S. Bureau of Justice Statistics found that blacks made up a disproportionate number of drug arrests. In New Jersey, blacks were arrested for marijuana possession at a rate at least three times higher than whites, according to an analysis of 2000-2013 data by the state chapter of the American Civil Liberties Union.

Criminal Records

One bill would require an expungement process, end prosecutions of low-level possession cases and allow for the release of those jailed for possessing 1 ounce (28 grams) of pot.

Barsoom, the Colorado pot entrepreneur, said he preferred New Jersey’s slow approach to recreational use -- particularly the social-justice component -- rather than a rush to be first in the region. On medical marijuana, he said, the state was wise to limit dispensary licenses.

“In Colorado, we have more dispensaries than McDonald’s and Starbucks,” he said. “It actually means businesses can’t deliver the best possible experience. They’re couponing and cutting prices, and they can’t invest in creating a much better education and experience for consumers.”

Sweeney, the Senate president, said he didn’t know when a legalization bill might get a vote. Even with Murphy’s approval, sales would be delayed for about a year while regulations are finalized.

Meanwhile, Fulop said Jersey City officials were approached by 50 or 60 potential medical-marijuana distributors eager for a license endorsement, and he suspects that interest in recreational use will be far greater. Bhalla, the Hoboken mayor, said potential retailers are circling.

“Dozens of entities have requested meetings with my office to pitch proposals,” Bhalla said. “These are, at this point, nothing more than conversations.”

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