The tax rules in New Jersey’s new marijuana legalization law are the first of their kind. In addition to a retail ad valorem tax approved by the voters, the New Jersey law sets a rate schedule for a specific weight-based tax, with the tax rate going up as the retail price goes down:
(a) up to $10 per ounce, as established by the commission, if the average retail price of an ounce of usable cannabis was $350 or more;
(b) up to $30 per ounce, . . . if the average retail price of an ounce of usable cannabis was less than $350 but at least $250;
(c) up to $40 per ounce, . . . if the average retail price of an ounce of usable cannabis was less than $250 but at least $200;
(d) up to $60 per ounce, . . . if the average retail price of an ounce of usable cannabis was less than $250.
That approach has several advantages. First, it keeps after-tax prices steadier than any other approach enacted so far. That’s a major advance – leaving Canada, which up to now was considered here to have the state of the art cannabis tax scheme, stuck with a weight-based tax whose rate does not vary so nimbly.
Second, its “up to” language allows for lower rates for trim and less valuable products.
Third, its “up to” language allows for a commission to avoid discontinuities, that is, crazy cliffs or notches with wildly different tax rates when average prices move just above or below a threshold amount. It’s rare for a Legislature to delegate taxing authority with so much discretion: That “up to” language could allow the commission to fail to collect the maximum tax allowable for any reason. But there’s this “catch-up” provision that puts pressure on the commission to collect all it can: The commission is to recommend how to spend revenues collected, or “if the commission has not imposed or adjusted the excise fee in the current fiscal year, then appropriations to be made from the General Fund in an amount equal to the revenues that would have been collected had it imposed or adjusted the fee.”
The new weight-based tax is labeled a “Social Equity Excise Fee,” and all its proceeds are dedicated to social equity purposes.
And by the way, the weight-based tax comes in only after a nine-month tax holiday, when only a one-third of one percent ad valorem producer tax, allows producers to get up and running with a negligible tax. That’s another nod to how marijuana markets get going slowly as they battle illegal sellers.
Medical marijuana is exempt from the tax, but most U.S. states give it some tax break (Canada doesn’t).
https://www.njleg.state.nj.us/2020/Bills/A0500/21_R2.PDF, starting at page 162.