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Action Required: Five Considerations for a Municipality Developing a Cannabis Strategy
March 18, 2021
Action Required: Five Considerations for a Municipality Developing a Cannabis Strategy
“We shall, by and by, want a world of hemp more for our own consumption.”
 – John Adams –

President Adams was two and a half centuries ahead of his time.  By now, most New Jersey residents are aware that on February 22, 2021, Governor Murphy signed three expansive pieces of legislation that create the framework for the sale and consumption of recreational cannabis in the State.  The new law generates a long list of action items that must be addressed by municipal governing bodies within specified time frames.  Failure to take the necessary steps could result in a municipality being forced to adopt a cannabis strategy it did not want, and could also result in costly litigation.  Below is a list of considerations for the State’s municipalities to be mindful of.

1) Every municipality must adopt an ordinance to permit or prohibit the various types of cannabis licenses created under the law.

There are six classes of cannabis licenses created under the law – (1) Cultivator (i.e. grower); (2) Manufacturer (i.e. processor); (3) Wholesaler; (4) Distributor; (5) Retailer; (6) Delivery Service.  A municipality may prohibit the operation of any one or more of the these classes, but it may not prohibit the delivery of cannabis items and related supplies within its borders.  To prohibit operation of any of these licenses, the municipality must pass an ordinance by August 21, 2021 (180 days after the effective date of the law), opting out of the particular regulated activity or activities.  Failure to opt out of any of the classes by that date will result in cultivators, manufacturers, wholesalers and distributors being permitted uses in all industrial zones of the municipality.  Additionally, failure to opt out of permitting the retail sale of cannabis will result in cannabis being a conditional use in all commercial or retail zones, subject to meeting the conditions set forth in any applicable zoning ordinance or receiving a variance from one or more of the conditions in accordance with the Municipal Land Use Law.  If a municipality fails to prohibit any of the license classes via ordinance by August 21, 2021, it will have to wait another five years to do so.

If a municipality previously passed an ordinance prohibiting any aspect of the sale of cannabis, it must now pass another ordinance – the previous ordinance is no longer valid.

The New Jersey League of Municipalities and the New Jersey Institute of Local Government Attorneys have created a model ordinance that the State’s municipalities may utilize to opt out of all license classes for now, to allow the municipality additional time to consider how to incorporate cannabis into their communities.  The model ordinance can be found at the following website:

2) The municipalities that “opt in” to cannabis can tax cannabis.

A municipality may adopt an ordinance imposing a transfer tax on the sale of cannabis or cannabis items.  A municipal tax may be imposed  in the following scenarios:

    1. Receipts from the sale of cannabis by a cannabis cultivator to another cultivator;
    2. Receipts from the sale of cannabis by one cannabis establishment to another cannabis establishment (“Cannabis establishment” is defined as a cannabis cultivator, manufacturer, wholesaler, or retailer);
    3. Receipts from the retail sales of cannabis by a cannabis retailer to consumers.

The municipality may impose up to a two percent tax on the sale of cannabis by cultivators, manufacturers and retailers, and up to a one percent tax on the sale of cannabis by wholesalers.  These percentages represent caps – the municipality may choose to impose a lesser tax, or no tax at all.

The revenues collected from the transfer tax must be remitted to the municipality’s chief financial officer in a manner prescribed by the municipality. And the municipality may enforce the payment of delinquent taxes in the same manner as provided for municipal real property taxes.

3) The enforcement of cannabis and alcohol laws has been modified drastically.

Effective immediately, an adult’s possession of cannabis is no longer a criminal offense.  However, the law also changes how law enforcement may investigate cannabis-related offenses, particularly with regard to minors, and even changes how law enforcement may interact with those minors suspected of possession of alcohol.  Additionally, the law requires municipal prosecutors to seek dismissal of any pending charges for certain cannabis-related offenses.

Municipalities must keep up-to-date with the guidance being issued by the State Attorney General’s ("A.G.") office in this regard.  The A.G. has issued directives and interim guidance and has published FAQs with answers to questions such as: What should an officer do if they smell marijuana coming from a vehicle during a motor vehicle stop?; Does the new law alter the use of an officer’s body worn camera (BWC) in any way?  This guidance can be found at the links below and is the best source for answers to questions on enforcement aspects of the new law:

    1. Directive No. 2021-1 -
    2. Interim Guidance -
    3. FAQs and Other Guidance -

One aspect of the law that has caused some consternation is its directive on how law enforcement officers may conduct themselves in situations involving minors in possession of cannabis or alcohol. Specifically, officers may not use the odor of cannabis to stop an individual who is under the age of 21 or to search the individual’s personal property or vehicle.  Also, officers may not arrest, detain, or otherwise take an individual under the age of 21 into custody for possessing cannabis or alcohol, except to the extent required to issue a written warning or provide notice of a violation to a parent/guardian. As originally adopted, officers were prohibited from notifying a parent/guardian if it was the minor’s first offense.  However, many across the State found this aspect of the law objectionable, and it has already been amended.  Officers are now required to contact a minor’s parent/guardian for first offense possession charges.  Again, municipal law enforcement agencies should continue to monitor the Attorney General’s guidance, as this is an evolving area of the law.

4) Employers, including the State’s municipalities, must amend their drug testing policies.

Under the law, no employer shall refuse to hire or employ any person, or take any adverse employment action against, any employee because that person uses cannabis.  An employee may not be subject to any adverse action solely due to the presence of cannabinoid metabolites in the employee’s bodily fluid from engaging in what is now considered permitted conduct.  However, an employer may require an employee to undergo a drug test upon reasonable suspicion of an employee’s usage of a cannabis item while engaged in the performance of the employee’s work responsibilities, or following a work-related accident subject to investigation by the employer. 

A drug test may also be done randomly, or as part of a pre-employment screening or regular screening of current employees, to determine use during an employee’s prescribed work hours.  The test used, however, must include a reliable and objective test method to determine the employee’s state of impairment.

This aspect of the law has also caused some debate, and legislation has been introduced that would, among other things, designate several professions for which a person must remain cannabis-free, such as employees at high-risk construction sites and law enforcement officers that carry firearms.  The State’s municipalities should continue to monitor amendments to the law.

5) The rules and regulations concerning cannabis will continue to evolve.

The law creates a new regulatory agency – the Cannabis Regulatory Commission ("CRC") – which will be issuing rules and regulations to round out some of the finer points of the new law, and will oversee the development, regulation and enforcement of cannabis activities.  The CRC will determine the number of licenses in each category and the procedure for obtaining licenses.  The rules and regulations should be implemented by Fall 2021.  Municipalities must keep abreast of the forthcoming regulatory framework, as they will be required to communicate with the CRC as they begin to receive applications for the various licenses. 

The legalization of cannabis will continue to generate important questions.  Parker McCay’s municipal government and land use team will continue to closely follow modifications to the law and is available assist with municipal compliance and drafting the necessary ordinances.

The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion.  You should consult a lawyer concerning your specific situation and any specific legal question you may have.

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