What weed paid for: What are NJ towns doing with marijuana taxes?

LAWRENCE — It seemed too good to be true.

Lawrence Township Manager Kevin Nerwinski didn't believe the numbers he was seeing. Verano Holdings wanted approval to open up its Zen Leaf medical marijuana dispensary in the town to recreational customers, selling legal weed to anyone over 21 years old. The company expected millions in revenue per month and, with a 2% transfer tax on every sale, a huge windfall for the township.

In the first year or two, Verano told Nerwinski that the township could see as much as $1 million in tax revenue.

"The numbers seemed eye-popping," Nerwinski said. "And then, on Day One, there were lines around the building. And it continued for weeks and weeks and weeks."

As the New Jersey cannabis industry enters its second year of recreational marijuana sales, municipalities are beginning to reap the tax benefits promised to officials when they signed up to become first in line. While the revenues are not budget saviors for any and likely will decrease with time and competition, town officials say it’s driving real impact.

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More than $4.6 million was collected in cannabis tax revenue in 10 of the 12 municipalities where adult-use sales began in April 2022, according to a USA TODAY NETWORK analysis of municipal budgets and interviews with municipal officials. The impact in those municipalities is varied, often depending on the size of the municipality: In small towns, cannabis tax revenue can pay for new firefighters. In bigger cities, it's simply a way of keeping costs down.

Complete tax figures were not available in three municipalities — Deptford, Egg Harbor and Paterson, where cannabis tax revenue wasn’t listed as a budget line item and municipal officials did not return multiple requests for clarification and comment.

"It's about trying to maintain a stable tax base, particularly when the cost of everything is going up," said Mike Cerra, executive director of the New Jersey League of Municipalities. "A lot of towns want to reinvest any excess revenue into their community, in terms of upgrades and infrastructure, creating more sufficient parking, making their downtowns more walkable."

Municipal officials in towns with cannabis businesses are happy to take the extra revenue, even if it's not a jackpot, Cerra said.

"I don't think anyone went into this thinking it would be a game-changer," Cerra said. "But 2% sure is better than 0%."

There are currently 35 dispensaries selling cannabis to recreational customers. Though recreational marijuana sales are now occurring in dozens of other municipalities, the Network only analyzed those municipalities where sales began on April 21, 2022, the day New Jersey officially opened its adult-use cannabis market.

According to the New Jersey Cannabis Regulatory Commission, the state itself only collected about $20.1 million in cannabis taxes last year. The state levies two taxes on cannabis — the standard 6.625% sales tax and a social equity excise fee, which is levied on cannabis cultivators and wholesalers but earmarked for disbursement to communities most impacted by the War on Drugs.

On average, municipalities analyzed by the Network collected about $465,000 in cannabis tax revenue last year, but the range goes from about $191,000 in Monroe Township in Gloucester County, from a Botanist dispensary in the Williamstown area, to more than $1 million in Bellmawr in Camden County, home of a Curaleaf dispensary.

But just how far that cannabis tax revenue will stretch is almost directly linked to the size of a municipality or, at least, its annual budget.

Bloomfield officials are anticipating $483,250 from the local RISE dispensary this year — only about 0.5% of its $99 million budget and 0.8% of its $64 million tax levy.

But in Rochelle Park, the anticipated $480,000 collected from its Ascend dispensary accounts for more than 3% of its $14.8 million budget and nearly 5% of its $10 million tax levy.

"It's been helpful in keeping taxes low, in offsetting costs. And there hasn't been a strain on any of our services," Rochelle Park administrator Dean Pinto said. "The revenue has remained constant. It's been pretty impactful, more than we thought it would be."

The clearest success story is Bellmawr, a small borough of less than 12,000 people where Curaleaf opened its first New Jersey medical marijuana dispensary in October 2015. When it began adult-use sales last year, municipal officials expected a boom, inserting a line item anticipating $659,000 in tax revenue into its 2022 budget.

But when the dust settled, the tax revenue blew past those projections and eventually topped $1 million – about 6% of the municipal budget and nearly 11% of its tax levy.

The cannabis cash went a long way, Bellmawr Mayor Charles Sauter III said. The borough used the cannabis tax revenue to create a stipend program for volunteer firefighters, encouraging more sign-ups, and to increase salaries for its EMS department. The borough spent more than double its 2022 figures on salaries and wages for firefighters, according to budget documents, and nearly $150,000 more on EMS salaries.

There are similar stories across New Jersey. In Rochelle Park, cannabis taxes totaled nearly $550,000, four times what the township collected in municipal court fines in 2022, according to the town's 2022 budget.

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“I don’t think I expected we’d be in the position we’re in now, but it’s what we hoped for,” Pinto said.

Lawrence Township budgeted $450,000 for cannabis taxes in 2023, the same as it collected in 2022. But Nerwinski said that estimate is conservative: The township expects to collect about $900,000 in cannabis taxes this year, about what Nerwinski expects the township to spend on trash collection.

"It's a game changer when you're annually struggling to put together a budget that limits tax increases but preserves services," Nerwinski said. "We look back at the decision to be one of the first municipalities to take this on, to do it in a meaningful way but in baby steps, and we're really happy we did it."

But municipal officials aren’t taking the new influx of cash for granted.

The New Jersey cannabis industry is still in its early stages, with the number of cannabis businesses already ballooning, from 12 dispensaries with recreational sales in April 2022 to 35 dispensaries as of July 2023. And there’s more on the way: To date, the New Jersey Cannabis Regulatory Commission has issued nearly 800 licenses to dispensary applicants.

The rapid expansion of the cannabis industry means competition – a win for consumers, turned off by some of the country’s most expensive cannabis prices (despite some of its lowest taxes), but a potential loss for municipalities expecting tax revenues.

While the New Jersey marijuana legalization laws give regulators the ability to increase the social equity fee to ensure tax dollars are flowing even when prices fall, there’s no such mechanism for the 2% transfer tax levied by municipalities.

Last April, the Zen Leaf store in Lawrence was the only dispensary selling adult-use cannabis in a 20-mile radius. Today, it's one of nine adult-use dispensaries — with a 10th on the way. Customers who might have traveled all the way to Lawrence may instead opt for Union Chill in Lambertville, Bloc Dispensary in Ewing or Curaleaf locations in Bordentown Township and Edgewater Park.

“Every year, there's going to be more retailers coming on board and we're going to see that revenue decrease," Nerwinski said. "So we're happy to have been one of the first to get the full fruits of cannabis retail."

In short: Cheaper weed means less tax dollars, and municipalities have to plan ahead. That means putting at least some of the cannabis revenue into surplus and not letting budget projections stray too far from actual realized dollars, Pinto said.“We can try to keep looking forward,” he said, “but we always have to keep in the back of our minds that this may not last forever.”

Mike Davis has spent the last decade covering New Jersey local news, marijuana legalization, transportation and a little bit of everything else. He's won a few awards that make his parents very proud. Contact him at mdavis@gannettnj.com or @byMikeDavis on Twitter.

This article originally appeared on Asbury Park Press: NJ legal weed: Here's what towns are using marijuana taxes for