Op-Ed: Dispensary Density is Key to Getting Marijuana Legalization Right

Chris Beals | January 30, 2018 | Opinion
New Jersey lawmakers can learn from other states and establish smart regulations as they consider governor’s promise to legalize cannabis within his first 100 days

Chris Beals
The calendars came out and the clock began ticking the moment Phil Murphy was inaugurated governor of New Jersey on January 16. Murphy made a campaign promise to legalize marijuana within 100 days of being sworn in. So, for voters, the big questions shifted from if and when the Garden State will become a “marijuana state” to how. More importantly, will the new governor and the Legislature get it right?

With all the talk of what will come regarding legalization, it is important to note that a robust market for recreational cannabis already exists here. According to the federal government’s National Survey on Drug Use and Health, roughly 900,000 New Jerseyans — one out of ten residents — used cannabis in 2015. This current market is unregulated, untaxed, and serviced by illegal market operators; and attempts to police and regulate it cost New Jersey tens of millions of dollars every year. Moreover, the penalties for operating in the illegal market are largely borne by people of color, despite equal usage rates between different ethnic groups.

The passage of adult-use cannabis legislation is ultimately about transitioning the production, sale and consumption of marijuana from the illegal to the legal market. Equally important, it is also about structuring this nascent industry in a manner that meets public health and safety concerns, drives economic growth, creates good jobs, and generates tax revenue.

Economic impact

The economic impact of legal adult-use cannabis in the state is real and meaningful. According to a 2016 report by New Jersey Policy Perspective and the American Civil Liberties Union of New Jersey, a properly regulated cannabis industry will generate an estimated $1.2 billion in annual sales and $305.4 million in annual tax revenue. Assuming an industry employment-to-revenue ratio comparable to that in Colorado (where adult-use cannabis has been legal since 2012), New Jersey’s cannabis industry would directly employ more than 15,000 workers, and nearly 7,000 more through indirect and induced employment.

This is just the start. Additional job creation is possible if the state positions itself at the forefront of science and research in equipment and technology for use in the marijuana industry. The positive externalities that are generated in real estate and professional services translate to even more jobs. These are areas that New Jersey is uniquely poised to capitalize on, an opportunity to catapult the state as an industry leader both on the East Coast, nationally and even around the world.

New Jersey can and should learn from the experiences of other states. Colorado, Washington, and Oregon, for example, have all encountered stumbling blocks as they worked to establish functioning legal cannabis markets, and each continues to face lingering illegal market activity. New Jersey stands to benefit from the insights gained from their experiences.

To facilitate a smooth transition to the regulated market, the cannabis industry requires a policy framework that will enable it to compete with the illegal market on access, price and quality. It must also conversely encourage as many of the potential illegal operators as possible to enter the regulated system.

Illegal to legal

A poorly crafted and overly burdensome regulatory framework would severely undermine a smooth transition from the illegal to legal market. Lawmakers must get it right or risk undermining the legal market they hope to create, thus ensuring that New Jersey’s sizeable illegal market continues.

Travel clear across the country to the city of Seattle, Washington and you will see what can happen: Despite the passage of an adult-use ballot initiative in 2012, the illegal market still captures an estimated 50 percent to 60 percent of total cannabis sales.

Why? Take your pick: an overly high excise tax rate; out-of-state ownership restrictions which constricted access to equity and debt capital and forced out-of-state operators to open illegal shops; onerous advertising restrictions that force legal operators to run shops that look more like backroom speakeasies; or insufficient dispensary density.

New Jersey is at particular risk for being led down the wrong path when it comes to the latter. Several lawmakers have floated the idea of a cap as low as 100 on the number of licensed dispensaries in the state. That is a dangerous proposition, as there is a clear and compelling correlation between the number of licensed dispensaries and delivery services in a state, and the size of that state’s illegal market. Experience in other jurisdictions proves this: Denver and Boulder, Colorado, as well as Portland, Oregon, for example, have some of the highest dispensary densities in the country (more than one per 3,500 residents), with the lowest illegal market rates. Phoenix, Arizona has an exceptionally low density rate, and one of the largest illegal markets in the country. Allocating one dispensary per every 10,000 residents would deny oxygen to the illegal market and make real sense for New Jersey. We can innovate in this area as well: density can be met with a mix of “delivery only” retailers, operating from secure depot spaces, which would meet consumer demand while not overcrowding commercial corridors.

Lawmakers at every level must take these issues into consideration to get marijuana legalization done — and done right. States and localities that have wrestled with these challenges — both successfully and unsuccessfully — can provide an important blueprint for establishing a nation-leading, first-in-class policy framework. New Jersey must take advantage of that.