Although New Jersey just doubled its weight-based tax on licensed adult-use cannabis cultivators on Jan. 1, Gov. Phil Murphy is now proposing that state regulators jack up the rate an additional 500%—from $40 per pound to $240 per pound.
The New Jersey Cannabis Regulatory Commission (CRC) board members voted last year to increase the tax, the Social Equity Excise Fee (SEEF), from $1.24 to $2.50 per ounce (or $40 per pound) at the start of 2025. This tax is not imposed on medical cannabis cultivators.
In his Fiscal Year 2026 budget that was released last week, Murphy called on regulators to raise the rate to $15 per ounce (or $240 per pound). In addition to this increase, Murphy also proposed that the state implement a new $30-per-ounce (or $480 per pound) SEEF tax on intoxicating hemp products.
“Consider the ascent of our adult-use cannabis industry, which simply did not exist—at least legally—before I entered office,” Murphy said during his budget address on Feb. 25. “Just last year, our adult-use cannabis market surpassed $1 billion in [annual] sales. And the tax revenue we have generated from this sector is providing funding, in part, to support violence intervention programs across our state. So, in other words, in just five years, cannabis has gone from destroying lives—in the form of excessive criminal sentences—to helping save lives.”
Murphy left the details of his proposed tax increase to the budget itself.
Since adult-use sales launched in April 2022, the SEEF tax has generated more than $7 million in revenue, which is supposed to be allocated to initiatives that support education, economic development and social services for individuals and communities that were negatively impacted by the state’s cannabis prohibition.
However, no SEEF funds have been dispersed to date, according to the CRC, which held three virtual hearings in late February to solicit recommendations from the public on how the money should be appropriated. The Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization (CREAMM) Act, which established the adult-use marketplace in New Jersey, mandates SEEF funds to be used for annual appropriations in social equity investments.
Some examples of how the money can be appropriated include grants and loans; economic, housing, workforce and youth development; reentry support; and education, tutoring programs and after-school care; CRC Commissioner Krista Nash said during the CRC’s regular board meeting on Feb. 18.
After considering public feedback, the CRC will provide its recommendations to the New Jersey Legislature and the governor.
“We want to hear from you, the public, on ideas, so that we can convey that to the Legislature,” Nash said. “By gathering public input from New Jersey residents, the commission reaffirms its dedication to keeping the Legislature informed about the needs of communities throughout the state to allocate SEEF funds appropriately.”
Murphy also proposed tax increases for realty transfers, sports betting, alcohol and cigarettes in his budget. For the SEEF proposals specifically, the governor expects the tax hikes on cannabis and intoxicating hemp products to generate an additional $70 million in revenue.
With the previous SEEF rate of $1.24 per ounce (or $20 per pound) generating more than $3 million in revenue in 2024, the governor’s proposed SEEF rate on cannabis would generate nearly $40 million in revenue if production remained the same.
In addition to the cultivation tax, New Jersey levies a 6.625% state sales-and-use tax on dispensary sales, which, along with other fees, are expected to generate $90 million in revenue for fiscal 2025, according to the governor’s office.
Alaska and Maine also levy weight-based cultivation taxes on cannabis. Alaska’s structure includes an $800-per-pound tax at the state level and a local tax option of $120 per pound. In Maine, there’s a $335-per-pound cultivation tax on top of a 10% excise tax at retail. These taxes have kept cannabis prices high compared to other adult-use states.
Meanwhile, California used to impose a $161-per-pound cultivation tax on its licensed cannabis cultivators but eliminated that tax in July 2022, largely because it didn’t take into account the fluctuating market value of cannabis as well as the varying wholesale prices for different license types.
For example, California’s average wholesale price was $1,377 per pound in 2020, meaning the $161 cultivation tax was roughly 12%. When California’s average wholesale price dipped to $791 per pound in 2022, the cultivation tax rate became 20% of the wholesale value. In addition, indoor growers, whose cannabis commands a higher wholesale value, were essentially taxed a smaller percentage than greenhouse and outdoor growers.
Industry stakeholders in California applauded the move at the time as an important step toward allowing the licensed market to better compete with the unlicensed market.
