Governor Phil Murphy Proposes 500% Tax Hike on Cannabis Cultivators in New Jersey

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 increase the rate an additional 500%—from $40 per pound to $240 per pound.

Current and Proposed Tax Rates on Cannabis Cultivation

The New Jersey Cannabis Regulatory Commission (CRC) board members voted last year to increase 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, released last week, Murphy called on regulators to raise the SEEF tax to $15 per ounce (or $240 per pound). Additionally, Murphy proposed implementing a new $30-per-ounce (or $480-per-pound) SEEF tax on intoxicating hemp products.

Governor Murphy’s Justification for the Tax Hike

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.

Unspent SEEF Funds and Public Input on Allocation

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 supporting education, economic development, and social services for individuals and communities impacted by 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 public recommendations on fund allocation. The Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization (CREAMM) Act mandates SEEF funds to be used for annual appropriations in social equity investments.

“We want to hear from you, the public, on ideas, so that we can convey that to the Legislature,” CRC Commissioner Krista 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.”

Projected Revenue and Broader Tax Implications

Murphy also proposed tax increases for realty transfers, sports betting, alcohol, and cigarettes in his budget. The SEEF proposals specifically are expected 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, is expected to generate $90 million in revenue for fiscal 2025.

Comparison to Other States’ Cannabis Cultivation Taxes

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 is 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 previously imposed a $161-per-pound cultivation tax on its licensed cannabis cultivators but eliminated that tax in July 2022. The decision was largely based on the tax’s failure to account for fluctuating cannabis market values and varying wholesale prices among 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 effectively increased to 20% of wholesale value. Additionally, indoor growers, whose cannabis commands a higher wholesale price, were taxed at a lower percentage than greenhouse and outdoor growers.

Industry Stakeholders’ Perspective on the Tax Proposal

Industry stakeholders in California applauded the removal of the cultivation tax in 2022 as an important step toward allowing the licensed market to better compete with the unlicensed market. It remains to be seen how New Jersey’s cannabis industry will respond to the proposed tax hikes and whether Murphy’s administration will adjust the proposal based on public feedback and industry concerns.