New York state is tossing out its current legal cannabis tax structure in favor of one that is less complicated. The complicated potency-based tax system is being replaced with a new wholesale structure that was part of the state’s new budget.
S.B. 8309 was passed by the state legislature last weekend and is expected to be signed by Governor Kathy Hochul. The language is similar to the changes proposed by Hochul in January. The Governor has become more involved in the oversight of the Office of Cannabis Management and the Cannabis Control Board since the program rollout has been fraught with problems. Last week, the Governor held a press conference discussing new law enforcement strategies to close unlicensed operations.
New tax structure
The new tax law entails levying a 9% excise tax at the wholesale level. That rate would be assessed on 75% of the retail price from vertically integrated businesses like those with a microbusiness license. The tax on medical cannabis would be cut from 7% to 3.5%.
In last week’s press conference, the Governor said, “We can build a fair and competitive legal market where tax revenue is actually reinvested in the communities harmed by the laws of the past.”
The New York Cannabis Conference (NYCC) said, “The final state budget deal makes important progress toward establishing an economically viable, well-regulated, and equitable legal cannabis market. In addition, elimination of the potency tax will greatly simplify the cannabis tax system, while reducing the excise tax on medical cannabis is a step in the right direction toward ending the unfair penalization of patients and broadening access to medications that can help New Yorkers manage their pain and improve their overall quality of life.”
The NYCC is a coalition of the Association of New York Cannabis Processors, the Black Cannabis Industry Association, the Cannabis Farmers Alliance, the New York Cannabis Retail Association, and the New York Medical Cannabis Industry Association.
Jason Klimek, co-leader of the cannabis team at Barclay Damon LLP, told Law360, “For example, under the potency-based tax system, $1,000 worth of cannabis flower with 20% THC is taxed at about $450 per pound, but the wholesale tax would reduce the amount to $90, Klimek said. The wholesale tax system will result in an effective tax rate that’s “on the higher end of average” among the states with legal adult-use cannabis, he said, but added that the change is expected to be revenue-neutral.”
The U.S. Census Bureau reported that in 2023 New York collected $33 million in cannabis tax revenue. The state had originally projected it would collect $56 million, but the proliferation of unlicensed stores with cheaper product prices has driven many consumers to buy from illicit dealers.
Now that New York is changing its tune on potency taxes, Connecticut and Illinois would be the only remaining states continuing to charge a potency tax.
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