Terrifying THC Taxes

New York state is overhauling its current legal cannabis tax structure to adopt a simpler system. The intricate potency-based tax model is being replaced with a new wholesale structure, which was included in the state’s latest budget.

S.B. 8309 was approved by the state legislature last weekend and is anticipated to be signed by Governor Kathy Hochul. The language mirrors the changes proposed by Hochul in January. The Governor has taken a more active role in overseeing the Office of Cannabis Management and the Cannabis Control Board, especially as the program rollout has faced numerous challenges. Just last week, the Governor held a press conference to discuss new law enforcement strategies aimed at shutting down unlicensed operations.

New York is implementing a new tax structure for cannabis. Under this new law, a 9% excise tax will be applied at the wholesale level. This tax will be assessed on 75% of the retail price from vertically integrated businesses, such as those with a microbusiness license. Additionally, the tax on medical cannabis will be reduced from 7% to 3.5%.

During a recent press conference, Governor Hochul emphasized, “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) expressed their support, stating that the final state budget deal makes significant progress in establishing an economically viable, well-regulated, and equitable legal cannabis market. Eliminating the potency tax will greatly simplify the cannabis tax system, while reducing the excise tax on medical cannabis is a step 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, 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, commended these changes.

Jason Klimek, co-leader of the cannabis team at Barclay Damon LLP, explained that under the previous potency-based tax system, $1,000 worth of cannabis flower with 20% THC was taxed at about $450 per pound. With the new wholesale tax, this amount would reduce to $90. Although 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, Klimek added that the change is expected to be revenue-neutral.

According to the U.S. Census Bureau, New York collected $33 million in cannabis tax revenue in 2023. 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.

With New York changing its approach on potency taxes, Connecticut and Illinois would be the only remaining states continuing to charge a potency tax.

Source
Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master’s degree in Business Journalism from New York University.

U.S Census Bureau

Taxation & Finance