Lawmakers have started pushing to reform the tax system of the state’s cannabis industry in the early stages of coming online, as well as ways to crack down on illicit shops in the next state budget.
Unlike other U.S. states that legalized recreational cannabis — marijuana distributors in New York face a potency tax based on the level of THC in their products. There’s then another 13% retail tax imposed on top of that.
New legislation was introduced this week to repeal the potency tax that distributors pay when products are sold to a dispensary. Advocates and lawmakers argue this form of double taxation is costly to emerging cannabis businesses and must be fixed in the next budget before more stores open this year.
“When you regulate a new marketplace, I think there’s going to always be a tendency to over-regulate,” said Kaelan Castetter, managing director of Castetter Cannabis Group. “And I think it’s just the job of the industry to continue to try to roll that back.”
The proposed changes would simplify the industry’s taxation, which advocates say is critical before the state’s recreational cannabis market becomes fully operational.
Legislation to repeal the potency tax would also raise the retail tax rate for cannabis customers from 13% to 20%, but ultimately reduce the overall cost of the product by a few dollars, Castetter said. The existing THC tax drives prices of cannabis products — especially edibles with greater potency — much higher.
The Senate bill is sponsored by Sen. Jeremy Cooney, who did not respond to requests for comment about the new legislation.
The Assembly bill, sponsored by Majority Leader Crystal Peoples-Stokes, was introduced Friday.
Sen. Liz Krueger, who chairs the Senate Finance Committee, said Friday it’s too early to change the taxation model for cannabis.
“We’ve barely opened any stores yet,” she added of the three properly licensed stores in New York City and one upstate in Binghamton.
Advocates argue the potency tax puts a burden on the legal market because illegal stores are going around the law and selling product for less, importing and selling cannabis products from other states that don’t have the additional cost.
Officials like New York City Mayor Eric Adams are pleading for more law enforcement resources to crack down on illegal marijuana sales most prevalent in the city, but open statewide.
Sen. Krueger sponsors legislation to give the Office of Cannabis Management more power and resources to go after the unregulated illegal market. It would clarify OCM’s seizure powers and add language to allow the state Department of Taxation and Finance to enforce tax penalties for illicit cannabis sales.
Gov. Kathy Hochul proposed $22 million in her executive budget for the state Office of Cannabis Management and law enforcement to address the issue.
“I don’t believe we need to wait for the budget to make those changes, and I’d like to see them move as soon as possible,” Krueger said in a written statement Friday. “Additional money in this budget will allow OCM to hire more staff needed for statewide enforcement and roll out.”
The bill, co-sponsored by Sen. Brad Hoylman-Sigal, would increase fines for illegal stores so they cannot budget for the penalties as part of doing business.
“It undermines the new legal marketplace and the attempts we have made in Albany to create a social justice component to cannabis sales,” he said.
He and a growing number of lawmakers are pushing for the changes in the 2024 state budget that deadlines April 1.
“We have to support legal sellers and ensure that the illegal ones don’t continue to operate,” he added.
Dispensaries that are licensed legally through the state Office of Cannabis Management have a verification tool displayed in their window that has a scannable QR code.
All dispensaries that will open in the state will have the universal symbol, which also appears on the packaging of each cannabis product legally sold in the state. It ensures customers the products they purchase have been tested and are safe to use. Customers can check the storefront and product labels for this code to ensure they’re buying legitimate cannabis products.
The state’s rollout of its recreational marijuana industry has prioritized social justice, first giving dispensary licenses to people with prior marijuana-related offenses and with experience owning and operating a New York business. Lawmakers are focusing their enforcement on illegal dispensaries on businesses most evidently violating state law, but are working to strike a balance in overpolicing the industry and recriminalizing marijuana distributors.
“By undermining the legitimate market, these gray market shops are also undermining the social justice and equity goals of the law,” according to Krueger. “Enforcement through seizure, fines or license revocation is very different from criminalization. I would hope that people will see these efforts for what they are — an effort to ensure that the legal market is safe, that they can be sure of what’s in the products they’re buying and that the whole market will foster the kind of equity outcomes that we all want to see.”
OCM does not comment on proposed legislation.
“We are committed to working closely with partners at all levels of government to ensure New York’s cannabis industry continues to be safe, fair and equitable,” OCM spokesman Freeman Klopott said in a statement. “Thanks to the New York Cannabis Law, legal dispensaries are opening their doors to consumers and offering them products they can trust. The Office of Cannabis Management’s enforcement team is working every day to advance investigations that shut down unlawful cannabis operations, including by seizing products, issuing cease-and-desist letters, and removing trucks used for illicit sales. We will continue to work with our partners in communities across the State to enforce the law and protect New Yorkers as our nation-leading cannabis industry continues its regulated expansion.”
Advocates also want the state to lower barriers for licensees and for the state Office of Cannabis Management and Cannabis Control Board to approve applications sooner to help reduce the number of unregulated sales or illegal stores. But an ongoing federal lawsuit barring new dispensary licenses in the Finger Lakes, Central New York, Western New York, the Mid-Hudson region and Brooklyn continues to slow things down.
The state Office of Cannabis Management has approved 60 provisional licenses so far for dispensaries in the state, with 15 upstate.
