On March 28, the Cannabis Association of New York (CANY) and their legislative supporters called for a change to how recreational cannabis will be taxed. The organization, joined by Senator Jeremy Cooney, D-Rochester, is pushing for a bill (S.4831/A.4619) that would repeal the THC potency tax and replace it with an excise tax of nine to 16 percent of the sale price.
If signed into law, the bill would replace the current tax for marijuana sales in New York which is partially levied based on the percent of total THC content that is paid by the distributor and the consumer with the retail excise tax that is solely paid by the consumer.
“We have a deep responsibility at the state level to not only ensure that this new industry we have created — with the intention of having small business owners be successful — that our agricultural businesses are successful as well because we need them for the future,” said Sen. Michelle Hinchey, D-Saugerties, chair of the Agricultural Committee. “We have to not just continue to invest in this industry and to make sure that our small businesses and our legal retailers are the ones who we’re promoting, but make sure that we actually have a local network. And that involves giving back and supporting our local farmers.”
Sen. Hinchey was joined by Assembly persons Crystal D. Peoples-Stokes, D-Buffalo, and Donna Lupardo, D-Binghamton, the Assembly sponsor and co-sponsor of the THC tax repeal act A.4619, respectively, to help raise awareness of the issue at hand.
The current potency tax rates, which was signed into law as part of the Marijuana Regulation and Taxation Act (MRTA) in March of 2021 by former Gov. Andrew Cuomo are a “five-tenths of one cent (.005) per milligram of the amount of total THC for cannabis flower, eight-tenths of one cent (.008) per milligram of the amount of total THC for concentrated cannabis and three cents (.03) per milligram of the amount of total THC for cannabis edible product,” according to the New York State Department of Taxation and Finance. There is then an added 13 percent retail tax on the amount charged per sale.
CANY, which represents the state cannabis industry from production to retail, argues that the THC potency tax unfairly affects the farming sector more heavily — dangerous for a new market dependent on an agricultural product. Dispensary owners are forced to pay the potency tax for the product produced by Adult-Use Conditional Cultivator (ACC) licensees — the group of farmers that are legally allowed to grow recreational marijuana in New York — which then artificially inflates retail prices.
“Without more retailers to accommodate this product, many ACC holders, including ourselves, are questioning whether we’ll be able to make it through 2023 season,” said Brittany Carbone, co-founder of Tricolla Farms and current ACC licensee. “We will not be able to survive these conditions much longer and we will be out of business before the regulations are even finalized. The legislature can support their local farmers by repealing the potency tax which will allow cultivators to price our products more competitively.”
Due to the potency tax implications, the illicit market can sell recreational marijuana directly to the consumer at the same price that legal dispensaries pay for their stock. Consumers then turn to the estimated 1,400 illegal adult-use cannabis storefronts that are open throughout the state who offer them a significantly more affordable rate.
“Legal cannabis dispensaries will not be able to survive and reach their full potential if we do not repeal the overly burdensome THC potency tax,” said Senator Cooney, sponsor of the THC Potency Tax Repeal Act. “These issues will especially impact social equity entrepreneurs, allowing the illicit market to thrive, while preventing our goal of building the most equitable and successful marketplace in the country.”
In July of 2018, an assessment of the potential impact of regulated marijuana in New York State was conducted after former Gov. Andrew Cuomo mentioned the possibility of recreational legalization in his January state-of-the-state address. This assessment found that a potency-based tax system may be inadequate for taxation purposes and could be a more complex tax system to establish and administer.
Regardless of the assessment’s findings, the MTRA signed the under-researched, potency-based system into law.
This tax — amongst the slow rollout of Conditional Adult-Use Retail Dispensaries (CAURD) licenses on the Office of Cannabis Management’s (OCM) behalf and a judicial jurisdiction that has left a band on the issuing of retail licenses in five regions — has left ACC farmers with a surplus of product, very few people to for them to sell to and a possible public health crisis due to the unregulated and possibly contaminated product that is being circulated by the illicit market.
This proposed legislation is part of CANY’s seven-point agenda for the upcoming year that will help move the novel NYS cannabis retail industry forward.
CANY and their supporters hope to see their proposed legislation incorporated into the 2024 Fiscal Year budget.