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New York Predicts $1.25 Billion in Pot Tax Revenue Over Six Years

According to Tuesday’s budget projection by Democratic Governor Kathy Hochul, New York will collect $1.25 Billion in taxes from legal marijuana sales. In the state budget next year, the revenue projections include significant investments in projects that will continue to aid in economic recovery and social rehabilitation from the ongoing coronavirus epidemic.

“We have the means to immediately respond to the COVID-19 pandemic as well as embrace this once-in-a-generation opportunity for the future with a historic level of funding that is both socially responsible and fiscally prudent,” Hochul said in a statement from the governor’s office.

New York’s state budget for the 2023 fiscal year, which is detailed in an 85-page briefing book from the governor’s office, anticipates $56 million in cannabis revenue, including $40 million collected from license fees on cannabis businesses. Since August, state lawmakers have legalized recreational marijuana. Hochul, who took office last year, has pledged to speed up regulation of adult-use cannabis, which was stalled last summer by Andrew Cuomo (the former governor, who resigned in the wake of sexual harassment allegations).

Over the next six years, the governor’s office predicts that the state will collect more than $1.25 billion in revenue from taxes and fees on recreational cannabis, with the annual total increasing as more producers, processors and retailers launch their operations. The estimated revenue from cannabis taxes will rise to $95million in fiscal year 2024, and to $363 million by 2028.

New York Budget Projections Include Revenue from Cannabis ‘Potency Tax’

The taxes on New York’s cannabis industry include a nine percent excise tax and another four percent tax for local governments. The state’s regulations also include a separate tax on THC, with the amount of tax collected rising as the potency of a product rises.

David C. Holland, a New York attorney with extensive experience in cannabis policy and law, says that the “THC potency tax at first seems like the state gouging revenue but, in fact, some view it as being an ingenious, recession-proof tax for the state to receive predictable revenue.”

Holland stated that THC tax is charged at the following rates: $0.05 (one-half penny) for every milligram. The rate can also vary depending on what type of cannabis product it’s. There are three types of marijuana products: extracts, dried flowers and edibles. An edible that contains 10mg of THC would have a tax assessed of 10c, while one-dollar tax would apply to edibles that contain 100mg of THC. THC taxes are levied upon wholesale transactions when products move from distributors to retail outlets.

Holland is the co-founder of and the president of NYC Cannabis Industry Association. He noted that THC taxes provide the state with an income stream that does not depend on fluctuations in the economy.

“What makes it recession-proof is that the price per pound of cannabis, whether $1,000 in times of shortage, or $200 in times of surplus is irrelevant—the tax on potency remains a constant due to the THC concentration of the raw or processed product, and that tax is uniform across all product lines,” Holland wrote in an email to Chronic News.

“As such, the tax is really a more predictable revenue source for the state and insulates it against the boom-and-bust cycles of crop cultivation and the idiosyncrasies of market consumers in the forms of cannabis they choose.”

The nine percent state excise taxes will raise revenue that will be split among various social programs. 40 percent of the tax’s proceeds go to education and 40 percent are used for community reinvestment. Twenty percent is dedicated to treatment for substance abuse. The additional 4 percent tax income will also be split between local governments. 25 percent to the counties and 75 percent go to towns, villages, and cities. 

Although the launch date of legal adult-use cannabis sales in New York City has yet to be determined, it is likely that it will happen later in this year or early in 2023.