Just how much cannabis tax revenue is New York City missing out on as a result of unlicensed sellers and other obstacles on legal operators’ path? For the first time, on Thursday, the New York City Independent Budget Office (IBO) released a report that lays out its estimates.
According to the report, the city is on track to hit $950 million in cannabis sales by 2032 – a far cry from the $1.3 billion in sales that Mayor Eric Adams projected by this year.
The report paints a stormy picture of New York’s adult use cannabis rollout, which got its start with lawmakers aiming to create the country’s most equitable cannabis industry. The law specifically set a goal of allocating at least 50% of business licenses to “justice-involved” individuals, and regulators subsequently created a program to give people with a cannabis record, or a close family member with one, a headstart in the most anticipated legal market in the country. This “unique focus on awarding early retail licenses to justice-involved individuals and other social equity applicants,” the IBO wrote, “may affect legal market growth.”
Meanwhile, the report notes, these early licensees, known as Conditional Adult Use Retail Dispensary (CAURD) licensees, have been hit hard by a difficult and expensive real estate landscape in New York City, and have “faced challenges in finding locations for dispensaries and funding to open new businesses.” Across the state, there are 23 legal adult use retailers in operation, all CAURD licensees.
Litigation has resulted in “further slowdowns” at a time when there’s been a “surge in unlicensed smoke shops selling cannabis products.”
Since late 2022, lawsuits against the CAURD program have created several bumps in the road, slowing – and, at times, stalling – the adult use rollout. One lawsuit, which was filed last September, resulted in a months-long delay in CAURD licenses being issued in five regions: Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn. A judge lifted the injunction in March in all regions except the Finger Lakes.
Today, the CAURD rollout is partially paused as a result of newer litigation, filed by a group of veterans, and the program’s future remains uncertain.
When it comes to unlicensed sales, the report provides the first glimpse into just how big of a bite the city believes the illicit market is taking from the legal revenue pie.
The IBO estimates that the roughly 1,500 unlicensed retailers “may hold as much as $484 million worth of cannabis products in total.” And, if all of those cannabis products were sold in legal sales at licensed shops, the transactions would generate roughly $19.4 million in revenue for the city.
Given these factors dampening the cannabis market in New York, the IBO aimed to answer two questions: How could the city’s young market flourish and how long will it take?
Looking at the adult use rollouts in California, Colorado, Massachusetts, Oregon, and Washington state, New York City “may eventually see annual taxable sales between $833.6 million and $1.2 billion,” potentially garnering between $33 million and $47 million in annual city revenue.
However, the report noted, New York is unlikely to benefit from the “first-mover advantage” of these states.
“Out-of-state visitors who could not purchase cannabis in their own states presumably visited early legal cannabis markets, increasing retail sales in those markets,” the report noted. “Because all of New York’s regional neighbors besides Pennsylvania have legal retail cannabis markets, New York is unlikely to benefit from similar circumstances.”.
The report looks at three scenarios for reaching a target of $950 million in annual taxable sales. At the current pace of legal shops opening, the city will hit that number by late 2032. If the pace doubles, the city will hit that number as early as mid-2027.
“Each of these scenarios assumes that the current temporary restraining order on new
licenses and dispensaries is resolved quickly and dispensaries will continue to open in
the near future. In the case that the injunction continues indefinitely as the lawsuit moves
through the state’s courts, each of these timeframes for reaching $950 million in annual legal cannabis sales would be extended into the future,” the IBO report noted.
The IBO report concludes that the city’s revenue goals are “within reach,” but only if the pace of openings picks up.
“Ultimately, the direction and pace of the legal cannabis market rollout in New York City will depend on several factors: the speed of dispensary openings, the scale of annual sales of cannabis at each dispensary, the rate at which consumers choose licensed dispensaries over unlicensed smoke shops, and the impact of legal actions on the nascent cannabis market,” the report concludes.
IBO believes the illicit market “may hold”
- $484 million worth of cannabis products
- Worth $19.4 in revenue to the city
Sales recalibration:
- Then: Mayor Eric Adams projected in 2022 that New York City could hit an estimated $1.3 billion in sales by this year.
- Now: the IBO’s latest projection, assuming the current pace of store openings, is $950 million in cannabis sales by 2032
- Best case scenario: if the pace picks up, the city could hit $950 million by 2027
Revenue for the city (in the best case scenario):
- $4 million in FY 2024
- $20 million in FY 2025
- $31 million in FY 2026
- $43 million in FY 2027
