New York Democrats want to overhaul cannabis taxes.
On Monday, New York Assembly Majority Leader Crystal Peoples-Stokes and Sen. Jeremy Cooney coordinated a push for a bill that they say will lift up the legal cannabis industry.
The legislation, SB4831/A4619, would repeal the THC potency tax on adult use cannabis products and increase the excise tax from 9% to 16%. Under the Marihuana Regulation and Taxation Act, passed by lawmakers in March 2021, cannabis products are taxed in three ways: the 9% excise tax at retail, a 4% local tax at retail, and a potency tax that applies to products as they move from distributors to retailers and that varies by product type. Edibles, for example, are taxed at 3 cents per milligram of THC, and a typical package of edibles contains 100 milligrams of THC.
“After careful consideration, it became clear that we need to simplify the tax structure of adult-use cannabis,” Peoples-Stokes said in a statement on Monday. “As the State continues to build out licensed cannabis operations, a simpler tax structure will be better for businesses and consumers. It is imperative to establish the licensed cannabis marketplace as the best option for consumers and stamp out the illicit cannabis operations popping up all over the State.”
Cooney took to Twitter on Monday with a video that asked New Yorkers to call on lawmakers in Albany to support the bill. Cooney said that the bill “will help our new, safe, legal market better compete with the illicit market that we now see. It will also ensure that we continue to invest in those communities most negatively impacted by the failed war on drugs.”
New York’s legal cannabis landscape is lopsided, with just four licensed adult use shops open to-date, but a torrent of unlicensed sales throughout the city. City and state lawmakers and officials are discussing and debating how best to approach unregulated sales, and, just last month, Manhattan District Attorney Alvin Bragg turned his attention to landlords, sending hundreds of warning letters to landlords that house unlicensed shops.
Meanwhile, a comprehensive cannabis enforcement bill under negotiation is expected out of Albany any day now.
“New York State already has a massive and well-established illicit market that has continued to flourish even after adult-use cannabis was legalized, and the THC tax and total tax burden will make this problem far worse,” reads the justification for SB4831, adding that the move away from potency toward excise will “better shift” the costs away from the business owner.
While most states use excise taxes for adult use cannabis products, one argument that has arisen time and again for potency taxes is that it could lead to better public health outcomes by discouraging consumption of high potency products. A counterargument, though, is that these products could just fuel the underground market.
The Tax Policy Center at the Urban Institute published a report in late 2022 titled The Pros and Cons of Cannabis Taxes, and it tackled, among many areas of cannabis tax policy, potency taxes.
“A percentage-of-price tax or weight-based tax is a blunt instrument for reducing cannabis consumption. A high tax could discourage legal purchases of highly potent products but also push some consumers into the black market, while a low tax rate could help legal sellers compete with illegal sellers but not provide an effective barrier to the use of highly potent products—particularly for younger users,” the report noted.
