Benzinga - by Maureen Meehan, Benzinga Editor.
New York’s nascent recreational marijuana market could undergo a significant transformation if Gov. Kathy Hochul‘s new budget proposal prevails. The key element? Eliminating the controversial “potency tax” and replacing it with a simpler, wholesale excise tax.
Industry stakeholders have long complained about the potency tax, arguing its complexity and that variable rates discourage legal sales and drive consumers to the illicit market. The new proposal, echoing legislative efforts, offers a potential solution: a 9% wholesale tax paid by distributors, layered on top of existing state and local retail taxes.
State Sen. Jeremy Cooney (D-Rochester), a proponent of replacing the potency tax, emphasizes the threat of a thriving black market. Unregulated products pose health risks due to potential contaminants, he warns, directly contradicting the public health objectives of legalization. While Cooney previously advocated for a phased-in, lower tax (7%), he welcomes Hochul’s movement towards a simpler structure, reports Times Union.
"A phased-in approach works best in terms of maximizing competitiveness," Cooney said. "I think we also need to look at other states like Colorado that have actually had a lower tax rate than New York but has realized higher revenues. If we're able to really increase the volume of sales overall, even though it's a lower tax rate, it's better than losing it to the illicit market where we get nothing."
The potency tax’s complexity has burdened the already struggling legal market. Cultivators grapple with supply chain issues and a slow rollout, financially imperiling many businesses. Jason Klimek, a lawyer specializing in cannabis law, said that simpler structures, as seen in Colorado, generate higher revenues and foster smaller business success.
Allan Gandelman of the Cannabis Association of New York applauds the change, calling the potency tax “untenable” and “impossible” to administer. He notes that the new 9% excise tax rate remains higher than their desired 3%, but acknowledges it signifies a positive shift.
The budget also addresses enforcement, allocating $68 billion to the Office of Cannabis Management and outlining measures to strengthen enforcement alongside local agencies. This includes seizing illegal products and empowering the Department of Taxation and Finance to bolster enforcement efforts.
The success of New York's legal market hinges on attracting consumers. Replacing the complex potency tax with a simpler, wholesale model is a step in the right direction. Whether the 9% rate proves optimal remains to be seen, but the underlying principle of promoting transparency and ease of operation appears likely to benefit both businesses and consumers, ultimately pushing New York’s legal cannabis market closer to its intended potential.
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