New York Gov. Hochul’s Budget Proposes Shift from Potency to Weight-Based Cannabis Tax

NEW YORK— In a significant move to streamline taxation in the burgeoning cannabis industry, New York Governor Kathy Hochul’s proposed budget for fiscal year 2025 outlines a shift from the current potency-based tax to a weight-based excise tax. This change is aimed at simplifying tax obligations for cannabis operators and bolstering the state’s regulatory enforcement capabilities.

The existing tax structure in New York’s cannabis industry is based on the potency of products, with varying rates applied to different product categories:

• $0.03 per milligram of total THC in edibles.
• $0.008 per milligram of total THC in cannabis concentrates.
• $0.005 per milligram of total THC in flower products, including pre-rolls.

Governor Hochul’s budget proposal seeks to repeal this potency tax, replacing it with a more straightforward wholesale excise tax of 9%. This new scheme is designed to reduce the administrative burden on cultivators, processors, and distributors, while maintaining the current state and local retail excise tax rates of 9% and 4%, respectively.

For vertically integrated cannabis companies, which handle multiple stages of production and distribution, the proposed budget stipulates that the new wholesale excise tax would be calculated on 75% of the final retail sales price, accruing at the point of sale to consumers.

Beyond tax restructuring, the budget proposal also includes significant funding for the New York Office of Cannabis Management (OCM). An allocation of $68.1 million is earmarked for OCM, the primary regulatory body overseeing the cannabis industry in the state. This funding boost is expected to enhance the OCM’s capacity to enforce regulations and oversee the growing market.

The proposal also addresses enforcement against unlicensed cannabis operations. It includes provisions for additional staffing resources for the state Department of Taxation and Finance, enhancing their ability to pursue actions against illegal operators. This move signals a concerted effort to clamp down on unregulated cannabis sales, ensuring a safer and more compliant market environment.

The push for these reforms comes on the heels of a successful inaugural year for New York’s legal cannabis market, which generated over $150 million in revenue. This revenue influx underscores the market’s potential and the importance of an efficient and effective regulatory framework.

Governor Hochul’s proposed shift from a potency-based to a weight-based tax system represents a significant step in adapting the state’s fiscal and regulatory strategies to better align with the evolving needs of the cannabis industry. As the market continues to mature, such changes are crucial in fostering a sustainable and thriving cannabis sector in New York.