New Yorkers in general can rest assured that almost any type of state tax is among the highest in the country. And many of the things that the state does are often quite complicated.
Take New York’s recreational marijuana taxation system, which became Legal Month but is unlikely to go on legal sale until next year. The state’s proposed marijuana tax is above the average of the roughly 15 states that have legalized it so far, many experts say, but it’s not the highest. (Washington State is currently accepting this honor.)
New York, like many states that have legalized marijuana, will combine retail taxes (consumption taxes / sales taxes) with some sort of wholesale taxes (production / sales taxes). The marijuana retail tax is 13% (up from 20% originally proposed by Governor Andrew Cuomo).
But what really sets New York apart is a plan to tie the wholesale tax to the amount of the psychoactive compound THC in the product. Other states have based the wholesale tax on factors such as weight or volume.
New York will be the first country to tax THC levels this way, making it difficult to say exactly where it will rank in total marijuana taxes at the start of sales. It is likely that the total tax will be higher than in neighboring states.
And critics say that’s not the only problem.
“It’s just an incredibly complicated method,” said Kaelan Castetter of Castetter Cannabis Group and a partner at Empire Standard, a hemp / CBD processor in the Binghamton area. “I mean, it’s great that we finally have marijuana legalization, but this THC-based tax could cause a lot of problems.”
Castetter is co-author of a report entitled “THC Tax? The unintended consequences of a novel tax structure. “It is argued that there are too many questions; B. Who pays the THC tax, when it’s valued, how THC is measured in the first place, and more.
And the report includes concerns that the tax will favor larger producers at the expense of smaller ones.
“Overall, the THC-based tax proposal could spell disaster for an emerging industry in a state hit by historic economic losses by adding a layer of unnecessary complexity and cost,” the report said.
On the flip side, the THC tax might be smart, according to Rob DiPisa, a cannabis law specialist with Cole Schotz’s New Jersey law firm. This is because THC levels are becoming increasingly important as the cannabis industry focuses more on concentrates (rather than flowers) and edible products become more popular.
“It’s an interesting approach,” said DiPisa. “New York is clearly paying attention to how THC is now driving the value and growth of the industry. It may be the first, but I can see this becoming a trend in other states. “
After several years of trying, on April 1, New York legalized the possession of small amounts of marijuana by people 21 and older. However, the legal retail market for buying and selling weed is not expected to begin here until next year after the state writes the regulations and issues the licenses for them.
The THC-based wholesale tax is enshrined in law, but without specific regulations it’s hard to see how it will work, say Castetter and other experts.
“This is the first time (marijuana) has been taxed on the amount of THC in the product,” said Kim Stuck, one of the country’s first cannabis regulators, when she worked for the Denver City Health Department, Colorado. She now runs Allay, a consultancy that advises and supports people in the cannabis industry. “I can’t say whether it will work or not. It sounds like total pain. “
New York’s marijuana plan has a 13% tax on retail sales – 9% goes to the state and 4% to the local governments where the sales take place. Washington State has the highest tax known as an excise tax at 37%. States like California and Oregon also have high retail taxes.
On the wholesale side, New York’s plan is to tax marijuana at 0.005 cents (half a cent) per milligram on marijuana flowers, 0.008 cents (8/10 cents) per milligram on concentrated cannabis, and 3 cents per milligram on edible products becomes .
Castetter said the details were not clear. “Is the tax levied when farmers sell to processors or when processors sell to traders?” he asked.
There is also a question of when and where to test THC levels, he said. And, he said, the tests can be inaccurate.
“The results can be anywhere from plus or minus 12% to 35%,” he said. “That’s a pretty big window. And that means the state may generate more or less tax revenue than expected. We could talk millions or tens of millions of dollars in false taxes. “
New York law allows the ten existing medical marijuana suppliers, most of whom are large national corporations, to maintain “vertical monopolies” in cultivation, processing and retailing. Such monopolies would only be granted to newer, smaller providers with separate specific licenses.
“With such a tax structure, this is only an advantage for the larger market participants,” said Castetter.
Then, of course, there is concern that the total marijuana tax in New York, when it all adds up, will be relatively high.
This is particularly important compared to neighboring countries, said DiPisa of the law firm Cole Schotz.
“It’s not like people from New York go to California (for marijuana) because the tax is lower,” he said. “But New Jersey is likely to have a lower tax, and that would be a problem.”
And there is the black market – the illicit drug trade, which probably coexists with the authorized sale of marijuana. Critics of high taxes on legal marijuana point out that taxes can lead buyers to take advantage of the existing black market.
“California had some problems with it,” said Heather Trela, a fellow at the Rockefeller Institute of Government in Albany and an expert on marijuana policy. “High marijuana fees and taxes leave a strong, thriving black market. California has not effectively dampened this and is falling short of its sales projections as a result. “
New York Governor Andrew Cuomo and his staff have announced that they expect legal marijuana to create up to 60,000 jobs and generate $ 3.5 billion in economic activity.
Castetter, also a board member of the New York Cannabis Growers and Processors Association, was a fan of New York’s approach to other cannabis issues. These include the state’s Hemp Extracts Act passed last year, which gives New York what is probably the strictest standards in the country for making and selling hemp products.
“Don’t get me wrong – I like that we’re finally legalized,” he said. “But now we have to do it right. And we need to fix the things we can to make sure we have the best and strongest legal market that we can. “
For more information on marijuana and cannabis, visit syracuse.com/marijuana:
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Legal marijuana in NY: what you need to know about owning, growing, and doing business
Syracuse University launches a cannabis education program for the emerging marijuana industry
Recreational Marijuana Is Legal In NY: Could The Government Still Arrest You?
Is your New York marijuana conviction overturned? Knowing the simple numbers
What is Delta 8 THC? It’s not marijuana, but it’s causing a stir in New York State
Editor’s Note: On May 20th, NJ Cannabis Insider is partnering with Advance Media New York to host a virtual business networking event featuring some of New York State’s best-known industry leaders. Tickets are limited.
Do you have any questions about marijuana in New York and what legalization means? Send them to Don Cazentre at dcazentre@syracuse.com or Kevin Tampone at ktampone@syracuse.com. We’ll spend the next few months (years?) Answering as many as possible.
Don Cazentre writes for NYup.com, syracuse.com, and The Post-Standard. Reach out to him at dcazentre@nyup.com or follow him on NYup.com, on Twitter, or on Facebook.