New York Scraps Controversial THC Tax for Cannabis Products
New York State has scrapped its taxation rules that raised costs for cannabis products depending on their THC content. The change was passed in the state’s budget.
Previously, the tax rates for cannabis distribution were: 5 cents per mg of THC for flower, 8 cents per mg of THC for concentrates, and 3 cents per mg of THC for edibles. These potency-based taxes were levied alongside a 9% state excise tax and a 4% local retail excise tax on all cannabis sales.
All THC-based taxes are now being scrapped, and will be replaced with a wholesale excise tax of 9 percent (to be levied in addition to the state and local retail excise taxes). The new rules go into effect June 1.
Allan Gandelman, president of the New York Cannabis Growers and Processors Association, had decried the THC-based tax structure as "rather bizarre”, and noted that "decreased taxation will mean increased legal sales, which will ultimately equal an increase in tax revenue,"
Visit an interactive map of legal cannabis dispensaries in New York
Governor Kathy Hochul had recently indicated her opposition to the rules, writing in the budget proposal:
“To promote and support the expansion of the legal adult-use cannabis market, the executive budget simplifies, streamlines and reduces the tax collection obligations and burden for cultivators, processors and distributors by repealing the wholesale THC potency tax, and replacing it with a wholesale excise tax of 9 percent, while maintaining the state retail excise tax rate of 9 percent and the local retail excise tax rate of 4 percent.”
Adult-use retailers in New York achieved sales exceeding $137 million between January 1 and December 9, 2023, with projections indicating they would surpass $150 million for the year once December's full figures are tallied. The sales from the previous year resulted in nearly $16.3 million in tax revenue.
In 2022, New York State’s Society of Certified Public Accountants had warned that THC potency taxes were partly responsible for the state having “some of the highest cannabis tax rates in the nation, [which] will continue to be an issue for industry participants that will make competition with the illicit market difficult”.
Joe Rossi, the Cannabis Practice Group Leader at Park Strategies, welcomed the move but noted that "we still have a long way to go to clean up this disaster.” In a January 2024 article, Rossi suggested that the state should license all New Yorkers who are ready to open legal cannabis dispensaries to compete with the uptick in illicit stores, instead of forcing those abiding by the rules to partake in “a Hunger Games-like lottery.”
