The governor of New York is calling for the elimination of a THC potency tax as part of her executive budget, aiming to reduce costs for consumers in a way that could make the regulated market more competitive against illicit operators.
Gov. Kathy Hochul’s (D) budget proposal for the 2025 fiscal year would repeal the potency tax and replace it with a wholesale excise tax of 9 percent in a way that “simplifies, streamlines, and reduces the tax collection obligations and burden for cultivators, processors, and distributors.”
Cannabis would also still be subject to the existing 9 percent state retail excise tax and four percent local retail excise tax. The changes are estimated to effectively drive down the total tax rate on marijuana from an average 38 percent to 22 percent.
For vertically-integrated medical cannabis operators and microbusinesses, the new wholesale excise tax would accrue on the final retail sale to consumers and be imposed on 75 percent of the final retail sales price, the governor’s proposal says.
The briefing book for the budget says the tax changes would “promote and support the expansion of the legal adult-use cannabis market” and also result in a “net positive impact” of $6.5 million for localities.
But by reducing costs for consumers and businesses, the tax policy reform could also help the administration and regulators address one of their top priorities: driving out the illicit market.
While licensing of legal marijuana businesses has rolled out slowly amid litigation, New York has been dealing with a proliferation of hundreds of unregulated cannabis shops with prices that are generally lower because the operators don’t concern themselves with excise taxes and abiding by other regulations that increase costs.
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