NYS Lawmakers Unveil Cannabis Industry Reform Proposals in State Budget Negotiations

Foley Hoag LLP – Cannabis and the Law

Earlier this week, the NYS Senate and Assembly unveiled their “one-house budget proposals” in response to Gov. Kathy Hochul’s executive budget proposal in January. The one-house budget includes several proposals related to the cannabis industry. Along with a handful of stand-alone proposals, these policy reforms are aimed largely at assisting cultivators negatively impacted by the delayed rollout of the adult-use program and combating the illicit market.

1.    Repeal and Replace the Potency Tax, Repeal of the Medical Excise Tax: 

  • Adult Use Taxes – S.4831-B is a standalone bill proposing to repeal and replace the cannabis potency tax with language that phases in a permanent rate for the new wholesale tax over a multi-year period. The new proposed tax will start at 5% at the wholesale level and increase to 7% in 2028 and further increase to 9% in 2031. Registered Organizations and Microbusinesses, however, will be subject to a tax rate of 5% of 75% of the retail price of products sold through their own retail operations. This modified rate is a reflection of the vertically integrated nature of these two license types. By way of example, a cultivator that self-distributes its products will pay a tax of $1.25 for an SKU sold at the wholesale level for $25 (and sold by a third-party retailer for $50, assuming keystone pricing which is standard in the industry). Whereas ROs and Microbusiness will pay a tax of $1.88 for an SKU that is sold at their own retail location for $50.
  • Medical Taxes – S.5365 is a standalone bill proposing to repeal the excise tax on medical cannabis with the aim of making medical cannabis more financially accessible to patients.

2.    Cannabis Cultivator Relief Package: S.8308B includes $128 million for the following:

  • $60 million for a cannabis cultivator loan program;
  • $40 million for grants to cultivators through a newly created “Cannabis Farmer Relief Fund”; and
  • $28 million for refundable tax credits for cultivators to help offset losses.

It remains to be seen who will be eligible for the loan program, the relief fund and the tax credits, which is likely to be a topic of negotiation over the next several weeks.

3.    Enforcement: S.8305-B modifies the executive budget proposal to combat the illicit cannabis market by adding language that would bolster the enforcement power of certain agencies by allowing those agencies to take action against landlords who lease their property to unlicensed cannabis retailers, and also by empowering local governments with the ability to seek court orders to shut down unlicensed stores, expanding the hours permitted for administrative inspections, and giving municipalities the ability to create their own rules and regulations related to enforcement of unlicensed cannabis sales. Landlord liability has been implemented in other states like California, however, those policy initiatives have seen mixed results in the past. That said, proposals to crack down on the illicit market are likely to be welcome news to New York cannabis industry stakeholders and communities alike.

4.    Workforce Development: The Senate proposed to add $2 million for the Cornell Cannabis Workforce Initiative.

The cannabis-related proposals have been led by Senator Michelle Hinchey and Senator Jeremy Cooney. The NYS budget is estimated to be approximately $230 billion, which is the largest state budget in the nation aside from California. With both the Senate and Assembly introducing their budgets this week, the three-way negotiations between the House, the Assembly and the Governor’s office have begun in earnest with a deadline of April 1st (although the final budget approval often slips into early-mid April). In the meantime, Foley Hoag’s Cannabis Industry Practice Group will continue to closely monitor budget negotiations as they evolve.

https://www.jdsupra.com/legalnews/nys-lawmakers-unveil-cannabis-industry-3785690/

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