New York City Cannabis Industry Association And Hudson Valley Cannabis Industry Association Tax Rates In New York’s Adult-Use Cannabis Market

As set forth in greater detail below, while the tax rates proposed in the MRTA are superior to many states with an adult-use market, New York must do better to address the serious challenges that the legacy market and regulated cannabis markets in neighboring states will pose to a regulated cannabis market in New York. The regulatory committees recommend that any adult-use legalization legislation lower the initial tax rate to 12% from the 22% currently proposed, as the retail prices of cannabis products are highest in the first few years following legalization. The State can gradually increase the tax rate in subsequent years as the industry matures and prices decrease.

Background

As states have legalized cannabis for medical and adult-use, there has been significant debate over the best way to tax this industry at the state and local level. What is known about the consequences of imposing various taxes on the industry is evolving. However, it is clear that a low initial tax rate is essential to attract legacy market participants to the regulated market, thereby reducing the size of the cannabis market that is unregulated and untaxed. It also allows the legal market to gain footing and thrive by keeping overall pricing reasonable when the cost of cannabis is at its highest immediately following legalization. States with legal cannabis industries use a variety of taxes, including weight-, price- and potency-based excise taxes (explained further below). Besides excise taxes, some states also allow for state, local, and special district sales taxes to apply. While some states choose to levy only one of those taxes, others have instituted a multi- tiered taxation system using a combination of the methods below. A brief discussion of these tax types follows.

Key topics addressed in the policy document

Weight-Based Excise Taxes