New York Gov.’s Budget Proposal Would End Cannabis Potency Tax

Under New York Gov. Kathy Hochul’s (D) budget proposal for fiscal year 2025, cannabis operators would no longer be required to pay taxes based on product potency; rather, the industry’s potency tax would be replaced with a weight-based excise tax.

New York’s original legalization law taxes cannabis distributors based on product potency as follows:

• $0.03 per mg of total THC in edibles
• $0.008 per mg of total THC in cannabis concentrates
• And $0.005 per mg total THC in cannabis flower products, including pre-rolls.

“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.” — FY2025 budget proposal excerpt

For cannabis companies that are vertically integrated, the budget proposal specifies that “the new wholesale excise tax will accrue on the final retail sale to consumers and be imposed on 75 percent of the final retail sales price.”

In addition to the cannabis industry tax changes, the budget proposal would allot $68.1 million to the New York Office of Cannabis Management (OCM), the regulatory agency responsible for overseeing the industry. The proposed budget would also strengthen cannabis regulators’ ability — and that of other local government agencies — to bring enforcement actions against unlicensed cannabis operators, including additional staff resources for the state Department of Taxation and Finance.

According to recent data from the state, the New York legal cannabis market generated more than $150 million in revenue during its first year of operation.