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This guest column is from Paula Collins, EA, Esq., a tax attorney dedicated to the cannabis industry and a co-founder of the NY Consortium of Cannabis Accountants. She can be contacted at paula@paulacollinslaw.com. The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views or positions of NY Cannabis Insider.
Buzz, bust, or boom – there has been a whole lot happening in New York Cannabis, with new provisionally licensed CAURD recipients hitting the ground, growers showcases starting to take shape, and – did ya forget – public comments on the regs due this past Monday.
I crunched some numbers (it’s what I do; I’m a cannabis tax attorney). Even if we all hang in there, it will take some time and a fundamental uptick in the pace at which we open licensed adult-use dispensaries in order to hit the state’s projected cannabis tax revenues.
We have 463 provisionally-licensed CAURD licensees. Now we need to get them up and running!
At a rate of 2.7 adult-use dispensaries opening per month, it will take 171.48 months, or 14 years, to open all of the provisionally licensed CAURD dispensaries (at the current rate we are going).
I don’t suppose the CAURD program includes a retirement plan.
We don’t have to fully grasp the science and protocols around aspergillus. We don’t have to wonder what to do now that Mastercard gave the entire industry the boot. We don’t have to worry about federal legalization or de-scheduling. We don’t even have to wonder what ever happened to the old social equity fund. Or the new one, for that matter. (Is it me or did all of that get eerily silent?)
All of the many issues we bat about in the cannabis community are important, but not as important as getting as many shops open as quickly as possible. That is a make-it-or-break-it, do-or-die problem.
The reality is, the pace at which we have been opening adult-use dispensaries is going to have to pick up – both for the sake of the eager entrepreneurs, and in order to have the NY cannabis industry earn its keep to meet its cannabis tax revenue projections.
The “sweet spot” is when we have enough shops open that we are meeting or exceeding the projections for cannabis tax revenues that caused lawmakers to pass the MRTA in the first place.
To play it safe, we need to just about quadruple the rate of shops being opened.
Let’s do the numbers.
Here is where things stand right now
We have 21 adult-use dispensaries licensed by the State of New York, of which four are delivery only and one is temporarily offline (stay tuned – Smacked Village! should be reopening any day now).
All of these businesses have opened since January 2023.
For purposes of the calculations below, we will use the number 19 as the starting point.
At a rate of 2.7 adult-use dispensaries opening per month since January 2023, we are on track to have 32.5 adult-use dispensaries open by the end of 2023.
By end of 2023
The State of New York had previously anticipated $56 million in sales tax revenue in 2023.
Annual sales revenues of $430,769,231 will generate, at 13% cannabis tax, the desired $56 million in cannabis tax revenue. Each of the 32.5 stores will need to generate gross sales of $13,254,438, or $1,104,536 per month.
Put another way, each store would need to ring up sales of $36,818 per day. Not impossible, depending on where the shop is. Some licensed shops are doing close to double that volume several days out of each week; others are doing about a third of that volume.
The reality is, for every one of 32.5 licensed stores to sell $36,818 in weed every single day is a big ask.
Here is the math:
$430,769,231 x 0.13 = $56,000,000 annual cannabis tax revenue.
$430,769,231/32.5 stores = $13,254,438 annual sales for each store.
$13,254,438/12 = $1,104,536 gross sales per month per store.
$1,104,536/30 = $36,818 gross sales per day.
That’s doable for some shops, but ambitious for others.
Suppose instead of 32.5 shops by the end of Year 2023, we had 50 shops open?
That would mean that from our current 19, we opened six shops per month for each of August through December. Probably not realistic. Each shop would need to generate $23,932 in sales each day.
Here is how that would look:
$430,769,231/50 stores = $8,615,385 annual sales for each store.
$8,615,385/12 = $717,949 gross sales per month per store.
$717,949/30 = $23,932 gross sales per day.
By end of 2024
The State of New York had previously anticipated $95 million in cannabis tax revenues in 2024.
We can achieve that if we hit $730,769,231 in gross annual cannabis sales.
Suppose we magically hit our 50 that we projected for 2023 and then we kept opening six stores per month for 2024. That would bring us to 122 shops by the end of 2024.
Here is how that math looks:
$730,769,231 x 0.13 = $95,000,000 annual cannabis tax revenue.
$730,769,231/122 stores = $5,989,912 annual sales for each store.
$5,989,912/12 = $499,159 gross sales per month per store.
$499,160/30 = $16,639 gross sales per day per store.
That’s actually very do-able several days out of the month in even the smallest of shops. Many shops are operating well above those figures on a daily basis.
But we are looking for the sweet spot of sustainability. What number of shops do we have to have so that the more productive stores can carry the weight, even for those that are limping along?
By end of 2025 we will hit the sweet spot!
The State of New York had previously anticipated $158 million in cannabis tax revenues in 2025.
We need annual gross sales of $1,215,384,616 to hit that mark.
Take the 122 shops we ended 2024 with and add another 6 shops per month in 2025, and here is what we get with 194 shops:
$1,215,384,616 x 0.13 = $158,000,000 annual cannabis tax revenue
$1,215,384,616/194 = $6,264,869 gross annual sales for each store
$6,264,869/12 = $522,072 gross sales per month per store
$522,072/30 = $17,402 in gross sales per day per store
Now, suppose we opened two new adult-use dispensaries per week.
Take the 122 shops we ended with in 2024, and add eight shops per month for 12 months in 2025.
Bear in mind, currently we are opening 2.7 shops per month. I’m suggesting that we need to step up our game and open two new adult-use dispensaries per week!
That’s a total of 218 dispensaries by the end of 2025.
$1,215,384,616/218 = $5,575,159 gross annual sales for each store
$5,575,159/12 = $464,597 gross sales per month per store
$464,597/30 = $15,487 gross sales per day per store.
At an average transaction amount of $200, that’s 77 transactions per day, or 6-7 transactions per hour. Steady, but not a stampede. Naturally, we all hope to see long lines and continuous traffic at all of the dispensaries, but let’s keep the projections conservative.
NOTE: These figures do not reflect the revenues from application fees, nor from potency taxes charged to cultivators. These figures also do not reflect the approximately $70 million needed to run the Office of Cannabis Management, with another $5 million set aside for enforcement.
Notably, these figures do not take into account more than $200 million in tax revenues that could be generated by offering a transitional license to existing brick-and-mortar unlicensed cannabis shops. Now that would make an appreciable difference! I’d have to crunch the numbers all over again, only to realize that we hit out tax revenue goals overnight!
Unlicensed cannabis dispensaries operate in their own orbit
The bottleneck in opening adult-use dispensaries is not caused by the unlicensed market.
Put another way: the unlicensed shop owners are not the ones sitting on paperwork to approve CAURD locations and final licenses.
Love ‘em or hate ‘em, the unlicensed pot shops are not the problem. In fact, they are almost irrelevant to the real lag in launching the New York regulated cannabis market. The problem is the pace at which someone moves from being provisionally licensed to actually opening their doors for business.
Whether there are tens of thousands of unlicensed shops open throughout the state, or zero unlicensed shops, the reality is that we need to get to a number slightly more than 200 functioning, licensed adult-use dispensaries in order to meet the projections on cannabis tax revenues. Until then – unless and until you have more than 200 shops open – no crack down or smack down or shut down of the grey market will generate the tax revenue that was contemplated when lawmakers passed the MRTA. The two worlds operate in entirely separate orbits.
The consistent word among CAURD licensees is that they would like to move things along faster, but they continuously hit roadblocks in the approval process.
We have 463 provisionally-licensed CAURD shops. Even if we went from slightly more than two per month to two per week, we still won’t run through the list of licensees in less than 57 months.
Here’s that math:
463/8 per month = 57.875 months
57.875 months/12 = 4.822 years.
And all of this is before the social equity and general license applications have even been released!
The Governor knew that we needed more dispensaries, and fast!
Kathy Hochul suggested in 2022 that 100 dispensaries would be open by summer of 2023.
She, or her staff members, were moving in the right direction. But we really need slightly more than twice that number before the New York cannabis market can mature.
The point at which the market achieves the projections in tax revenues contemplated by lawmakers when they passed the MRTA will be the point at which we can rejoice over our successful NY cannabis market.
We have hundreds of provisionally licensed business owners, with more to be announced next month. Let’s get this done!
Work with the new CAURD licensees as transparently and as efficiently as possible to get us to that 100-shop mark.
Wouldn’t it be great if we could reach that sweet spot sooner than the end of 2025!
For perspective: Monday, July 31, 2023, was day 853 since the MRTA was passed.
It will take us almost that long to finally arrive at the tax revenues we have been needing to see.
Another 853 days puts us in late November 2025.
Please don’t let us hang on that long for the magic to happen in this market!