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Gov. Kathy Hochul’s plan to repeal the potency tax and replace it with a 9 percent tax on the sales of wholesale cannabis products is drawing fire from critics who claim it will put New York at a disadvantage to neighboring states.
“When you add it all up, voila, you’re looking at a 31 or 32 percent tax” that ultimately falls on the consumer, says Damien Cornwell, incoming president of the Cannabis Association of New York.
The potency tax based on the THC content of products was bad news, Cornwell said, and cannabis operators are “relieved” that it’s on the chopping block.
But, Cornwell added, the replacement – as put forth by the governor – is “unrealistic” and potentially “very destructive” for cannabis retailers trying to compete in a space where consumers can travel to Massachusetts, which has a total tax of about 20 percent, or New Jersey, where the tax burden is also much lower, although that state’s complex system makes the tax effect hard to pinpoint.
Instead of focusing on a presumptive revenue goal, like $350 million, Cornwell said what the state needed was a tax system that was “equitable and fair.”
To that end, he pointed to a proposal by Assembly Majority Leader Crystal Peoples-Stokes that called for a flat wholesale tax of just 3 percent.
“My colleagues and I are in the process of reviewing the governor’s proposal,” said Peoples-Stokes in an email to NY Cannabis Insider, and are comparing it to the legislation she sponsored. The goal, she said, is to implement “a reasonable tax structure” that does “not over tax cannabis to the point where legal product becomes unaffordable.”
Kaelan Castetter, managing director at NYC-based Castetter Cannabis Group, termed the planned repeal of the potency tax a “massive win” for consumers, but said Hochul’s 9 percent substitute plan was “way too high.”
“It should be more like 2 or 3 percent,” Castetter said, because otherwise it would impose a huge burden on growers and processors who (after the last two years) don’t need any new hurdles to overcome.
What is sometimes forgotten, Castetter noted, is that any tax at the wholesale level on growers, processors and distributors, is a problem.
“These licensees are responsible for calculating and collecting the 9 percent tax immediately upon delivering the product to a dispensary,” he said.
“That tax is then remitted to the state each quarter,” he explained. “However, retailers are allowed 30 days to pay for product and some take much longer than that due to the OCM not yet having an active and public delinquency list,” thus “creating a cashflow crunch for producers who owe taxes on product they have yet to be paid for.”
While giving Gov. Hochul credit for recognizing that the THC potency “needs to be repealed,” Assemblywoman Donna Lupardo, chair of the Assembly Agricultural Committee, said she did not support the governor’s substitute plan that “puts New York at a competitive disadvantage with neighboring states.”
New York needs a tax system, she said, that “could give us a fighting chance to attract customers from the tax-free illegal market.”
Lupardo’s counterpart in the state, Sen. Jeremy Cooney, (D-Rochester), said while Hochul’s repeal initiative was a “step in the right direction,” a different approach was needed.
“I introduced legislation last year that would repeal the potency tax with a flat-rate excise tax,” he said, “contrary to the governor’s proposed wholesale tax of 9 percent. This flat rate would help keep prices down for retail vendors and suppliers.”
Paul LePore, owner of the recently opened Happy Day Dispensary Inc., located in East Farmingdale — only the second retail cannabis dispensary operating on Long Island — said the governor’s tax plan wasn’t “good news for anyone.”
The tax on wholesale sales is baked in the cake for dispensary owners who customarily have to double that fixed cost when setting their retail prices, he said.
It ultimately gets “passed onto the consumer.”
LePore said he favors “trying to keep it simple” with perhaps a 7 or 7.5 percent tax on wholesale sales, whether it’s on oils, edibles or flower.
Hochul spokesman Jason Gough said he was surprised by criticism of the governor’s cannabis tax plan unveiled during her 2024 State of the State address on Jan. 9.
And he termed the 30 or 31 percent state cannabis tax estimate (made by experts in the field) “completely inaccurate” — while at the same time insisting there would be no doubling of the proposed 9 percent wholesale tax by retailers looking to cover their costs.
He did acknowledge that, like any budget proposal, the governor’s office would be open to negotiations with the legislature.