New York Governor Moves to Repeal Potency-Based Cannabis Tax

New York Gov. Kathy Hochul proposed Jan. 16 that the state do away with its potency-based tax structure for licensed cannabis operators.

Under current law, the tax rate on cannabis distribution is five-tenths of a cent per milligram of THC for flower, eight-tenths of a cent per milligram of THC for concentrates, and three cents per milligram of THC for edibles.

The potency tax rates are applied in addition to a 9% state excise tax and a 4% local retail excise tax on cannabis sales.

In Hochul’s state budget proposal for the 2025 fiscal year, which kicks off April 1, she suggests “repealing the cannabis potency tax and replacing it with a weight-based tax to ease tax compliance for distributors.”

“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,” Hochul wrote in the budget proposal.

For vertically integrated cannabis operators, including New York’s medical cannabis licensees—called “registered organizations” (ROs)—and microbusinesses, Hochul proposed that the new wholesale tax will accrue on retail sales to consumers and be imposed on 75% of the final retail sales price.

New York’s adult-use retailers logged more than $137 million in sales as of Dec. 9, 2023, and were expected to surpass $150 million in sales in 2023 once December’s figures are finalized.

Last year’s sales generated nearly $16.3 million in tax revenue, according to data from the Office of Cannabis Management.

Hochul’s proposed budget—and proposed repeal of the cannabis potency tax—is now in the hands of New York’s lawmakers, who have an April 1 deadline to approve the budget.