▶ Plan to legalize recreational marijuana use

Proposal estimated to bring in $300M in tax revenue by its 3rd year

Gov. Andrew Cuomo on Tuesday revealed the details of his long-awaited proposal to legalize marijuana in New York, which would restrict access to anyone under 21, automatically seal marijuana offenses on a person’s criminal record, and generate an estimated $300 million in new tax revenues.

During a budget address Tuesday afternoon, he said regulation in the industry would help protect public health and safety by subjecting the products to stringent quality and testing regulations.

It would also promote social equality, he argued, by reducing racial disparities in criminalization and incarceration rates.

“Let’s stop the disproportionate impact on communities of color,” he said. “Let’s create an industry that empowers the poor communities that paid the price and not the rich corporations that come in to make a profit.”

Taxes

The proposed Cannabis Regulation and Taxation Act would impose three taxes on the adult-use of marijuana, which together would generate roughly $300 million in new revenues for the state by the program’s third year.

The first tax would be on the cultivation of cannabis at a rate of $1 per dry weight gram of cannabis flower and $0.25 per dry weight gram of cannabis trim. The second would be on the sale by a wholesaler to a retail dispensary at a rate of 20 percent of the invoice price. The third would be imposed on the same sale at 2 percent of the invoice price, but collected in trust for the county in which the retail dispensary is located.

Counties and large cities would be allowed to “opt out” of the retail industry, Cuomo said, by passing local laws that prohibit marijuana shops from opening within their jurisdictions.

“So we’re not telling them what to do, but they have to affirmatively opt out of the program,” he said.

Revenues from the state taxes would go toward administering a regulated cannabis program; data gathering, monitoring and reporting; a traffic safety committee; small business development and loans; substance abuse, harm reduction and mental health treatment and prevention; public health education and intervention; research on cannabis uses and applications; and program evaluation and improvements.

Regulatory structure

The bill would create a new Office of Cannabis Management (OCM) that centralizes all the licensing, enforcement and economic development functions into one entity. The OCM would administer all licensing, production, and distribution of cannabis products in the adult-use, industrial and medical cannabis markets.

Perhaps of most interest to industry insiders was the governor’s proposal of a threetier distribution model for the recreational market, in which the state would issue separate licenses for producers, distributors and retailers, and bar producers from also owning retail outlets.

While similar to the market for alcohol, it differs from the vertical integration model currently used by the state’s medical marijuana industry, in which a registered organization is allowed to control the process from seed to sale.

Small business advocates say this is a good thing, as it gives more space for new companies to enter the market.

Concerns

But the state’s medical marijuana industry said Tuesday that it hopes the proposed legislation will allow existing medical providers to participate fully in the recreational market, as “that is the only way to keep prices low enough to ensure patients continue to receive the care they need and to protect against an illicit market.”

Ari Hoffnung, CEO of Vireo Health of New York, a medical marijuana organization with a grow facility in Johnstown and a dispensary in Albany, acknowledged marijuana legalization as a huge step forward for New York, but said he’s wary, too, of the proposed distribution model.

“I think the question that we have is what happens in an environment in which vertical integration is not mandated, but prohibited? That’s one of the many reasons we’re going to be studying this legislation very carefully.”

The proposed program would limit the number of producers and retail dispensaries to guard against a market collapse, encourage equity through craft growers and cooperatives, and provide technical assistance, training and incubators to enable communities hit hard by the war on drugs to participate.

The governor’s plan will not allow New Yorkers to grow their own marijuana for recreational use.

It will, however, allow home grow for medical use — a provision many advocates say is necessary to ensure access given the high cost of products in stores and lack of insurance coverage.

The governor’s proposal now heads to the Senate and Assembly for debate.