Budget includes cannabis market changes
Municipalities can padlock and seek fines against illegal pot shops
ALBANY — The state budget that’s expected to be adopted in the coming days calls for repealing the potency tax on marijuana products as well as new regulations intended to give local municipalities, including New York City, the ability to more easily inspect and shut down unlicensed cannabis stores.
The enforcement actions, which include provisions to seize illicit marijuana products, will be limited to civil proceedings, however, and include potential fines for violators of up to $10,000 per day. In addition, there will be a process for warning bodega and convenience store operators that if they continue selling cannabis illegally they could face the suspension of state licenses they may have to sell tobacco, alcohol or lottery tickets.
The budget bills unveiled overnight Wednesday also will eliminate a state excise tax on medical marijuana, which lawmakers have said is intended to help keep costs down for those who are prescribed cannabis products for medical conditions. Part of that excise tax — 3.15 percent — that is returned to local municipalities where the medical cannabis stores operate will remain in place.
The tax changes that are intended to lower medical marijuana costs, lawmakers said, can help ensure patients continue relying on medically prescribed products rather than trying to “self-medicate” by purchasing products from retail marijuana stores or turning to the illicit marketplace. At the medical cannabis shops, pharmacists are available to help patients determine the right products they may need to help with specific conditions.
State Sen. Jeremy Cooney, a Rochester Democrat who chairs the Senate’s Cannabis Committee, has been among the lawmakers pushing for more than two years for the repeal of the potency tax. He’s also supported expanded enforcement tools to go after illegal shops. Cooney said he wanted a lower rate than the 9 percent flat tax that will replace the potency tax. But the 9 percent rate, which had been pushed by Gov. Kathy Hochul — is still “a big win,” he said.
“I think what evolved over the last year and a half or so, as we saw the illicit market grow significantly and outpace the legal dispensaries, is that it became an affordability and basically a price competitiveness issue,” Cooney said, adding that it has been imperative to make sure “our legal stores could compete in the sale of recreational cannabis to consumers.”
Cooney has repeatedly warned that a flourishing illicit market for cannabis would be “a public safety and public health disaster.” Unregulated products stand a greater chance of being contaminated with unknown additives, Cooney said, a direct refutation of what the legalization law set out to accomplish.
The potency tax had also been criticized for its complexity, which has been heaped on the new retail marijuana industry stakeholders who have already been grappling with supplychain issues and a slow rollout that has financially imperiled many of those who have tried to succeed in the struggling market.
The expanded local enforcement powers are built into the budget for New York City, but municipalities elsewhere in the state will need to adopt the regulations to begin the civil enforcement. In communities where there may be only a few illegal shops, they can still ask
state regulators to inspect and potentially shut down those operations.
Landlords who provide safe harbor to illegal shops may also face civil consequences, including hefty fines.
Three years after New York legalized marijuana and began slowly establishing its retail marketplace, recreational cannabis has become a more than $7 billion-a-year industry. The problem, according to the New York Cannabis Conference, is that only about $150 million of those sales last year were from licensed retailers — generating a paltry $13 million in state tax revenues, which is far short of what lawmakers had envisioned.
The fallout has impacted taxpayers but also the retailers and other industry stakeholders. Many of them leveraged their life’s savings to gain a foothold in the retail market, but just 100 brick-and-mortar recreational stores have opened statewide since marijuana was legalized in 2021.
The efforts to turn around New York’s ailing cannabis market come after Gov. Kathy Hochul recently directed the commissioner of the state Office of General Services to undertake a monthlong assessment of the much-criticized Office of Cannabis Management, an audit that comes as the 3-year-old agency faces a host of legal troubles and widespread criticism amid the state’s turbulent rollout of legalized marijuana. That review is expected to conclude soon.
The industry has been beset by frequent delays in licensing and regulatory hurdles that cannabis farmers and other industry stakeholders complain have prevented many small business owners from becoming profitable. In addition, the lax enforcement of illicit cannabis shops has cramped the legal retail market.