New York’s 13% cannabis tax may be too high as state has ‘one of the most sophisticated black markets’ in the United States, expert says
After years of political wrangling and lobbying from advocacy groups, New York State has legalized adult recreational cannabis in a move that should shake up the industry, inspire other states to follow suit. step up and help start a fire as part of the United States’ reform efforts. still strict cannabis laws. However, some experts believe the state’s 13% tax may be too high to compete with New York’s robust black market.
Governor Andrew Cuomo signed the bill Wednesday morning and called it a historic day for the state, which is set to become the second largest cannabis market in the United States, behind California alone.
“New York is such a heavyweight and such an influencer, it will have a domino effect all over the East Coast,” said Rob DiPisa, co-chair of the Cannabis Law Group at law firm Cole Schotz.
Charles Gormally, co-chair for the Cannabis Act at Brach Eichler, agreed. “Residents of New York are overwhelmingly supportive of legalized cannabis, so it is welcome to citizens that this state is moving forward with the creation of a regulated market for cannabis for adult use,” Gormally said. “There seems to be a real commitment to moving forward at a steady pace, perhaps motivated by the fact that not doing so will cede the market to states like New Jersey that are on the way to creating a regulated market. and taxed for cannabis. “
New York’s bill, called the Marijuana Regulation and Taxation Act, will allow adults 21 and older to buy marijuana and grow up to six plants at home. The state’s existing medical cannabis operators will be allowed to operate three adult stores, co-located with their medical dispensaries.
The bill has a strong focus on social equity, ensuring that communities and individuals who have suffered the most during years of the “war on drugs” can and will benefit from legalization. Convictions for non-violent cannabis crimes will be overturned and people who have sold cannabis illegally in the past will be able to apply for licenses.
“The legal market needs a trio of the same product, the same services and the costs that are somewhat competitive with the black market.”
“The MRTA not only legalizes adult marijuana use, but corrects decades of disproportionate targeting of people of color, ensures they are included in the legal marijuana industry, and re-invests in education and in communities that have been harmed, ”Assembly Speaker Carl Heastie said in a statement from Cuomo’s office announcing the agreement.
Most importantly, the program will offer low or zero interest loans and incubation programs to people in these communities, giving them the financial means to gain a foothold in the industry.
“This sets a new bar for social equity, and it’s an important part of eliminating the black market,” DiPisa said. “You have to provide an entry point for people who have been in the industry for years. Without it, the black market will continue. ”
The black market is the biggest challenge facing New York City, as it is one of the most sophisticated in the country and has included services like door-to-door delivery for years, DiPisa said. New Yorkers have in some cases had dealer relationships spanning over a decade and will expect a high level of convenience and personal service from the legalized cannabis trade.
In addition, “consumers have become much more educated, they like to see test reports and QR codes to find out exactly what is going on in their body,” he said. “The black market already has these products from other states of adult use. The legal market needs a trio of the same product, the same services and at a somewhat competitive cost compared to the black market. “
Cannabis products will be subject to a 13% tax in New York State, of which 9% will go to state coffers and 4% to localities.
Cannabis products will be subject to a 13% tax, of which 9% will be directed to state coffers and 4% to localities. A wholesale tax will be applied to products based on potency, rather than weight, of half a cent per milligram for flowers, eight tenths of a cent per milligram for concentrated cannabis, and 3 cents per milligram for flowers. edible. It’s a big improvement on the original plan to impose a 20% tax, a move that experts say crushed the industry and allowed the black market to continue to thrive.
“It’s a step in the right direction, but it may still be too high,” said DiPisa, who expects the black market to coexist for at least five to ten years. “But the legal market has to start somewhere, and we’ll see what happens over time.”
Cuomo said he expects legalization to create more than 60,000 jobs, spur $ 3.5 billion in economic activity and generate more than $ 350 million in tax revenue once the program is fully operational. operational. This money is much needed given the $ 15 billion deficit the state is facing, revenues having been decimated by the coronavirus pandemic.
The program will also create a new state regulatory body to oversee products. Part of the revenue generated will be diverted to be reinvested in communities that have been most affected by draconian drug laws in the form of education, drug treatment and prevention programs.
Nathaniel Gurien, chief executive of Fincann, a consultancy and advisory firm specializing in cannabis banking and payment systems, said minority investors should think more broadly about how to access the sector.
“The hunt for cannabis licenses can be ‘the fool’s gold’, especially for minority applicants, once federal legalization allows every corner store to sell pre-rolls,” he said. he declares. “It might be wiser to apply current skills [and] experience combined with newly acquired skills [and] capital provided by action programs to launch a niche activity, [for example] tourism, professional services, equipment, horticulture – the possibilities are endless, barriers to entry are low, and the prospects for long-term prosperity are greater.
Cuomo has said he expects the sector to be up and running in 2022, but it could take longer than that. Members of the new regulatory body must be appointed, regulations must be drafted and approved, and licenses must be granted. The state will also need to expand cultivation and cultivate more cannabis, which for now is limited to plants grown for the medical market.
New York is the 17th state to legalize cannabis for adults and is expected to spur reform efforts. Cannabis is still classified as a Schedule I drug at the federal level, grouping it with heroin. Senate Majority Leader Chuck Schumer says he will make reform law a key priority of the current Congress, boost hopes of ending the federal ban.
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