New York is poised to collect $1.25 billion in revenue from taxes on legal cannabis sales, according to a budget projection from Democratic Governor Kathy Hochul released on Tuesday. The revenue projections are included in the state budget for next year, which includes significant investment in projects designed to continue the economic and social recovery from the ongoing coronavirus pandemic.

“We have the means to immediately respond to the COVID-19 pandemic as well as embrace this once-in-a-generation opportunity for the future with a historic level of funding that is both socially responsible and fiscally prudent,” Hochul said in a statement from the governor’s office.

New York’s state budget for the 2023 fiscal year, which is detailed in an 85-page briefing book from the governor’s office, anticipates $56 million in cannabis revenue, including $40 million collected from license fees on cannabis businesses. State lawmakers legalized recreational cannabis last year, and since taking office in August Hochul has vowed to expedite the regulation of adult-use cannabis stalled by Andrew Cuomo, the former governor who resigned last summer because of a sexual harassment scandal.

Over the next six years, the governor’s office predicts that the state will collect more than $1.25 billion in revenue from taxes and fees on recreational cannabis, with the annual total increasing as more producers, processors and retailers launch their operations. Cannabis tax revenue is expected to increase to $95 million in fiscal year 2024 and reach an estimated $363 million in 2028.

New York Budget Projections Include Revenue from Cannabis ‘Potency Tax’

The taxes on New York’s cannabis industry include a nine percent excise tax and another four percent tax for local governments. The state’s regulations also include a separate tax on THC, with the amount of tax collected rising as the potency of a product rises.

David C. Holland, a New York attorney with extensive experience in cannabis policy and law, says that the “THC potency tax at first seems like the state gouging revenue but, in fact, some view it as being an ingenious, recession-proof tax for the state to receive predictable revenue.”

Holland explained that the tax on THC is levied at a rate ranging from $0.005 (one-half of a penny) per milligram of THC up $0.01 (one cent) per milligram, depending on the form of the cannabis product (i.e. dried flower, extracts or edibles). For example, an edible with 10 mg of THC would be assessed a tax of 10 cents, while a 100mg edible would be taxed one dollar. The THC tax is levied on wholesale transactions, when products are transferred from distributors to retailers.

Holland, who is also the co-founder and president of the NYC Cannabis Industry Association, noted that the tax on THC provides the state government with a revenue stream that is not dependent on the ups and downs of the economy.

“What makes it recession-proof is that the price per pound of cannabis, whether $1,000 in times of shortage, or $200 in times of surplus is irrelevant—the tax on potency remains a constant due to the THC concentration of the raw or processed product, and that tax is uniform across all product lines,” Holland wrote in an email to High Times.

“As such, the tax is really a more predictable revenue source for the state and insulates it against the boom-and-bust cycles of crop cultivation and the idiosyncrasies of market consumers in the forms of cannabis they choose.”

Revenue raised by the nine percent state excise tax will be divided among several social programs, with 40 percent going to education, 40 percent to community reinvestment, and the remaining 20 percent devoted to substance abuse treatment. Income from the additional four percent tax will be shared by local governments, with counties receiving 25 percent and 75 percent going to cities, towns and villages. 

The launch date for legal sales of adult-use cannabis in New York has not yet been determined, but is expected to come later this year or in early 2023.

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