The stronger the pot, the greater the tax.
New York Gov. Andrew Cuomo’s latest swing at legalizing recreational marijuana in the state includes a new twist on taxation. Marijuana would be taxed based in part on its potency, measured by the level of THC, the psychoactive ingredient in cannabis.
The tax structure would be unique to New York, which trails 15 other states in legalizing recreational pot.
In his budget address late last month, Cuomo estimated marijuana could eventually generate about $300 million in annual tax revenue.
This is the third attempt at legalizing marijuana from Cuomo, but the first with the potency tax.
Wholesalers of cannabis products would face a tax of between 0.7 cents and 4 cents per milligram of THC, depending on the product. The highest charge is reserved for edible cannabis items.
A California state-run research agency said in 2019 that the state could improve its complicated pot taxes by adopting a simple charge on potency—though the recommendation was not acted on. Illinois, which legalized marijuana last year, charges a higher tax on products with THC levels above 25%, but the tax is still based on the retail price of the product.
New York’s proposal would directly base taxation on potency level, before a retail price is set. Customers still would have to pay a tax of 10%, plus local and state sales tax, at the store.
“You levy a tax on a product like recreational marijuana because you assume there are some negative externalities, or harm, associated with consumption—same as cigarettes or alcohol,” said Ulrik Boesen, a senior policy analyst at the Tax Foundation. “The question then is: How do we best capture that harm in a tax?”
Cuomo has placed the bill—officially the Cannabis Regulation and Taxation Act—in his proposal for the state budget, which is expected to be voted on by April 1.