New York Governor Kathy Hochul recently announced a plan to crack down on illegal pot shops.
According to the NY Times, in a March 24, 2024 article titled “New York’s Marijuana Scorecard: 85 Legal Shops, 2,000 Illegal Ones,” there are 85 legal and 2000 illegal shops (hence the title). The article goes on to say that the problem of these illegal shops “…has emerged as the most pressing challenge facing the rollout, as the authorities struggle to keep the state’s promise to deliver a $5 billion market to diverse small businesses and people harmed by past anti-marijuana policies.”
Without getting into the politics of delivering a $5 billion market to small and diverse businesses (though aren’t many of those being shut down run by small and diverse businesses and people?), let’s look at the math.
According to the NY Office of Cannabis Management, in an article titled “What is the Law – Taxation and Revenue,” Adult-Use Cannabis Taxation includes:
- Taxes on the distributor (based on milligrams (mg) of THC in the products. These taxes are paid when the products are sold by a distributor to a retailer.
- Cannabis products are subject to a 13% excise tax at the time of sale. If I understand correctly, 9% goes to the state and 4% to the municipality/city where the shop is located.
- $600 annual registration fee.
Since I have no idea about the distributor taxes based on concentration, let’s look at the excise tax. An estimated $5 billion market yields a nice tax revenue of $650 million. Based on the numbers, about 95% of this revenue (about $615 million) is not realized because of illegal shops.
Also, 2000 shops at a $600 per year registration fee yield another $12 million.
Quite frankly, I agree with this crackdown. As a country of laws, we should all abide by them. I am also happy that the NYPD and Port Authority of NY and NJ are starting to go after toll cheats (those with ghost license plates and other devious methods to evade tolls—maybe another story for another day).
An interesting side note from the Office of Cannabis Management document is on revenue distribution: “All adult-use cannabis taxes are deposited in the New York State Cannabis Revenue Fund. First, the Cannabis Revenue Fund will cover the costs of administering cannabis programs and implementing the MRTA, including the OCM’s operating costs, increasing Drug Recognition Expert (DRE) training, and implementing incubators and workforce development for social and economic equity applicants.” No approximation is provided of how much this is.
Ironically, 20% of the remaining will go to the “Drug Treatment and Public Education Fund.”