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420 with CNW — Cannabis Operators Applaud End of Potency Tax in New York State

New York governor Kathy Hochul has successfully changed the state’s cannabis tax structure. Starting June 1, 2024, a new flat excise tax replaces the previous potency tax, marking the beginning of the new financial year.

This move is part of New York’s $237 billion budget for FY 2025 and is receiving positive feedback from many in the cannabis industry, especially smaller retailers, processors and social-equity beneficiaries.

With the tax reform, retail marijuana prices are expected to decrease, a significant development as licensed cannabis entities strive to compete with the numerous illegal shops, particularly in New York City. Governor Hochul had criticized the initial rollout of the recreational marijuana market as problematic. Earlier this year, she proposed eliminating the potency tax and implementing a flat 9% excise tax instead.

Previously, the state’s 2021 cannabis act — MRTA — required cannabis operators to pay taxes based on THC content at 0.5 cents, 0.8 cents, and three cents per milligram of flower, concentrates and edibles, respectively.

This sometimes resulted in a 25%–30% tax on typical market prices, according to Naturae cofounder and CEO, Nicolas Guarino. Some products, including tinctures, saw price increases of up to $60 per unit due to these taxes. With the new tax structure, Naturae aims to reduce prices on about 30% of its products, offering discounts between 15% and 35%.

Silly Nice, an NYC-based brand run by Black and veteran entrepreneurs, had to pay around $20,000 in THC taxes during the first quarter of the year, which had a big impact on the company’s profit margins. Cofounder LeVar Thomas is happy about the tax shift, pointing out that it will enable the company to increase the range of products it offers at more inexpensive prices.

Happy Munkey, led by cofounder and CEO Vladimir Bautista, is set to open its first store in Manhattan’s Washington Heights. Bautista believes the new tax will make legal marijuana more affordable and reduce the appeal of the illegal market.

The new rule, however, has little financial effect on larger, vertically integrated company’s such as Chicago-based PharmaCann. These multistate operators, known as registered organizations (ROs), were once in the medical sector and are subject to both retail and wholesale taxes. The economic impact on ROs is neutral, according to Jeremy Unruh, PharmaCann’s spokesperson, and it is still unclear what the true benefits will be for consumers.

PharmaCann was among six ROs permitted to enter the recreational market in December, one year after sales began. The policy change eliminated the  three-year waiting time for ROs, nullifying the initial first-mover advantage granted to smaller suppliers and social-equity shops.

Despite the broad support for eliminating the potency tax, the new flat 9% excise tax is causing challenges because of unpaid invoices. Payment delays are a significant issue in the marijuana industry, contributing to the downfall of businesses such as Herbl and MedMen Enterprises.

New York cannabis operators have only 20 more days to collect payments from the previous quarter, a tough task given the financial strains in the industry. Many operators are currently on tax-payment plans with the state.

Guarino noted that while there is a mechanism for collections, the average collection time is about 45 days, even with 30-day net terms, complicating timely tax payments.

The situation in New York State is likely to be studied closely by other cannabis regulators, and this could result in similar reforms within other jurisdictions where companies such as Trulieve Cannabis Corp. (CSE: TRUL) (OTCQX: TCNNF) have operations.

About CNW420

CNW420 spotlights the latest developments in the rapidly evolving cannabis industry through the release of an article each business day at 4:20 p.m. Eastern – a tribute to the time synonymous with cannabis culture. The concise, informative content serves as a gateway for investors interested in the legalized cannabis sector and provides updates on how regulatory developments may impact financial markets. If marijuana and the burgeoning industry surrounding it are on your radar, CNW420 is for you! Check back daily to stay up-to-date on the latest milestones in the fast -changing world of cannabis.

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