January 15, 2019

Gov. Cuomo Has the Right Idea on How to Tax Recreational Cannabis

news release

Media Contact

Following is a statement by Carl Davis, research director at the Institute on Taxation and Economic Policy, regarding the cannabis tax structure unveiled by New York Gov. Andrew Cuomo today:

“If New York’s lawmakers are going to legalize cannabis sales, it’s important that they get the tax structure right. Fortunately, Gov. Cuomo has begun to guide that debate in a reasonable direction with his proposal for a hybrid tax structure that considers not just the price of cannabis, but also its weight.

“There is ample evidence from Colorado and other western states where legal cannabis sales are underway that retail prices will fall significantly in the years following legalization. Hitching cannabis taxes solely to the price of the drug is a recipe for long-run revenue inconsistency and disappointment. If cannabis becomes inexpensive, then a cannabis tax based on its price will fail to generate meaningful revenue. A weight-based tax can help create a more consistent and robust revenue stream.

“Getting the tax structure right from the outset is important. Last year, excise taxes collected from recreational cannabis sales in the states that have legalized it exceeded $1 billion for the first time. Cannabis tax revenue is poised to grow rapidly as New York and other states weigh legalizing cannabis. Connecticut, Delaware, Illinois, New Jersey, Rhode Island and Vermont are also considering legalization of recreational cannabis sales this year.”

To inform state policy debates on cannabis legalization, next week ITEP will release a new report, Taxing Cannabis, that will provide a comprehensive look at cannabis tax structures and a groundbreaking, in-depth analysis of every month of tax revenue data reported by states that have legalized recreational cannabis.