NY’s quarterly tax payments for Cannabis businesses ‘threatens the viability’ of all operators
Urgent Need for Reform: New York's Cannabis Tax Payment System.
As the April 1 state budget deadline looms in Albany, all cannabis tax discussions have been on the THC potency tax repeal-and-replace proposals.
We are thankful that the governor and legislature have all offered substantial replacement options for the THC potency tax. However there is a separate cannabis tax issue that needs to be addressed.
The existing “quarterly payment system” is problematic for two main reasons: it requires businesses to pay taxes in advance, before collecting payments for the tax period, and it imposes a tax nearing 25% of sales on an industry yet to establish stable profit margins, unheard of in any other new industry.
On behalf of the entire New York cannabis industry — from cultivators to processors to dispensaries — we argue that a healthy, balanced industry should be treated similarly to the local New York alcohol sector, paying taxes annually at a more manageable rate.
With these critical adjustments, the nascent cannabis sector could provide substantial employment, contribute its fair share in taxes, and offer returns to its investors to continue to grow sustainably.
Considering the current 110-day Excise Tax cycle, cannabis producers in New York must pay taxes before receiving payment for that period’s sales. Often, they secure only 50% of the necessary sales revenue by the due date, given that most stores pay about 45-50 days post-delivery.
This timing means that about one-third to half of the period’s sales revenue is still pending when taxes are due, forcing businesses to rely on profit margins to cover the tax — which with the current market size and lack of scale is often in the range 5-10% of sales for New York operators.
Take, for example, total sales of $250,000 over December, January, and February. The Excise Tax due would be approximately $62,500, breaking down to about $20,800 monthly. However, the profit from December and January – if it exists – likely only totals approximately $16,700, insufficient to cover February’s $20,800 Excise Tax, thereby necessitating external financing.
This leads New York operators into further predatory debt as there is no conventional financing for cannabis companies, perpetuating a vicious cycle that worsens as the market expands. The lack of external financing options for the cannabis sector intensifies this problem, with tax authorities sometimes seizing producers’ property for unpaid taxes.
Several businesses, including ours, have faced property liens from New York tax authorities for taxes due on revenues not yet received, due to the short collection period. Although we managed to temporarily resolve this issue through a payment plan, it is not a sustainable solution.
This tax structure threatens the viability of nearly all operators in the industry, highlighting the critical need for reform in the tax payment cycle. Even with a proposed excise tax reduction to 9%, the problem remains significant and requires immediate attention.
We are thankful that Senator Jeremy Cooney is understanding of this issue and is working to address it in Albany.
