Earlier this year, New York became the 15th state to legalize cannabis for adult recreational use. Though sales are expected to begin in 2022, New Yorkers over the age of 21 can now possess and smoke marijuana. Medical marijuana was already legal in New York. The move is expected to have widespread ramifications including creating a new tax base, job creation and - as more recent events have shown - pose a significant force in the real estate market.
To meet what is expected to be significant demand for their products, marijuana companies are jostling with more traditional real estate firms to buy up prime real estate locations, including former prison sites, greenhouses, warehouses, land and storefronts. Adding to the frenzied demand for real estate, many landlords have been hesitant to lease to cannabis businesses, leading many to buy real estate as opposed to lease.
Companies already in New York’s medical marijuana industry – many of them multistate operators (MSOs) – have been scouting and purchasing facilities in anticipation of expanding into the adult-use market. While many states require cannabis businesses to secure their real estate ahead of time before granting a license, New York has not yet determined whether it will follow suit.
While there are financial incentives for companies purchasing real estate including the potential for sales and use-tax exemptions and multi-year property tax abatements, there will also be a unique tax system.
According to MarketWatch, Cannabis products will be subject to a 13% tax, 9% of which will be directed to state coffers and 4% to localities. A wholesale tax will be applied to products based on potency, rather than weight. The original plan to impose a 20% tax was scrapped, the rationale being that it would have stifled growth in the cannabis sector and encouraged black market activity.
Tax revenue will go toward a social equity fund, education, and drug-education programs.
The state’s proposed marijuana tax is above the average for the states that have legalized it so far but it’s not the highest (Washington state currently collects a 37% Marijuana excise tax).
The Office of Cannabis Management and a Cannabis Control Board will regulate the industry. But there are many lawmakers, activists, advocates, lobbyists and company executives that will continue to exert influence regarding cannabis regulation. Considering that it is a nascent industry, there is uncertainty regarding both enforcement provisions, and considering that New York is taxing based on potency – questions also remain regarding lab testing consistency and facilities.
Overall, the cannabis industry is heavily regulated and largely unsettled as the federal and state governments work to implement policies and procedures. UHY has a dedicated team that is focused on the cannabis industry and can help navigate the evolving examination of accounting practices, certifications, licenses and federal, state and local tax information.