New York is slated to legalize cannabis in 2021 as Governor Cuomo goes all-in

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If the third time really is the allure, then 2021 will be the year New York finally legalizes cannabis for adult recreational use, creating a major market that should help fuel the drive to end the federal ban.

Andrew Cuomo’s efforts to legalize the New York governor have been thwarted for the past two years by lawmakers unable to agree on laws that would ensure the incorporation into a new legal sector of those communities that were disproportionately high during the years of the “war on drugs” had suffered. “This time will be different, he said.

“That should have happened years ago,” Cuomo told reporters at a recent briefing. “I think too many people have been locked up, locked up and punished. It exaggerated the injustice of the judicial system. …. This is a year that we need funding and a lot of New Yorkers are struggling and I think this year will give us momentum to get us over the goal line. “

Experts agree that this time around, lawmakers have an added incentive, not least that neighboring New Jersey received approval to legalize as part of an election initiative in November and would likely deduct whatever revenue New York could make if legalized.

“We believe they will find a middle ground and move forward,” said Nick Kovacevich, managing director of KushCo Holdings, a manufacturer of containers, packaging and other products for the cannabis industry. “Another massive delay will be catastrophic. We have seen these compromises take place at the local and state levels once the momentum and public pressures reach a turning point. We believe New York is getting closer, if not already. “

Cuomo expects legal cannabis to create more than 60,000 jobs, boost economic activity by $ 3.5 billion and generate tax revenues of more than $ 300 million once the program is fully up and running. This money is desperately needed given the $ 15 billion deficit the state is facing as revenues have been decimated by the coronavirus pandemic.

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The governor again proposes the establishment of a new cannabis management bureau to regulate and oversee the Empire State’s cannabis and hemp industries. As he promised last year, Cuomo seeks an “equitable structure” for legal cannabis that provides licensing and other support to members of the black community and other minorities.

The proposal will “correct past damage by investing in areas disproportionately affected by the war on drugs. It is understood that overturning previous cannabis convictions will help correct the injustice on the day of arrest, but not correct the permanent damage. Citizens, families and communities were arrested, ”Cuomo said in a State of the State Book, the latest Week was released.

Cuomo is proposing a completely different tax structure this year, based more on potency and product than weight. Retail consumers are taxed at a rate of 10.25% with local taxes superimposed. That is far less than the nationwide rate of 20% proposed last year.

Retailers pay wholesalers a tax of 0.7 cents per milligram of THC, the ingredient in cannabis that creates the cannabis-associated “high”. This tax would apply to flower, pre-roll, and shake products.

Cannabis concentrates and oil products, including topical products, would be taxed at a rate of 1 cent per milligram of THC, and cannabis-infused products, including food, at 4 cents per milligram.

Rob DiPisa, co-chair of the cannabis legal group at law firm Cole Schotz, said the tax structure shows that lawmakers are better informed about the sector.

“You are no longer such a ‘baby in the woods’ when it comes to products,” he said. “They understand the industry better and know that weight doesn’t drive value. And they understand that food is the fastest growing part of the industry. “

Not all of the tax revenue is added to the general government fund proposed in the past. Instead, Cuomo will set up a $ 100 million fund over a four-year period expressly earmarked for “social justice purposes,” while the remainder will go into a new cannabis revenue fund.

KushCo’s Kovacevich said taxation isn’t the only factor in moving from an illegal to a legal market. “Other factors also contribute to the acceleration, such as B. easy access, product quality (testing standards), marketing and advertising, etc. It will be a combination of many things that will ultimately determine the initial success of the New York program and we just have to wait and see.

According to Smoke Wallin, chairman and general manager of Vertical Wellness, a provider of CBD-based products, the legal weed in New York will give the entire US sector a psychological boost.

“It’s obviously a big state, and that’s important,” said Wallin. “The media are based there, as is the financial world. … At the federal level, the ball is starting to shift and some progress should be made with all the momentum across the country this year. But it’s the pharmaceutical industry and the federal conservatives that need to be won over. ”

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The pharmaceutical industry is one reason why legalization has taken so long in New York and other northeastern states, he said. New Jersey is home to most of the major US drug companies that have spent millions of dollars lobbying to slow the process down and secure the revenue they make from pain relievers and anxiety drugs. These product lines could be replaced by cannabis, he said.

Hopes for the U.S. legal sector – 36 states and four territories have legalized medical cannabis, and 15 states and three territories have legalized adult recreational cannabis – have risen since President Joe Biden’s election. He and Vice President Kamala Harris are seen more in favor of reforming the strict US cannabis laws that continue to classify the substance as a List I drug alongside heroin.

This classification has hindered the development of the sector, which has restricted itself to those states that have legalized cannabis for medicinal or recreational purposes and excluded companies from the federally insured banking system.

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Wallin is optimistic that the new administration will at least adopt a safe harbor banking language that will allow cannabis companies to operate bank accounts without the risk of an enforcement action to break up capital markets.

“We’re seeing the larger multi-state Canadian-licensed operators and producers grow significantly, and companies are raising capital to do business,” he said. “The deal frenzy is on, [and] There’s a lot more money spilling around. Even if we don’t get a full ban lift at this point, we should be doing banking. ”

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Still, DiPisa warned that it will take some time for a legal market to work. First the budget needs to be approved, then the members of the new office need to be appointed, regulations worked out and licenses issued. The medical cannabis market in New York is relatively undeveloped compared to other states, so it is unlikely to serve as a building block for adult recreational use.

It will be years before Cuomo’s touted $ 300 million in revenue is reached, although demand is expected to be strong from the start.

“I don’t know if these taxes aren’t too high,” he said. “It’s higher than New Jersey. If the goal is to get rid of the black market and smother it, I don’t know if those percentages will make it. ”

The cannabis ETF THCX (-1.03%) is up 27% over the past 12 months, while the S&P 500 SPX (-0.30%) is up 16%.