An Update on New York’s Tobacco and Cannabis Tax Rule Changes in 2023

tobacco taxes

Earlier this year the New York Department of Taxation and Finance (NYDTF) announced important legislative changes regarding the rules around taxes for adult-use cannabis and tobacco products. Distributors and retailers need to understand these updates and consider how they may impact your company’s past and future operations.

Cannabis Sellers Get Clarity on Regulated Products and Licensure

It’s been a couple years since New York enacted Senate Bill S854A, which established a framework for the regulation and taxation of non-medical marijuana use. In May, amendments were made effective that provide further detail on what is and isn’t a taxable “adult-use cannabis product.” The amendments accomplished two things:

  1. Signals the product is subject to tax regardless of whether it is for use by a cannabis consumer.
  2. Excludes medical cannabis and cannabinoid hemp products from the definition of adult use cannabis product.

The applicable tax for distributors depends on the nature of the adult-use cannabis product you sell and the accompanying rates which are as follows:

  • Cannabis flower: $.005 per milligram of the amount of total THC.
  • Concentrated cannabis: $.008 per milligram of the amount of total THC.
  • Cannabis edible product: $.03 per milligram of the amount of total THC.

Then, when a retailer sells a taxable adult-use cannabis product, the sale is subject to a 13 percent tax. For more information, see the NYDTF’s page on adult-use cannabis products tax.

Other Changes Regarding the Regulated Sale of Adult-Use Cannabis Products in New York: Certificate Revocation Authority and Penalties

The other changes to the cannabis tax law include further explanation on when the NYDFT can deny or revoke your adult-use cannabis certificate of registration. As amended, the law includes a laundry list of reasons the NYDTF could deny or revoke your certificate of registration, which is necessary to legally sell adult-use cannabis products in New York. Some of those reasons include:

  • Having a past-due tax liability.
  • Failing to file a tax return or report.
  • Filing a false report, return, certificate, or affidavit.
  • Having a revoked or suspended license from the Office of Cannabis Management.
  • Being convicted of a crime within a year from filing or issuing date of your registration certificate.
  • Possessing illicit cannabis within a year from filing your application for registration.
  • Knowingly selling to an unlicensed retailer, including a retailer with a suspended or revoked license.

Failing to comply with the above and maintain a valid certificate of registration can lead to penalties for being an unregistered distributor and for possessing or selling illicit cannabis. Both penalties were also part of the changes that took effect on May 3, 2023, and now include the following amounts:

  • A civil tax penalty of two times the amount of tax that would be owed for the amount of illicit cannabis in your possession for a first offense or three times the amount for a second offense.
  • Civil penalties for possession of illicit cannabis based on the amount being held and the type of cannabis. Those ranges and penalties are:
    • 5 to 12 pounds of illicit cannabis: up to $25,000 for a first offense and up to $50,000 for a second offense within 3 years.
    • 1 to 4 pounds of illicit concentrated cannabis or cannabis edible product: up to $25,000 for a first offense and up to $50,000 for a second offense within three years.
    • 12 or more pounds of illicit cannabis: up to $75,000 for a first offense and up to $100,000 for a second offense within 3 years.
    • 4 or more pounds of illicit concentrated cannabis or cannabis edible product: up to $75,000 for a first offense and up to $100,000 for a second offense within 3 years.
  • A civil penalty for knowingly selling adult-use cannabis products to an unregistered retailer in an amount up to $50,000 for a first offense or up to $100,000 for a second offense within 3 years. See Section 496-C, subsections (a)-(c).

The Penalties Increase for Noncompliance with Tobacco Product Inspections for Retailers

New York also increased penalties related to noncompliance actions with the NYDTF’s right to inspect your tobacco products. The NYDTF has a general right to inspect your records and business upon request. This includes items such as books, invoices, equipment, and inventory. If you refuse or are unable to accommodate an inspection request, you may be subject to the following penalties:

  • Revocation of your certificate of registration
    • 1 year suspension for a first offense.
    • Up to 3 years for a second offense.
    • Up to 10 years for a third or subsequent violation that occurs within 7 years.
  • Fines of $4,000 for a first refusal or $8,000 for a second/subsequent refusal within 3 years of a prior refusal.

Need Help Defending Against a Penalty or Another Action Involving the NYDTF?

The NYDTF has broad authority to enforce New York’s rules for the legal sale and possession of both tobacco and adult-use cannabis products, including the recent changes explained above. However, its ability to take actions that hurt your business or to enforce unwarranted financial penalties is not without limitation. If you feel the NYDTF has unfairly targeted your business or have questions about your obligations as a distributor or retailer of tobacco and cannabis products, a consultation with our New York excise tax and licensing professionals could help.

Contact Tobacco Tax Refund, Inc. today to schedule a meeting.