Marijuana legalization looms in New York as deficit balloons

ALBANY — The debate over legalizing marijuana for adult, recreational use in New York has been brewing for the last two years after Democrats took control of the state Legislature, but disagreements on the issue coupled with a global pandemic have kept it out of reach for lawmakers.

That could change next year as the Legislature returns to Albany, but Democrats still remain divided on certain aspects of the issue that are likely to complicate negotiations.

Chief among them is what the state will do with the tax revenue from the marijuana industry, which is expected to generate around $300 million annually when the program is stabilized, according to projections from the state.

Democrats leading negotiations on the issue in the Legislature have backed a bill, called the Marijuana Regulation and Taxation Act, that would earmark half that revenue to be invested in communities where the state’s drug laws have been enforced at higher rates.

The legislation is sponsored by two of the most influential Democrats in the state Legislature: Assembly Majority Leader Crystal Peoples-Stokes, D-Erie, and State Sen. Liz Krueger, D-Manhattan, who chairs the Senate Finance Committee.

“The people that I’ve been working with, and are committed to this model, feel very strongly that revenue should be used for social justice purposes, to support undoing damage done in poor communities of color by our unsuccessful drug wars,” Krueger said.

State data has shown that people of color are historically arrested more often for possession of marijuana than white people in New York City, for example. The same has been true in cities like Albany, according to the Times Union.

That’s why lawmakers like Krueger want to use a significant part of the revenue from the marijuana industry to aid communities most impacted by the state’s drug laws.

Under the proposal, the state would create a special fund that would be used to award grants for community-based nonprofit organizations and local government entities that work to support the needs of those communities, from job placement to legal services.

Democrats in New York broadly agree with that idea. But they disagree on how to get there.


Gov. Andrew M. Cuomo came out with a competing proposal to legalize marijuana last year, called the Cannabis Regulation and Taxation Act, that shares the same principle as the MRTA, but wouldn’t earmark specific funds for communities impacted by prohibition.

Instead, the Cannabis Regulation and Taxation Act, or CRTA, would allow the state to distribute grants to community-based organizations, but wouldn’t mandate any amount of funding from marijuana production and sales for that purpose.

The difference has been a significant sticking point in negotiations over the legalization of marijuana in recent years, but it’s far from the only one.

Legalization wasn’t on the table in New York until last year, when Democrats took control of the state Senate for the first time in a decade. The Assembly had already been in Democratic hands for decades.

Still, after months of negotiations, Democrats couldn’t muster enough votes to strike a deal on legalization and the COVID-19 pandemic derailed the debate this year.

Instead, Democrats agreed to decriminalize small amounts of the drug: it’s no longer a criminal offense to possess less than two ounces of marijuana in New York. But marijuana possession is still a violation that carries a potential fine.

Lawmakers argued, at the time, that decriminalizing small amounts of the drug would help curb disproportionate low-level drug arrests against people of color while they continued to negotiate a deal on full legalization.

Companies hoping to break into the recreational market in New York are hoping lawmakers carry the criminal justice aspect of legalization into negotiations next year.

“Prohibition has consistently been selectively enforced,” said Chris Alexander, who does government relations for Village, a cannabis company on the West Coast. “The whole process is wasteful, ineffective, and racist. It hasn’t worked, which is why you’re seeing so many states make the decision to go the other direction.”

Democrats, both privately and publicly, predict that New York will hit its own turning point on marijuana next year. The state is under increasing pressure to legalize the drug, and the chances of that happening appear to be higher than ever.

For one, voters in New Jersey approved a measure on the ballot in November to legalize marijuana. Massachusetts and Connecticut already have legal cannabis, meaning most states bordering New York have already moved on the issue.

That’s money out the door to other states, said state Sen. Diane Savino, a Democrat from Staten Island who’s also involved in negotiations on legalizing cannabis.

“Question is we’re surrounded by states that are going to have legal marijuana programs,” Savino said. “Does New York want to be in the game or not?”

But lawmakers like Savino and Krueger have also cautioned against approving marijuana as a way to cure the state’s fiscal woes.

New York is projecting a budget deficit of $15 billion heading into next year due to lost tax revenue during the COVID-19 pandemic and the direct costs associated with responding to the virus. That’s the largest budget gap the state has seen in more than a decade.

Cuomo, for his part, has called on Congress to deliver a comprehensive relief package to foot the bill for state and local governments. But that remains uncertain — even with a new administration in the White House.

So, the three-term governor has more recently been preparing to shoulder the deficit in a worst-case scenario. That would mean significant cuts to the state budget, he’s said, but it would also include new measures to raise revenue — like marijuana.

“I think this year it is ripe because the state is going to be desperate for funding. Even with Biden, even with the stimulus, we’re still going to need funding,” Cuomo said in November. “I think we’re going to get there this year.”

But there’s a few problems with that. For one, the state has projected that the marijuana industry will generate about $300 million in revenue each year. That’s a drop in the bucket compared to the state’s current budget gap.

And, even if lawmakers convened to legalize marijuana in New York tomorrow, it wouldn’t have an immediate impact on the state’s budget deficit. Budget analysts say it would be years before revenue from the marijuana industry peaks.

“It basically takes about a year to get to the point from when you authorize to where the commercial market is operating,” said Patrick Orecki, a senior research associate with the Citizens Budget Commission. “After that, it’s generally taken about two to three years for states to realize robust and fully mature revenues from legalizing marijuana sales.”

Based on Cuomo’s proposal, the state Division of Budget has projected that revenue from the marijuana industry wouldn’t stabilize until after its fourth year on the books.

According to the agency, what’s labeled in the state’s projections as an ‘adult use cannabis tax’ would generate $20 million in revenue during its first year. Following that, the tax is projected to generate $63 million, $85 million, and $141 million in the next three consecutive years.

Those numbers will also depend on how much the state decides to tax the drug.

Krueger said that decision will be a delicate balance for lawmakers. If you tax the drug too low, revenue opportunities disappear for the state. But if you tax it too high, people could turn to the illicit market instead of products regulated by the state.

“We need to make sure we have a successful set of programs,” Krueger said. “And that means we need to make sure we’re not pricing the legal, safe products at a higher cost than the existing illegal, unknown products.”

Democrats in the Legislature aren’t far apart from Cuomo on tax rates for marijuana, and both proposals would tax the drug at higher levels than other states.

Cuomo’s legislation would create a 20 percent tax for consumers at the point of sale for marijuana. The Legislature’s bill would tax the drug at 18 percent for consumers.

That’s on top of additional taxes levied before the drug is sold to consumers. Cuomo’s proposal would tax it by weight when it’s cultivated and sold to a dispensary. The Legislature’s proposal would only tax it when it’s sold to a dispensary, but at a higher rate.

The tax rates for consumers proposed by Cuomo and the Legislature are comparable to neighboring Massachusetts, where consumers are taxed at 20 percent for the drug. But they’re higher than states like Colorado, which has a 15 percent tax rate on marijuana sales.

Then there’s New Jersey, which is expected to create a system where sales of the drug are taxed at 7 percent, with an additional tax levied on cannabis cultivators.

That could drive some downstate residents to the Garden State for marijuana if they want to avoid higher tax rates in New York. A higher cost of doing business in New York could also create barriers for cannabis entrepreneurs eager to break into the industry.

Opponents of legalization, meanwhile, have warned that, without safeguards, large companies could enter the marijuana industry in New York and exploit the market, pushing out smaller producers and retailers.

Dr. Kevin Sabet, a former drug policy adviser in the Obama administration, has been one of the leading advocates against the legalization of marijuana in New York. He’s the president of Smart Approaches to Marijuana, a national group against legalization.

“This is commercialized by any industry not very different than the tobacco or alcohol industries, which are industries Democrats are not big fans of because they run roughshod over public health,” Sabet said. “Marijuana would be no different.”

Krueger said that Democrats want to create a system that invests in small companies and entrepreneurs, and prevents large pharmaceutical and commercial companies from saturating the market.

Both proposals in New York would create a mechanism for the state to license cannabis companies, and that process would include a rigorous review of the applicant’s standards and business model. Production and sale of marijuana wouldn’t be allowed without a license.

“We want to make sure this does not become a big pharma model with three or four companies controlling all of this,” Krueger said.

But it’s worth noting that the marijuana industry is already alive and well in New York — just in a different way.

Medical marijuana has been legal in New York for the last five years, with 10 companies now licensed to sell in the state. Each company can have up to four dispensaries, though there are still areas of the state where patients have to travel more than an hour for the drug.

As of mid-December, more than 133,000 patients were enrolled in the state’s medical marijuana program, served by more than 3,000 doctors cleared to prescribe the drug.

One of those patients is Timothy Mitchell, who suffers from chronic pain. He’s been prescribed medical cannabis for the last four years and said the drug has helped curb his dependence on other medication for pain and anxiety.

“I reduced my yearly pill consumption … and have maintained a substantially lower use of prescriptions to manage my chronic pain, and my anxiety as a pleasant side effect, ever since,” Mitchell said.

That’s not to say New York’s medical marijuana program is working for everyone. Leaders from the industry have been seeking an expansion of the program for the last few years, saying they’re ready to serve more patients if they’re given the opportunity.

There’s a few barriers to accomplishing that goal under the current system in New York, according to Ngiste Abebe, president of the New York Medical Cannabis Association.

“The New York medical cannabis program is definitely one of the more restrictive ones in the country,” said Abebe, who also leads public policy at Columbia Care, one of the state’s medical marijuana companies.

Broadly speaking, leaders from the medical marijuana industry want the state to allow more people to be prescribed the drug, and make it easier to get.

The list of conditions that qualify someone for medical marijuana in New York is shorter than what’s allowed in other states. The list in Illinois is more than twice as long, for example, and Virginia allows the drug to be prescribed regardless of condition.

Medical marijuana companies want the list to be eliminated altogether, meaning someone wouldn’t have to be diagnosed with a specific condition to obtain the drug. The idea would be to leave the decision with a patient and their doctor, rather than the state.

“We know that the research into cannabis is evolving much faster than regulations, and doctors have to keep up with that type of research all the time,” Abebe said. “It’s part of their professional responsibility.”

That’s something that’s also supported by Savino, who was one of the main architects of the state’s medical marijuana program when it was approved by the Legislature six years ago. She’s now sponsoring legislation that would expand the program to serve more patients.

Savino’s bill would overhaul the state’s medical marijuana program in a way that would make the drug more accessible, both in terms of eligibility and affordability.

Not only would the legislation drop the list of qualifying conditions for medical marijuana, it would allow more dispensaries for the drug in New York. Medical marijuana companies have urged the state to lift the cap on dispensaries for the last few years.

The bill would also allow medical marijuana patients to smoke the drug, which is less expensive in that form. New York doesn’t allow patients to smoke marijuana, opting instead to approve it for use in topical, oral, and vaporizer products.

“It would reduce the cost, which would translate to a reduced cost for patients,” Savino said.

Those changes would open the market to more patients, which would mean more demand for the drug, according to leaders from the medical marijuana industry. Five years into the state’s program, companies say they’re ready for it to grow.

One of those companies is Vireo New York, which operates a cultivation facility outside the city of Amsterdam in Montgomery County. Stephen Dahmer, the company’s chief medical officer, said they’re primed for more patients.

“We’re ready to serve more, we’re starting to see research come together to support the medical use of medical cannabis, especially in chronic pain for those patients on opioids,” Dahmer said. “We’re excited for the program to expand.”

Leaders from the medical marijuana industry are hoping to see the program expand as part of discussions on legalizing the drug for recreational use.

Lawmakers could approve an expansion of the state’s medical marijuana program without legalizing the drug for adult, recreational use.

But it’s more likely that they’ll do both at once: expanding the medical program while creating a regulatory and tax structure for adult use. Both major proposals to legalize the drug — the MRTA and the CRTA — also include changes to the medical industry.

That could present an opportunity for the state’s medical marijuana companies. Ngiste Abebe, president of the New York Medical Cannabis Association, said they’re positioned to help the state develop and jumpstart its recreational industry, particularly because they already have the infrastructure in place to fuel it.

“We also know that the future size of the New York market is going to be significant,” Abebe said. “We believe that including the medical operators will help start the program off on the strongest possible foot in order to fund that future expansion.”

For that to happen, lawmakers would have to decide if medical marijuana companies will be allowed in the recreational market, and to what extent, or if the two industries will be separate from one another.

And that leads to other questions about legalizing marijuana for adult use — many of which remain unresolved as Democrats take another swing at the issue in the coming year.

Cuomo’s proposal to legalize marijuana would allow certain municipalities to ban marijuana retailers from operating. Such an ordinance would have to be approved by the municipality’s governing body, like a city council or county legislature.

Krueger said she’d be fine with that option if it moves the needle on legalization among her colleagues next year.

“There are certain populations that are more concerned about it and they want the right to not have retailers in their communities,” Krueger said. “I think that’s fine.”

Lawmakers are also divided on whether to allow consumers to grow their own marijuana plants at home, and how that would be regulated. Krueger’s proposal would allow that option, while Cuomo’s plan would not.

There’s also the issue of road safety. There’s currently no easy way to test if someone’s driving under the influence of marijuana as can be done to detect if someone’s been drinking.

There are drug recognition experts that work in law enforcement agencies around the state who are trained to detect when somebody’s under the influence of cannabis. But their ranks are limited and they’re not always on the clock.

Opponents of legalization have argued that Cuomo and the Legislature would have to provide more funding to law enforcement agencies to hire more experts or provide training for officers.

“We’re going to have to invest a lot more in the driving issue and impairment. We’re going to have to invest more in labs and toxicology,” Sabet said. “I don’t know if they’re going to be willing to do that, which is why I worry about doing it in the first place.”

Those are all questions that Democrats will face when they are scheduled to reconvene in Albany next month, though a deal on legalizing marijuana likely won’t be hammered out, if at all, until the state budget is due at the end of March.

Dan Clark is the managing editor of New York NOW, a digital project and weekly news magazine that airs statewide on PBS.

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