NYC Pot-Tax Revenue Runs Below Forecasts as Store Openings Stall

New York City will have to double the number of legal cannabis dispensaries it opens a year if it wants to hit budget projections of $950 million in annual taxable sales by 2027, according to a new report by the city’s Independent Budget Office.

Both state and city budget forecasters have projected that sum, but at the current pace of just 12 retail locations opening annually, it will take the city until 2032 to reach that sales figure, or $38 million in cannabis tax revenue, the IBO found. The city is on pace to collect $4 million in cannabis taxes in fiscal 2024, according to the report.

The city would need to establish 24 shops a year to reach the projection by 2027, if every retail shop continues to see an average of $8 million in sales per year. That timeline could be extended to 2029 if increased competition drops stores’ annual sales to an average of $6 million.

The IBO’s 15-page analysis shows how city coffers would be hit by the continued slow introduction of adult-use cannabis stores, a process that already threatens to be further delayed by lawsuits. Last week, a judge in Albany blocked state cannabis regulators indefinitely from issuing new licenses, following a temporary restraining order issued earlier this month in response to a suit brought by four veterans over the state’s licensing process.

“It is exciting to contemplate a new source of revenue from legal cannabis sales, but it’s also important to take a realistic look at when and whether NY can count on this fiscal boost,” IBO Director Louisa Chafee said in a Thursday statement.

The state has approved more than 200 licenses for dispensaries in New York City, but holders face difficulty finding financing and locations, the IBO said. A proliferation of unlicensed smoke shops also threatens city tax collections.

In June, state tax and cannabis regulators recovered roughly $10 million in illicit cannabis goods from 31 smoke shops across the state, the IBO reported. City and state lawmakers have taken steps to crack down on unlicensed retail sales, including increasing the state Office of Cannabis Management’s ability to assess civil penalties against unlicensed weed shops.

Other states offer some clues over how New York’s legal cannabis market might grow over time.

The IBO found that in five states that have had legal cannabis for at least five years—California, Colorado, Massachusetts, Oregon, and Washington—annual taxable sales tended to reach between $140 and $300 per capita. If New York City achieves the conservative end of that figure, the total market for city cannabis products would reach between $833.6 million and $1.2 billion in annual taxable sales—or between $33 million and $47 million in annual city revenue.

City cannabis tax revenue could jump to as high as $105 million if per capita sales come in above $300, as it did for Colorado in 2021. But the report notes that New York doesn’t have the same “first mover” advantage as those that adopted programs earlier and were able to also draw visitors in from neighboring states without licensed shops. Both Connecticut and New Jersey are in the process of licensing marijuana stores.