New York Governor Andrew Cuomo signed the Marijuana Regulation and Taxation Act (MRTA) into law, making New York the latest state to legalize cannabis. While cannabis is still considered illegal under federal law, New York is the 16th state to authorize adult-use cannabis.
It will take a year or two to create a regulatory system allowing entrepreneurs to sell cannabis in New York State, which means now is the time to begin planning. Learn the rules and regulations at the city, state, and federal levels, so you are prepared when the time comes to launch your cannabis business.
How Big is the Opportunity for a NYS Cannabis Business?
Most experts believe New York may be among the most lucrative cannabis markets in the United States. The state comptroller estimates it to be a $3.1 billion industry due to New York’s population, wealth and culture.
The retail sale of cannabis is expected to start by late 2022. The NYS administration will create a system for licensure for cultivators, processors, distributors, and dispensaries. Additionally, cannabis delivery services and consumption sites will be allowed.
Until the governor signed MRTA into law, New York was a limited license state with only ten medical cannabis operators. These existing businesses can be vertically integrated, which means they can exercise a seed-to-sale structure. While new players can choose between retail and wholesale operations, they cannot exercise vertical integration, unless obtaining a microbusiness license.
The newly-formed Office of Cannabis Management will be responsible for developing guidelines and regulations. It is an arm operating independently from the NYS Liquor Authority. They will be responsible for medical, adult-use, and hemp policy. The Cannabis Control Board will supervise this office.
Before You Start Your Cannabis Business
As with general authorizing requirements, permits to operate a cannabis business differ from state to state. For instance, while a few states hold an open application period and give out numerous licenses, while other states are more prohibitive and restrict the number of licenses given to cannabis businesses.
Legal Risk. Marijuana remains illegal at the federal level. Therefore, if you plan to do business with other states, it’s essential to understand their laws, as well as federal laws.
Financial Risk. Every business requires some level of financial investment. In the cannabis industry, it can be more challenging to secure funding, specifically since it is illegal at the federal level. Establish a financial plan as you prepare to launch your cannabis business.
Required Insurances. To secure a dispensary permit in New York State, you will need insurance for the business (fire, harm, and burglary), general risk, and product liability.
Taxes. Businesses should understand the regulatory framework of sales and excise taxes at the state level. Additionally, businesses need to understand that Cannabis businesses will typically be taxed at a higher marginal rate due IRC Section 280E.
Develop a Business Plan
A well-written business plan provides direction through each phase of your business, from start-up to management and growth. Here is a typical cannabis business plan for New York State:
Product Description. You must be specific about what the product should be like and the uniqueness of the business. You should also state what your business will do, i.e., cultivate, process, etc.
Market Surveying. Conduct a detailed survey of your coverage area, identifying how many people live within the area, target market, how you will make sales, etc.
Know Your Competitors. What has the competition done well and poorly? Identify reputations both online and offline. How will your business be different?
Introduce Your Team. Identify your qualifications and that of your management team. Include your experience so far in the cannabis industry and leadership skills, business growth strategy, customer service, and any other qualifications.
Financials. You need about a five-year financial estimate, including projected yearly income, operating costs, and net benefit. Every year’s projected income ought to incorporate revenue as well as your direct and margin cost.
You can estimate your income by assessing sales in light of market potential. Consider your production costs, retail price, and the amount you’ll spend on finance, rent, and different costs.
License Requirements for Cannabis Business
As a cannabis business owner, you’ll be controlled depending on a variety of factors. One of them is a classification of business. Here are some types of licenses you should know before starting a cannabis business.
- Microbusiness license
- Adult-Use Cultivator License
- Nursery License
- Adult-Use Processor License
- Adult-Use Distributor License
- Delivery License
- Adult-Use Retail Dispensary License
- Adult-Use Cooperative License
About Bowers & Company CPAs
Bowers & Company CPAs has formed a Cannabis and Hemp branch to help new and existing businesses understand this complicated, growing industry. Our professionals can help business owners navigate tax implications, industry regulations and operating procedures. Our team members will provide counsel and support to existing cannabis businesses and start-ups in tax planning, licensing, operating procedures, general business consulting and more.
Since the sale of cannabis is still illegal at the federal level, business cannot take certain deductions or credits when filing taxes. That means cannabis entrepreneurs must pay taxes on their gross margin and cannot deduct other common business expenses such as sales payroll and rent to reduce their liability. Bowers & Company CPAs can help business owners maximize after tax cash through careful planning.
Disclaimer: To ensure compliance with requirements imposed by the Department of Treasury, we inform you any U.S. federal tax advice contained in this document or video is not intended for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.