The Marijuana Regulation and Taxation Act (MRTA) signed in March 2021 made New York State (NYS) the 16th state to legalize the adult-use of cannabis. Business insiders expect New York to first see retail sales in late-2022 or early-2023.
The Office of Cannabis Management will supervise and oversee the emerging program in New York. MRTA permits adults to possess up to three ounces of cannabis and up to 24 grams of concentrated cannabis.
To thrive in this new line of business, you should be familiar with vital logistics like a business plan, financing, local laws and more.
Considerations for a Cannabis Business
As with general approving prerequisites, licenses for cannabis businesses differ across states.Â
For example, a couple of states permit an open application duration and give out various licenses. Other states are more restrictive and limit the number of permits given to cannabis businesses.
Some areas to consider before starting a cannabis business in New York are as follows:
Tax Requirements
Note the administrative structure of trade and taxes of the state. Also, familiarize yourself with cannabis business taxes, which are at a higher marginal rate based on the IRC Section 280E.
Charges on adult use of the product will be a two-level procedure. Wholesalers’ items offered to retail stores will be burdened with a tax liability based on each milligram of THC estimation. This tax rate differs based on the type of product being produced. At the retail level, an additional 13% tax will be charged, broken down in the following rates:
- 9% will go to the state
- 3% will go to the town and/or village hosting the retail business
- 1% will go to the applicable county
Legal Requirements and Local Law
The cannabis business, although legalized in New York state, is still not accepted on a federal level. For this reason, you must know the federal law regarding cannabis, especially if you plan to do business with other legalized states. It is also critical to understand other states’ local laws.
While a locality can prohibit adult-use dispensaries or on-site consumption lounges, it cannot prohibit recreational use by individuals.
Localities within New York State can manage the time, place, and means of cannabis activities under their zoning powers. Notwithstanding, such laws and guidelines cannot make the activity of the permit preposterously unfeasible.
As with the NYS marijuana law, becoming familiar with local regulations and zoning is critical to building a profitable cannabis business.
Financial Risk
The Federal law frowns upon cannabis. As a result, conventional bank financing is inaccessible for this type of business. That said, private investors are paying attention to the industry. However, an appealing business plan is needed to generate potential investors.Â
Proposals of Financiers should follow federal and state protections laws. Because of private contributions absolved from enrolling with the SEC, financiers should, in any case, have accurate information regarding the potential risk related to the proposed business. Financiers should sign up for exemptions documentation with the SEC, usually a Form D.
Each business requires proper monetary speculation, including a cannabis business. While it may be more challenging to get subsidized, mainly since it is unlawful at the federal level, setting up a monetary plan to launch your business is wise.
Insurance Requirements
To obtain a dispensary license in New York State, you must have insurance that covers theft, fire, and any form of harm, including product liability.
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.
Bowers & Company CPAs aims to offer helpful information to our clients and friends. Learn more about how we can help should your business need Cannabis and Hemp Services.
Disclaimer:Â 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.
