New York cannabis advocates and lawmakers are touting REC legalization as a way to shore up a state economy pummeled by the COVID-19 pandemic. But one of the state’s leading plant scientists warns that additional revenue may take longer than anticipated to materialize.
Dr. Carlyn Buckler, who has a PhD in biology and teaches plant science courses at Cornell University, suggested it may take several years after legalization for cannabis revenues to help make up deficits in a state budget that is currently $14.5B in the red, largely due to the pandemic.
State lawmakers began pushing for REC even before the pandemic, but those efforts have ramped up in recent months. Gov. Andrew Cuomo, who opposed REC when he first took office a decade ago, has become a vocal legalization supporter, and a member of Cuomo’s staff said this month that a REC bill would be reintroduced as part of the state’s budget discussions in January. State officials predict a REC program could bring in as much as $300M per year in tax revenue.
Buckler, though, said it may be a while before those projections are realized, a reality experienced by some states that have already legalized. She pointed to the high startup costs for cannabis growers and processors, as well as the added – but, in her opinion, very necessary – costs associated with establishing a strong social equity program.
“States – especially California – have had huge gains in revenue from marijuana, but that took a long time,” she said. “It all depends on how the regulations, taxes and incentives are implemented, and what we wind up in the hole for with COVID-19.”
Working with neighbors
Buckler said there were ways for New York to improve its chances of reaching its lofty economic projections on a shorter timeline than she expects.
One, she said, would be to work with neighboring states to ensure a strong regional framework.
New Jersey, one of those neighbors, is widely expected to legalize REC through a ballot initiative next week. A poll this month suggested New Jersey residents support the measure by a 2:1 margin. Buckler said New York officials would be wise to work with regulators in the Garden State, as well as those in surrounding states, to establish complementary regulations.
Things like similar tax schemes and fee schedules would remove incentives for businesses to go to other states, and thus help each of the states’ economies, she said.
Laura Schultz, director of fiscal analysis and a senior economist at the Rockefeller Institute, authored a report released in April 2019 that looked at the potential economic impacts of New York installing a REC program at that time. The report concluded that the new industry would generate a total economic output of $4.1B, create 30,700 jobs, and attract hundreds of millions of dollars in capital investment.
Shultz acknowledged that several factors – the pandemic, new information from states that have legalized – have changed since then and suggested another study may be warranted.
“It’s a very quickly changing landscape, so it’s an interesting time to see what happens,” she said.
Buckler, the Cornell professor, agreed with that assessment. She pointed to the state’s strong hemp industry and suggested that cannabis operators could enjoy similar success under a well-developed regulatory system. It just might take a little longer than expected for the industry to begin filling state coffers.
“New York is really primed to run off with this,” she said. “We’ve got best practices in farming, in horticulture, in hoops, in genetics – we really stand to do quite well, if we can do this right.”
Social equity should be among the foremost considerations during the development of REC regulations, Buckler said. And that could have significant ramifications on revenue.
“In order for this to really work, we’re going to have to make some reparations for people that were seriously damaged [by the War on Drugs] – and that is not going to be cheap,” she said.
Buckler suggested that New York should take cues from the best practices employed by states that have already established REC markets. As it relates to social equity, she said the program should at a minimum expunge criminal records, release inmates serving time for marijuana offenses, and establish programs to help those people get back on their feet.
“Some of them don’t have families anymore, they don’t have jobs, they don’t have a place to sleep,” she said of those serving time for cannabis crimes. “So some of that money needs to go to helping those that were most egregiously affected by these laws.”
She further suggested that revenues would be hampered early on by the high costs associated with starting a cannabis operation, and said the state should implement programs to help offset some of those costs.
The startup costs for growers will be especially high, she said, since the region isn’t ideal for outdoor grows. Most cultivators will need to acquire and outfit greenhouses, hoop houses or warehouses, which can lead to six-figure expenses just to get off the ground.
On top of all that, the REC industry is relatively new and lacks a lot of empirical data specific to the region, said Schultz, with the Rockefeller Institute.
“Not many states have done it,” Schultz said. “That number is increasing, but there’s still limited data.”
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