N.Y.’s Soon-to-Be Legal Pot Stirs Debate on Taxes, Social Reform

(Bloomberg) -- With New York state on the precipice of legalizing marijuana, a fight is already brewing over how to spend what's expected to be more than $300 million in annual tax revenue.

At issue is how much of the funds will go to the communities hardest-hit by the U.S. war on drugs. The state is trying to close a $15 billion deficit worsened by the coronavirus pandemic, while rent relief, small business recovery and other economic interests also vie for marijuana tax revenue.

New York Governor Andrew Cuomo in January called for $100 million of the new tax revenue to go into a so-called Cannabis Social Equity Fund over four years, with $50 million annually thereafter. In his budget proposal, he said it would help those harmed by the more than 800,000 arrests over the past decades for marijuana possession -- most of whom were people of color. But a more generous proposal that would give half of whatever New York brings in from marijuana taxes to social equity causes has also been circulating for years, setting the state up for a legislative battle later this month.

New York has been hit hard by the war on drugs, particularly Black New Yorkers, who have been arrested for marijuana crimes at around 14 times the rate of White residents from 2000 to 2018, according to data from the New York Civil Liberties Union. Hispanics were 7 times more likely to be arrested for marijuana crimes than White people during that time period, the group said.

National Impact

Lawmakers, community groups, companies and special interests will have to hash out the terms of how New York will treat marijuana tax revenue in what's become a years-long negotiation over legislation that dates back to 2013 called the Marijuana Regulation and Taxation Act, or MRTA. The MRTA advocates for more money to be sent to minority communities.

Meanwhile, states around the country are watching New York as they face their own budget shortfalls and pressures to address social inequities highlighted by the Black Lives Matter movement. New York's decisions over how much money flows to social equity causes, and exactly how it gets distributed will have ripple effects nationwide, said Melissa Moore, state director of New York for Drug Policy Alliance, a nonprofit that advocates for legalizing marijuana.

“New York can create a gold standard,” Moore said. “It's the heart of the country's financial system, and legalization in New York has a lot of implications for how the rest of the country's financial system is engaged.”

Fifteen states and Washington D.C. have legalized recreational marijuana for adults, and two-thirds of Americans now live in states where it's legal to use marijuana. But states still struggle to figure out the best uses for the tax revenue.

So far, youth programs, economic development, substance abuse programs and law enforcement training have been recipients, but many states just funnel the funds into omnibus general accounts or so-called rainy day funds.

Some states have also become mired in controversy and litigation, including Illinois, where state officials overseeing dispensary licensing were sued over diversity requirements. In Los Angeles, there have been delays for minority applicants.

Cuomo's new proposal calls for the creation of an Office of Cannabis Management, which would oversee licensing details and ensure the money goes to communities and people most impacted by the war on drugs. The plan would also require a certain number of dispensary licenses be given to social equity applicants, defined as those who've come from an area with high marijuana arrests, poverty rates and unemployment.

It's an improvement over what Cuomo has supported in the past because it sequesters the money for social equity purposes, as opposed to leaving it in a general fund that could be re-directed for other uses, said Natalie Papillion, director of strategic initiatives for The Last Prisoner Project, a criminal justice reform group.

The cannabis industry -- including companies that already have medical licenses in New York, like Columbia Care Inc., Cresco Labs Inc., Curaleaf Holdings Inc. and Green Thumb Industries Inc. -- broadly support the idea that they have a role in fixing the racial and social disparities exacerbated by the war on drugs.

In fact, it's become one of the cannabis industry's best arguments to decriminalize marijuana -- a broad stroke they say would help end a source of racial inequality in the U.S. Companies will clearly benefit from having their product legalized, regardless of what the government does with the taxes it collects.

Racial Divide

Critics of Cuomo's plan say it doesn't go far enough given the racial inequity around New York's record of cannabis arrests. “Some people think it should be tied to the arrest rate,” said Moore, of Drug Policy Alliance. “Eighty percent were Black and Latino New Yorkers for decades, despite the fact that people use cannabis at a similar rate across racial groups.”

The disproportionate arrests of minorities has led to long-term social problems in their communities.

In New York City, which has been at the center of Black incarceration for marijuana, seven of the city's 10 lowest-income neighborhoods were also among the top 10 neighborhoods for marijuana arrests, according to a 2018 report from the city comptroller. Those neighborhoods also had high unemployment rates and low home-ownership rates.

Budget hearings on Cuomo's proposal begin this month. He will have to face competing legislation which calls for 50% of annual cannabis tax revenue to flow to affected communities, after program costs. The MRTA, which has been re-introduced every year since 2013, would deliver $150 million in revenue starting as soon as marijuana is legalized.

And while the pandemic is sure to create arguments that money is needed elsewhere, it may also end up highlighting the importance of more generous legislation.

“The communities hardest hit by the drug war are also facing the highest Covid deaths and the highest job losses from the pandemic,” Moore said. “It's because of the same structural factors, the structural racism that these communities have experienced for decades.”

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