The Financial Landscape of Legal Cannabis in New York City

Understanding the Cost of Legal Cannabis in NYC

The price of cannabis can be quite steep, particularly when adhering to legal regulations. For instance, at Terp Bros, a legal dispensary in New York City, a jar of cannabis can set you back $60. This hefty price tag is not solely a reflection of the product itself, but rather the multitude of financial obligations that legal dispensaries face.

According to Justin Ash, an accountant at Accounting Buds, approximately 52 percent of Terp Bros’s revenue, after accounting for product costs, goes directly to various taxes at the federal, state, and local levels. In contrast, if it were a conventional business, the tax burden would be around 36 percent. This significant difference highlights the financial strain placed on legal cannabis businesses.

Additionally, consumers are subject to a higher sales tax on cannabis products, which stands at 13 percent. This results in an extra $7.80 added to the price of a jar of 91 Octane, compared to just 8.875 percent sales tax on alcohol. Such tax disparities further inflate the cost of legal cannabis.

Legal dispensaries have also been grappling with competition from the unregulated market, which surged following the legalization of recreational cannabis in 2021. The slow licensing process, stringent regulations, and a lack of promised financial support from the state have allowed illegal retailers to thrive. Although recent crackdowns have targeted these illicit shops, thousands continue to operate without oversight.

Despite these challenges, licensed dispensaries are beginning to see an uptick in sales. In response to market conditions, regulators have proposed lifting restrictions on discounts and loyalty programs to attract more customers. Furthermore, the state has broadened its licensing criteria, moving beyond the initial pool of applicants with cannabis-related convictions and business experience.

To survive in this competitive landscape, Mr. Rivera, the owner of Terp Bros, emphasizes the importance of maintaining a lean operation. The dispensary prices its products—including drinks, edibles, and smokable flower—at approximately double the wholesale cost, which is a typical markup in the industry to cover the expenses associated with legal compliance.

Prices fluctuate based on various factors such as quality, availability, demand, and the discretion of the seller. Before tax, the average legal dispensary customer pays about $7.62 more for a jar of 91 Octane compared to its presence in the unregulated market. The wholesale cost for each jar is nearly $30, not including a 9 percent tax. The farm responsible for producing these jars incurs additional expenses for childproof glass containers, lab testing, and tracking software, all of which are necessary for compliance with legal standards.