Battle of the Vices: Tax revenue generated from mobile sports betting is expected to crush tax … [+] revenue from the adult-use cannabis industry.
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The legalization of adult-use cannabis and mobile sports betting will both contribute to the largest state budget in New York’s history this year. But tax revenues from online sports wagers will beat recreational cannabis taxes by more than 100% by 2025.
The state budget for 2021 will total an estimated $212 billion, nearly 10% greater than last year. The primary driver of the budget growth is $12.6 billion in federal aid and new revenues from tax increases, the legalization of recreational cannabis and online sports betting, totaling an estimated $26.7 billion, according to a recent review of the budget by New York State Comptroller Thomas DiNapoli.
DiNapoli estimates that legal cannabis will bring in about $20 million in tax revenue this year and online sports betting will bring in $99 million, a whopping difference of 395%. But legal cannabis sales won’t start for 18 months, so it’s not an apples-to-apples comparison. By the beginning of 2025, as both programs have had time to mature, DiNapoli expects annual tax revenue from cannabis to reach $245 million and online sports betting to hit $493 million.
New York lawmakers passed the adult-use cannabis bill and Gov. Andrew Cuomo signed it into law in late March. It will take nearly two years for adult-use sales to go into effect, but the legal cannabis industry is expected to capture $1.2 billion in sales by 2023 and $4.2 billion by 2027. Early estimates by Gov. Andrew Cuomo’s administration put annual tax revenue at $350 million, but it appears the state won’t hit that number for some time.
In late April, online sports betting was made legal in New York when Gov. Cuomo signed the state budget. Now the New York Gaming Commission will ask for bids from mobile sports betting platforms and award licenses to at least two betting companies. Lawmakers hope to award licenses by January 1 and expect that gamblers will be able to place bets by the 2022 Super Bowl. The legalization of online sports betting is significant because, while in-person sports betting is legal in the state, the nearest casino to New York City where you could wager on sports was a two hour-drive to Resorts World Catskills. Most sports gamblers chose to cross the Hudson River to New Jersey to place bets on their phones, which legalized online sports betting in 2018.
Recreational cannabis sales will be taxed at 9%, which will go to the cannabis revenue fund, and a 4% retail tax will go to local governments. From the taxes deposited in the cannabis revenue fund, 40% will go to the state lottery fund, 20% to the drug treatment and public education fund and 40% to the community grants reinvestment fund.
Sports betting platform providers awarded licenses by the Gaming Commission will pay a $25 million one-time licensing fee. The betting planforms will also be required to pay a $5 million annual fee to the casino that houses its servers. The state will tax gross gaming revenue and the rate is still to be determined, but will not be less than 12%. Once the tax structure is in place, 1% of receipts this year and $6 million each year thereafter will go to the commercial gaming fund for problem-gambling education and treatment. This year, 1% of receipts this year and $5 million each year after will go to the general fund, which will be spent on statewide youth sports and education grant programs through the Office of Children and Family Services.
In the battle of the vices, online sports gambling will generate more tax revenue. But perhaps the greatest benefit is not monetary. On the night the New York Senate passed the bill to legalize adult-use cannabis in March, Assembly Majority Leader Crystal Peoples-Stokes, who cosponsored the bill with Sen. Liz Krueger, said that cannabis legalization in New York marks the end of unjust and racist enforcement of marijuana laws against communities of color.
“Today we’re reversing 90 years of prohibition,” Peoples-Stokes said just before the Assembly passed the bill. “The last time New York State did anything like this was when we reversed the prohibition of alcohol. That was in 1933; here we are in 2021.”
Before the Senate passed the bill, Krueger said one of the main benefits of legalizing cannabis is that it frees up resources in law enforcement.
“People ask me how much money we can make in a regulated system, but we expect to save $500 million in our criminal justice system simply because we have a legal marijuana system,” said Krueger. “We won’t be having our police pick up kids for marijuana in their pockets . . . clogging up our courts for low-level offenses . . . freeing up our police to go after actual criminals.”