The governor’s office had previously estimated that legalising cannabis could generate about $350 million (£255m) in yearly tax revenue.
New York is the latest of more than a dozen states, including neighbouring New Jersey, which have legalised the drug.
Nearly 60 per cent of New York residents surveyed said they supported such a decision.
The move comes amid tough financial times for the state, which is struggling with a considerable shortfall in taxes after a number of wealthy residents escaped the city during the pandemic.
Tax revenue from weed sales would first go toward the operations of the Office of Cannabis Management and police officer training to detect impaired driving.
Forty per cent of the remaining revenue would go toward school aid, another 40 per cent would be put into a fund establishing grants for social equity, and another 20 per cent would go toward drug-treatment and “public education programs”.
The deal was crafted with a focus on making amends in communities impacted by the decades-long war on drugs.
“A percentage of revenue that is raised will get invested into the communities where the people who suffered mass incarceration come from and still live in many cases,” said Crystal Peoples-Stokes, a Democratic Assemblywoman. “For me this is a lot more than about raising revenue: It’s about investing in the lives of the people that have been damaged.”