Inside New York’s bumpy marijuana rollout

New York’s legal marijuana market is barely functioning nearly two years after it legalized the drug for recreational use.

Only four licensed recreational marijuana stores are open across the state. Meanwhile, unlicensed stores from bodegas to barber shops are selling weed illegally.

Every state that has legalized marijuana has grappled with illicit sales, but few have seen such an explosion of stores openly breaking the law, cannabis industry lawyers, researchers and advocates say.

Easy access to illegal weed threatens the survival of New York’s legal program, which aims to help people harmed by harsh enforcement of the state’s old marijuana ban. Licensed dispensaries are much more expensive to run than unlicensed stores and charge higher prices.

“Everyone recognizes that the only possibility of having a successful adult use market — well, legal adult use market — is closing down the illicit stores,” said Simon Malinowski, a New York City-based lawyer for the firm Harris Bricken who has expertise in cannabis law. “Because it’s really going to be impossible for legal operators to compete.”

Illegal sales have boomed in New York partly because people have so few legal options for buying marijuana, cannabis industry experts said. Legal confusion has made it harder to crack down on illicit operators.

Timing could also play a role. Some New York landlords with vacant storefronts to fill because of a real estate upheaval caused by Covid-19 may be more willing to take on risky tenants, Malinowski said.

The closest comparison may be Los Angeles, where regulators and police officers have chased after unlicensed retailers for years.

“We certainly saw that in Los Angeles, and we’re seeing it now in New York. So it’s not unique to New York,” said Andrew Freedman, Colorado’s first top marijuana regulator and executive director of the Coalition for Cannabis Policy, Education, and Regulation, a coalition that advocates for federal legalization.

New York leaders are trying to rein in illegal marijuana sales. The state’s Office of Cannabis Management, which regulates marijuana, recently announced plans to license 150 more recreational dispensaries and has been working with law enforcement to address unlicensed sales, said Trivette Knowles, a spokesperson for the agency.

Illegal sales occur in every industry, Knowles said. “You can’t completely get rid of that. But what you can do is support and allow for thriving legal, licensed cannabis sales, which is what New York is doing.”

So far, New York regulators are only issuing what it calls Conditional Adult-Use Retail Dispensary licenses. The temporary licensing program aims to get some growers, processors, and retailers up and running while regulators work out the final rules for licensed marijuana businesses.

Gov. Kathy Hochul (D) last year announced a social justice vision for the program. It makes retail licenses available to only two groups of applicants: businesses at least partly owned by someone who has a New York state marijuana conviction or a close relative with such a record, and nonprofits that serve currently or formerly incarcerated people.

Hochul also announced a first-in-the-nation effort to help those businesses succeed. New York’s fiscal 2023 budget approved a $200 million public-private loan fund — money the state pledged to use to find, lease and renovate stores for licensees.

Regulators last year announced plans to issue 150 licenses to justice-involved licensees and 25 to nonprofits. They divided the state into 14 regions and assigned a certain number of licenses to each area.

“When you allow that the pioneers are going to be heavily supported by the state,” Knowles said, “you actually create an opportunity for longevity for these people of color, for these people from these communities disproportionately impacted, to continue to be in the cannabis legal space.”

The licensing strategy has struggled. A Michigan-based company denied a conditional retail license sued New York in September, arguing that the program discriminates against out-of-state businesses. Court rulings in the case have stopped regulators from issuing licenses in five regions, freezing about two in five of the 150 justice-involved licenses.

The public-private loan fund appears to have raised no money from investors. State officials in December abruptly announced that justice-involved licensees would be able to find their own locations rather than waiting for the state to provide one.

“Some people are very frustrated,” said Owen Martinetti, who sits on the board of the Cannabis Association of New York, a business group. He said some retail licensees have a location but are waiting for local government approval. Others are waiting for help from the state or have been offered a location by the state that doesn’t work for them.

The Office of Cannabis Management has approved 66 conditional retail licenses but just four stores are open. Martinetti said he knows of only four to eight additional stores that could open by the end of April.

Meanwhile, people all over New York are openly selling marijuana.

“We knew that New York had one of the biggest unlicensed markets in the world. There is so much weed coming in and out of New York,” said Paula Collins, a New York City-based lawyer who has both licensed and unlicensed cannabis clients. “Are you surprised that the guys in the park just stepped out of the shadows and set up card tables with their logo?”

New York City officials have estimated there are 1,400 unlicensed businesses selling marijuana in the city. Collins called that a bit low: “I think there are 1,400 in my zip code.”

Law enforcement has been slow to respond. The New York Police Department told the New York Times in November that the legalization law only allows police to intervene if they see an illegal sale taking place, and that it doesn’t give law enforcement the power to shut down unlicensed shops.

State and local leaders are trying to step up enforcement efforts and close legal gaps. Manhattan District Attorney Alvin Bragg (D) and New York City Mayor Eric Adams (D) last month said they were prepared to force landlords to evict tenants who are breaking the law.

Sen. Liz Krueger (D) has proposed a bill that would let state regulators seize illicit cannabis, double fines for possessing it and increase penalties for selling it, among other changes. Krueger also has been working on another enforcement bill, she told Pluribus News in an email.

Los Angeles’s experience shows that raids and arrests don’t stop illegal sales, said Cat Packer, director of drug markets and legal regulation for the Drug Policy Alliance, a group that advocates for decriminalizing drugs. Packer previously led Los Angeles’s Department of Cannabis Regulation.

“Arresting people did not work,” Packer said. “Folks referred to it as ‘whack-a-mole,’ in that you kind of shut one down and someone else comes and replaces them. And the reality is, a lot of the times when arrests are taking place, you’re really getting low-level offenders. It’s not the business owners.”

Los Angeles has had more success with creative strategies, she said, such as laws that allow the city to disconnect utilities from problem locations. Without water and lights, illegal grow operations can’t cultivate cannabis plants.

Cannabis industry experts said New York leaders should focus on licensing more businesses and giving consumers more options for legally buying weed.

“I would look at: What can we do right now to make sure that we’re getting out the bare minimum number of licenses [for a viable legal market]?” Freedman said. “I do think that licenses out the door is important.”

Regulators are inching in that direction. The Office of Cannabis Management last week said it would issue 150 more conditional retail licenses to justice-involved individuals. The new round of licensees won’t be guaranteed support from the state loan fund.

It is unclear when the state will allow applicants who don’t meet the narrow conditional program criteria to apply for a retail license. OCM officials hope to present their latest draft of recreational marijuana regulations to the agency’s board in May, OCM head Chris Alexander told board members last week.

Martinetti said licensing is moving faster in New Jersey, which legalized marijuana around the same time as New York.

In New Jersey, medical marijuana dispensaries were the first to sell recreational marijuana. The first licenses were issued last spring and 22 New Jersey store locations now sell both medical and recreational weed.

Garden State regulators also are prioritizing license applications from people who meet social equity criteria, such as having a cannabis conviction. But the state hasn’t placed such strict limits on the number of licenses it will issue.

New Jersey’s approach has trade-offs. Nearly all dispensaries open so far are run by multinational chains led by white people, NJ Advance Media recently reported. A member of the state’s Cannabis Regulatory Commission has called for slowing the licensure process to give minority-owned businesses a chance.