New York City – After handing out three dozen retail licenses in late November, city officials are now confronted with how to shut down a growing unsanctioned market.
New York regulators and law enforcement are starting to crack down on an onslaught of illicit pot sellers exploiting the run-up to the state’s first recreational marijuana sales.
Scores of so-called weed bodegas have popped up in storefronts across the city hawking pre-rolled joints, edibles and gummies that tout cannabis’ psychoactive ingredient THC. The problem is, none of them are actually legal, licensed sellers. And the $2 billion market in illegal sales poses a threat to New York’s ambitions to launch a tax-generating industry of mom-and-pop shops owned by entrepreneurs impacted by past marijuana arrests.
New York state passed legislation two years ago that decriminalized pot, made it legal for individuals to consume cannabis and allowed New Yorkers to buy small amounts of weed. However, it took months to formulate regulations and grant licenses, creating a legal gray area where law enforcement was reluctant to go after so-called legacy sellers who were being encouraged by New York’s regulators to apply for licenses.
That all changed in late November when the city doled out its first batch of licenses to three dozen sellers who are now going through the process of setting up legal storefronts or delivery services with hopes of launching their businesses before year-end.
Now that there are legitimate cannabis businesses on the cusp of operating, regulators say they can work with law enforcement to go after unsanctioned sellers.
“It’s taken a while to get started,” said Axel Bernabe, chief of staff of New York State’s Office of Cannabis Management, which oversees the marijuana market roll-out from its base in Albany. “We have ramped up in the last couple of weeks and will be coming out strong in the New Year.”
Bernabe said there was a general reluctance to re-criminalize cannabis, but the influx of illicit sellers has now given rise to more widespread support for cracking down on the illegal stores.
He said there isn’t a risk that New York will follow the path of California, where it took years for the state to tighten up rules. In that state the illicit market continues to overshadow the legal industry by billions, spurring requests for bailouts and tax breaks from licensed sellers and jeopardizing the stream of tax revenue California has earmarked for social programs.
“You can’t have a sustainable business if you’re competing with 20 pop-ups a block,” he said.
Pot Task Force
New York’s OCM and law enforcement declined to say exactly how many illegal sellers they believe to be operating in the city or how many storefronts they’ve closed down so far.
City Hall on Nov. 14 launched a task force to combat illegal cannabis sales composed of the New York Police Department, the sheriff’s office, the city’s department of consumer and worker protection, and the state’s cannabis management office.
In its first week in operation, the group seized close to 100,000 packages, cartons and other cannabis products, which totaled around $2.5 million, according to a city official familiar with the program who was unauthorized to speak publicly on the operations. The agencies also made two arrests and issued over 300 civil violations and more than 30 criminal court summonses.
In one instance, the sheriff’s office confiscated nearly 250 pounds of cannabis – roughly equivalent to $650,000 worth of wholesale marijuana – from an outpost in the Bay Ridge neighborhood of Brooklyn, according to a statement.
Still, that sum is a small dent compared with the almost $2 billion of illegal pot sales in the state projected for 2022, as estimated by Cannabis Public Policy Consulting, an advisory firm that works with state governments and other agencies to track cannabis data. The market for adult-use cannabis sales is projected to reach $1.3 billion in New York City alone by next year, according to a statement in August from the mayor’s office.
One big concern for city officials is that the public doesn’t understand that stores currently selling weed are doing so illegally. That’s likely led to New Yorkers purchasing cannabis they think is regulated — and presumably tested — by the state.
About 40% of cannabis products purchased from illicit stores in the city were found to contain harmful contaminants such as E. coli, lead and salmonella, according to a report released on Nov. 30 commissioned by the New York Medical Cannabis Industry Association.
“The regulated business ensures a quality control mechanism for the use and access to these products,” Sheriff Anthony Miranda said in an interview. “Whereas with the illicit market, there’s no quality control there. We don’t know what they’re cross mixing these things with.”
Some of the illegal stores are also flouting the state’s proposed regulations regarding where dispensaries can be located. One store in Park Slope, Brooklyn, is about a block from a public school and even closer to a playground. Dispensaries aren’t allowed to be within 500 feet (152 meters) of either, according to OCM regulations.
Politics of Arrests
The politics of arresting people for selling marijuana is delicate, given a major force behind New York’s decision to legalize pot sales was to create a safer, taxable market that would address the impacts of the past war on drugs on low-income communities and people of color.
“I think the state will get fairly active in shutting down illegal dispensaries,” said Mitch Kulick, a New York cannabis attorney. But given the industry’s historical enforcement has been rife with discriminatory practices, he suspects the state will issue fines to landlords that rent space to unlicensed dispensaries instead of retailers themselves.
Vladimir Bautista, a co-founder of Happy Munkey, a cannabis lifestyle company vying for a dispensary license, said New York has to strike a balance between arresting people and creating what he called “Prohibition 2.0,” and hampering the viability of licensed sellers.
“Right now it looks like there’s a free-for-all,” Bautista said during a recent panel hosted by Columbia Business School and the law firm Goodwin Procter.
Then there’s the issue of how the law is currently written: A spokesperson for the NYPD said there’s no express enforcement mechanism outlined in state laws as to when and how to act when an unlicensed shop is displaying cannabis for sale, only when someone is caught actually selling it.
“Even then, the penalties are limited due to issues with the law as written,” the NYPD said in a statement. “The NYPD continues to advocate for reasonable amendments to the law that would enable appropriate enforcement of violations.”
Although the task force has made some headway in confiscating THC products, coordinating between multiple agencies can have its pitfalls, said City Council Member Carlina Rivera, who represents Manhattan’s East Village and adjacent neighborhoods.
Rivera said the NYPD has primarily operated on a complaint-driven basis and that she isn’t always notified when police have shut down an illegal storefront.
“If you’re operating in a gray area, you are not only jeopardizing your future of obtaining a legal license, but you’re also creating havoc in this legal market,” she said. “Purgatory is a good word for it.”