When will New York’s pot industry be ready to take off?

There’s never been a better time to buy marijuana in New York.

But the proliferation of unlicensed shops, a series of legal challenges and bureaucratic snags have impeded the rollout of the state’s adult-use cannabis program.

Nearly two years after the state legalized recreational marijuana, an estimated 1,500 illegal dispensaries have opened in New York City, while roughly 36,000 have opened statewide. Yet only nearly a dozen legal locations exist in the city, and fewer than 50 across the state have been approved for a license.

“It’s been a thorn in our side,” said Tremaine Wright, who chairs the state Cannabis Control Board, which is responsible for issuing licenses to cannabis businesses and approving rules and regulations for the industry. “We’ve been able to padlock a number of buildings operating these facilities. We’re issuing fines, doing inspections and working with local municipalities so our efforts are enhanced by their efforts.”

Some storefronts list the various strains of weed they offer and their price per ounce on sidewalk chalkboards outside their shops. Others have velvet ropes and carefully curated edibles in minimalist glass displays resembling a luxury watch boutique. Still others stash a myriad of pre-rolls, vape pens and glass bongs next to off-brand snacks and energy drinks, which prompted one news outlet to diagnose the rise of New York’s “Tacky Weed Bodega” last year.

These days, so many smoke shops have cropped up on New York City’s streets that they’re as prevalent as chain pharmacy branches. Stretches of the Lower East Side, Flatbush and Astoria have multiple unlicensed dispensaries on a single block. New York City Council Member Gale Brewer of Manhattan even dispatched interns to survey illegal dispensaries from 54th Street to 208th Street last fall, and they found 65 of them.

“It’s a huge number on the Upper West Side,” Brewer said. “The part that’s most disturbing is that many of them are near high schools. I’m conscious of the fact that principals are seeing students vaping, and that’s never happened before.”

In response, multiple law enforcement agencies have carried out a surge of crackdowns on unlicensed businesses. By the end of last year, state cannabis officials seized 11,000 of pot products worth more than $54 million, while the New York City sheriff’s office collected nearly $4 million in contraband and imposed $3.2 million in fines.

That’s not enough for New York City Mayor Eric Adams, who declared that cracking down on cannabis will be one of his top priorities in 2024.

“Albany simply needs to give local municipalities the authority to go in and enforce. If I’m given that, I can tell each precinct to map out where your illegal shops are located and within 30 days I want them cleared up,” Adams told reporters on Dec. 24. “We don’t have that power now. We asked for it last year. They did not give it to us.”

Other elected officials said local police officers and sheriffs were not targeting cannabis shops as a public nuisance with their existing tools.

“I would venture to say that if any law enforcement department decided they would not have somebody selling an illegal product without a license in the state of New York, they would shut them down,” Assembly Majority Leader Crystal Peoples-Stokes said. “They have made a conscious decision to not engage with this and the district attorneys have followed, all because we made this an illegal plant.”

The Hochul administration has taken notice. In her State of the State address, Gov. Kathy Hochul called for a harsher crackdown on illegal cannabis vendors. Among her proposals were giving more power to the Office of Cannabis Management and local governments to shutter unlicensed operations while improving tracking of those that are licensed. The governor’s budget proposal would allocate $68.1 million to OCM.

“We’ll empower localities to go after the unlicensed shops, prosecute businesses that sell to minors and padlock their doors faster,” Hochul said.

What went wrong

It wasn’t supposed to happen like this.

When the state’s drug policy advocates and lawmakers envisioned the state’s recreational marijuana law a decade ago, they hoped to galvanize a $4.2 billion industry in the state by investing in upstate farmers, turning former pot offenders into entrepreneurs, expunging prior criminal charges and redirecting tax revenue into neighborhoods disproportionately affected by the nation’s yearslong war on drugs.

Instead, thousands of vendors bypassed the state’s licensing program and flooded the market with unlicensed marijuana products – and many have faced few consequences so far. State cannabis officials appeared to have not anticipated or not had enough personnel to combat the rapid move of black market retailers to meet the massive demand, sources said.

Yet Wright, who leads the state Cannabis Control Board, argued that the presence of illicit retailers will not hinder the growth and expansion of the state’s regulated market.

“We are trying to stymie their progress, limit their sales and shut them down,” Wright said. “Yes, they are operating and their presence is at odds with our mission and goal, but their presence does not stop our progress.”

Nonetheless, the proliferation of unlicensed vendors has not been without its costs. Last year, New York’s cannabis market generated $150 million in sales and $16.3 million in tax revenue in fiscal year 2023, according to a report from the state Office of Cannabis Management. That lagged far behind Gov. Kathy Hochul’s projections of $1.25 billion in sales over the program’s first six years. New York collected $56 million in tax revenue in 2021, its first year of the program, largely from license fees. That total was well below the first year pot revenues in Illinois ($216 million), Nevada ($120 million) or Massachusetts ($82 million).

At the same time, the Office of Cannabis Management’s license approval process has been anything but smooth. The state received about 6,900 applications for new businesses and prioritized issuing licenses for local hemp farmers, women- and minority-owned businesses, and people with past drug convictions. But bureaucratic delays in setting up a $200 million social equity fund to jump-start entrepreneurs has hampered its rollout. And licensees have been frustrated in their negotiations with the Dormitory Authority of the State of New York, which owns the fund. (A DASNY spokesperson declined an interview request.)

“We’ve heard from licensees that these aren’t great terms,” said Dasheeda Dawson, New York City’s cannabis czar. “An average retail dispensary hasn’t been negotiating the real estate deals and buildout that they’re currently in, so there’s a lot of pressure to sign for the purpose of opening on time. I feel that it is lopsided and predatory, and the money conversation will not go away.”

Two major lawsuits further stalled progress. In April 2023, a group of military veterans with disabilities and marijuana companies with dispensaries in other states sued New York, claiming that the Hochul administration broke the law by excluding them. A judge granted an injunction in August that prevented the state from issuing new licenses. Four months later, the Cannabis Control Board reached a settlement with the veterans, allowing hundreds of license holders to move forward with their businesses.

Because of the delays, upstate farmers have found themselves sitting on hundreds of pounds of cannabis flower with nowhere to sell it. In a November survey of farmers, some said the bumpy rollout had them facing financial ruin.

Lawmakers blamed the marijuana corporations who funded the civil lawsuit for keeping retailers from opening their shops and enabling the growth of illegal operators.

“They pretended they were individuals who felt harmed by our policies, but these were large corporate-funded lawsuits,” said state Sen. Liz Krueger, who helped author the state’s recreational marijuana law. “Because it has been held up for so long, other not-small independent guys have opened up illegal shops all over the state in humongous numbers, making deals with landlords to rent out 30 sites in one deal. They are big venture capital who see they can fill a void.”

Dawson also believes the state could have been better prepared to defend the program’s social equity intentions and avoided an injunction in the first place.

“The plaintiffs made many of the same claims we saw in other jurisdictions get dismissed. You could tell the judge was slightly reluctant to tear it down,” Dawson said. “There’s a notion that everyone is for social equity, and it’s part of people’s marketing, but they’re bringing lawsuits on it. Behind closed doors, it’s the exact opposite.”

The instability of the state’s marijuana rollout and a lack of confidence in the Office of Cannabis Management’s competency has dissuaded some smaller operators from moving forward at all. One lobbyist City & State spoke with has advised clients to hold off on their dispensary plans.

“Why am I going to put hundreds of thousands of dollars into a business on top of the fact that you have these situations where you don’t know where you’re going to get funding?” the lobbyist asked. “How long until I wait to see any recurring investment? There’s a lot of uncertainty that makes them not want to participate at the present time, if ever.”

What’s gone right

To be fair, several things have gone right, despite the delays in the state’s cannabis rollout.

The Marijuana Regulation and Taxation Act restructured the state’s medical pot program, established a regulatory framework for the drug and essentially created a state agency from scratch.

“We have the strongest and best legislation in the country in any state, and that seems to be ratified as a position to many people in the criminal justice and policy universe,” Krueger said. “Regulators come in from other states and say, ‘Oh, I wish we should have done that.’”

Thanks to New York’s legislation, the state has succeeded in reducing the excessive criminalization of a drug that is now legal in half the country. After making 1.2 million marijuana arrests in the state over the past four decades, many of which were concentrated in Black and Latino communities, law enforcement officials arrested only a little over 100 people for possession and sale of the drug in 2021. 

Meanwhile, the law allowed for state courts to seal and expunge hundreds of thousands of low-level marijuana offenses. So far, 107,633 convictions for low-level marijuana offenders have been wiped away after a 2019 law cleared another 202,000 offenses, although an inadvertent typo in the state legislation prevented felons from accessing a form that could reduce their convictions.

What’s more, the law’s social equity component helped some formerly incarcerated individuals secure a license and a new financial future for themselves and their families. So far, about 20% of New York’s dispensaries are Black-owned, according to state officials.

“It was a good thing we expunged people’s past problems and criminal records but then at the same time tried to give them jobs,” New York City Council Member Gale Brewer said. “I have to give New York state credit for working hard. When people get in who are criminal justice-involved, it’s a big deal and it’s important.”

Sales by legal dispensaries have been strong too.

“As we introduce more stores to the marketplace they have continued success,” Wright said. “New York is going down the right road. We’re able to offer independent and sometimes new businesses throughout our supply chain and we think it will create greater competition.”

What happens next

Now that the lawsuit has been settled, New York’s cannabis program is entering a pivotal stage.

State cannabis officials are in the process of issuing 1,445 new business licenses, including another 500 for dispensaries, which were set to be granted early this year.

Lawmakers are also looking at boosting OCM’s finances to handle the influx of applicants and tweaking the marijuana law during the legislative session. Some senators want to create a Recompense Fund for farmers who have been affected by delays in the state’s cannabis rollout and price declines. Krueger wants to simplify the tax policy for retailers that sets tax levels based on the percentage of THC in cannabis products.

“It’s exceptionally complicated to track and use to pay your taxes. Some products ended up with a very high tax while others did not,” Krueger said. “We can do a better job with the modeling of how we tax. We need to tax at a level that brings in the revenue that we need from it, but we don’t want to overtax.”

It appears that the governor is heeding these calls. As part of her budget proposal, Hochul proposed replacing the state’s cannabis potency tax with a 9% wholesale excise tax and a 4% local retail excise tax, replacing it with “a weight-based tax to ease tax compliance for distributors,” according to state budget documents.

Stricter enforcement of unlicensed vendors could be coming soon too. Hochul recently called for greater powers for the state and local governments. Assembly Member Jenifer Rajkumar, one of the New York City mayor’s closest allies in Albany, introduced a bill that would give local law enforcement more authority to close unlicensed shops and seize their products. Manhattan District Attorney Alvin Bragg has sent letters to 400 smoke shops warning them they could be evicted if they continue to sell cannabis illegally, and he brought a criminal case against the owner of 11 unlicensed stores.

“That stopped the sale of cannabis at these locations and resulted in significant fines,” Bragg said. “That case is part of our larger strategy to target owners and corporations that control multiple stores, and we currently have similar active ongoing criminal investigations.”

Yet some New Yorkers have grown attached to their local weed bodega, and may not be thrilled to see it shuttered in the near future.

“Most people think they’re legal and I got screamed at for messing with them by older adults who use them for medicine, for thinking about closing them or trying to,” Brewer said. “It’s wild.”