Enforcement Questions Linger One Year Into New York’s Legal Marijuana Market

More than a year into New York’s fully legal marijuana market, the illicit side of the business remains completely out of control, with questions as to how exactly the state will be able to replace the underground trade with one that’s fully licensed and taxpaying.

According to an end-of-year report from the New York Office of Cannabis Management, the agency has performed 369 inspections of “illicit operations” and seized roughly $56 million in illegal cannabis goods. But that figure includes 103 “re-inspections” to ensure compliance, meaning that only 266 suspected illegal marijuana shops have been targeted thus far.

By contrast, the New York City Council recently estimated that a whopping 8,000 such shops are active in the Big Apple alone. There could be hundreds or thousands more spread across the rest of the state.

Still, the OCM said it issued 305 notices of violation or cease-and-desist orders – and that will certainly continue to build through 2024. A state budget allotment earlier in 2023 will cover the cost of 58 investigators, an OCM spokesman confirmed. However, the agency has not yet hired that many.

“The (OCM) continues to build enforcement capacity by recruiting needed staff,” the agency asserted in its report.

On top of that, there are still some in the unlicensed market willing to fight the state in court.

A “safe harbor” provision in the state Marihuana Regulation and Taxation Act is the legal key, some unlicensed operators argue, and that has yet to be fully litigated in any state court.

Meanwhile, it’s not clear if the enforcement approach, which includes civil fines and cease-and-desist orders, will be effective, given that criminal penalties have largely been done away.  Some illegal smoke shops receiving cease-and-desist orders are reportedly just ignoring them.

In addition, there’s a question of how much manpower, time, and resources it would take to make the civil fine approach actually work.

It’s a matter that California has also been grappling with for years – since its recreational market launched in 2018 – and failing miserably to address. Some estimates put the underground market in California at roughly 80% market share statewide; in New York the percentage is almost certainly even higher, given that there are only 40 legal cannabis shops open thus far.

New York does have more than 400 retailers lined up to open at some point through the Conditional Adult Use Retail Dispensary program, along with another 1,000 retailers it plans to grant licenses to from the most recent application window. That could make a dent in the illicit trade, but there’s no telling when all of those shops will be actually able to start serving customers.

All of which means there’s still plenty of uncertainty in the future of New York cannabis, not the least of which will be competition from players determined to stay outside – or at least on the fringes of – the law.

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