Unregulated Cannabis Sales Continue As Legal, Licensed Retail Shops Prepare to Open

A strong smell of cannabis wafted around Christopher Street in the West Village on a recent autumn afternoon. Smoke shops openly displayed cannabis accouterments like rolling paper, bongs and grinders but kept the cannabis flowers, gummies and oils carefully tucked behind the counter.

Shops exhibited a variety of cannabis infused snacks like “Trips Ahoy,” a play on Chips Ahoy cookies, and “zkittlez,” which resemble Skittles candy. In one shop, $40 could get a customer three grams of the strain “British Pound Cake,” a cannabis flower advertised with the Queen’s face. In a handful of other shops, there are different products like “Caramel Apple,” a pre-rolled scented joint for $20 and “Pain Relieving” sativa cannabidiol (CBD) oil for $30.

All of these sales remain illegal in New York State because they are not licensed by the regulators or the Office of Cannabis Management (OCM), though that process is underway. While the Cannabis Control Board approved the first 36 provisional Conditional Adult Use Retail Dispensary (CAURD) licenses, including 28 to qualifying individuals and eight to nonprofit applicants, on November 21, none of these retail locations have opened yet. More than 900 applications were submitted to OCM, of which up to 175 licenses will be issued in total. Only such license holders will be allowed to make the legal adult-use cannabis sales, which will be part of what is estimated to generate up to $1.3 billion in sales by 2023.

The first group of dispensary licenses are being issued to “justice involved” individuals, or people who had a cannabis conviction, or family members of those with a cannabis conviction. Applicants must also demonstrate experience operating a successful business by proving that they owned 10% or more of a profitable business for two years. The 36 provisional CAURD license holders won’t be allowed to begin operating until the completion of a supplemental application, which includes identifying the municipality where the dispensary will be located.

Meanwhile, the unregulated market thrives in part because the Marihuana Regulation and Taxation Act (MRTA), passed by the state legislature in March 2021, does not provide members of law enforcement with defined procedures to close down illicit businesses.

“The law, as currently written, does not provide an enforcement mechanism when an unlicensed establishment displays cannabis for sale,” according to an email from a spokesperson with the Office of the Deputy Commissioner, Public Information (DCPI).

Furthermore, according to DCPI, members of law enforcement can only act if they observe a sale, but even then, the penalties that they can issue are limited.

At a press conference on December 15, Mayor Eric Adams announced that the legal market is under threat from the unlicensed establishments that are selling counterfeit products, specially those products that may be appealing to children because of the colorful packaging and uncanny resemblance to popular sweets. Over the course of two weeks, a joint emergency task force spearheaded by the New York City sheriff’s office, partnered with the NYPD, the city’s Department of Consumer and Worker Protections and OCM. This team cracked down stores selling illegal cannabis products, tobacco and vaping products. Adams said that more than 100,000 illegal products were seized, which account to approximately $4 million in proceeds.

“It’s time the unlicensed stores stop selling illegal products and comply with the law,” said Adams.

According to documents released by the Cannabis Control Board on November 21, OCM may confiscate cannabis and related products along with the proceeds from their sale and distribution, including imposing a penalty of up to $5,000 for each violation of any term or provision of the Cannabis Law.

Chris Alexander, executive director of OCM, said at a press conference after Nov. 21 regulatory meeting that OCM “had several operations” with the New York City Sheriff’s office “who went into these illegal dispensaries and seized products.” ‘ said

“We’ll continue doing these activities as we begin building up capacity, to go into these illicit shops, cease the cannabis products, particularly those that are attractive to young people,” said Alexander.

For now, unlicensed peddlers continue to sell cannabis out of brightly colored buses and vans. Products sometimes include sativa or indica dominant varieties for $10 to $20 a joint, depending on the bargaining skills of the customer.

The DCPI spokesperson said, “Violators are issued an OATH summons for various infractions including unlicensed general and food vending by the NYPD and the vehicle is removed from the location.” An OATH (Office of Administrative Trials and Hearings) summons is an order to appear before New York City’s central, administrative law court.

Paula Collins is a cannabis law attorney who works with “smoke shops” and bodega owners who are trying to obtain CAURD licenses.

“There is a genuine lack of education,” said Collins. According to her, roughly fifty percent of the workers she has spoken with did not know that it was illegal to sell cannabis without a license. According to her, the workers might be under the false impression that it is legal to sell without a license, just because the consumption of cannabis has been legalized.

Danny Liu, 24, said that he buys his cannabis from a “smoke shop” on 6th Avenue in Greenwich Village. When asked if he would prefer going to a legal store when they open, Liu said, “I will run to a legal store, but it will always be a mix.” According to Liu, the product quality and convenience that he is used to now matters the most.

“I don’t smoke everyday, so quality is most important to me,” said Liu.

At the launch of Cannabis NYC, an initiative and suite of services to support the equitable growth of the cannabis industry in New York City, Mayor Adams said that the cannabis industry in New York will help give opportunities to underserved communities who have faced disproportionate rates of drug-related incarceration.

According to Jefferey Hoffman, a New York based independent attorney who specializes in cannabis law, the success of the government in establishing a regulated market will be dependent on how well the “legacy” market is made a partner, rather than a competitor. The legacy market includes individuals who were operating within the cannabis industry before legalization, during prohibition.

New York regulators can learn from other states that have legalized and struggled with the unregulated market. California began licensing the sale of recreational adult-use cannabis in 2018. Three years later, the state government is still making efforts to contain illicit transactions. In 2021, the California Department of Cannabis Control (DCC) seized more than half a million pounds of illegal products and eradicated 3.8 million cannabis plants. Subsequently in 2022, California DCC removed more than $1 billion worth of untested cannabis products from the market. Additionally, California lawmakers passed a law to eliminate the cannabis cultivation tax in the 2022-23 State Budget. According to a press release by the DCC, this bill was introduced to reduce the tax burden on licensed operators, which they hope will help license holders better compete with unlicensed operators, who generally sell at a lower price point.

In February 2022, OCM announced that they sent cease and desist letters to businesses selling unregulated cannabis, educating them about the license requirements. “We’ve put out instructions, we’ve put out communication, we’ve put out requests to cease and desist to illegal operators, particularly to store fronts, trucks,” said Alexander at a press gaggle, following the November 21 CCB meeting. According to the OCM, illegal activity may be referred to the Department of Taxation and Finance, district attorney and any other civil or criminal investigative or enforcement agencies.

The next Cannabis Control Board meeting is scheduled for December 21.

“There are more CAURD licenses under review and we’ll continue to issue licenses on a rolling basis, as we have for our other license types,” said Alexander.

About the author(s)

Muskan Bansal is a graduate student at Columbia University Graduate School of Journalism and covers small businesses and technology.