What’s gone wrong with the rollout of legalized cannabis — and how it can be fixed
New York urgently needs to take control of its current, uncontrolled experiment with full legalization of recreational marijuana. A laudable desire to correct the injustices of the war on drugs has weakened a program that is currently hobbled by bureaucratic missteps, weak enforcement, an explosion of illegal rogue operators and early evidence of health risks that were never taken seriously. Worst of all, as we head into a tough budget season with city and state deficits looming, the promised benefit of a stream of tax dollars from the new industry has yet to materialize.
Gov. Kathy Hochul, the state Legislature and Mayor Eric Adams must overhaul the broken system and get the tax dollars flowing as soon as possible. And that will require dropping New York’s kid-glove treatment of lawbreakers who are undermining the legalization effort at every turn, holding nearly half a billion dollars worth of untaxed product according to the city’s Independent Budget Office, which estimates that over $19 million a year in tax dollars aren’t being collected.
“At the very beginning, I didn’t think it was going to be a problem,” said Joanne Wilson, who operates a legal cannabis shop called Gotham. “It’s not okay that I have to compete with someone who can sell products at half the price because they don't have to deal with the tax problems,” she told NY1 News.
“Legalization is expected to eventually rake in billions of dollars in revenue for the state and for New York City in particular,” CNBC reported when Gov. Andrew Cuomo signed the Marijuana Regulation and Taxation Act in 2021. Among other things, the law created a new regulatory agency, the Office of Cannabis Management (OCM), and set out rules to expunge the criminal records of tens of thousands of people convicted of low-level offenses during the drug prohibition era. The law also defined a set of licenses to grow, distribute and sell weed-based products — from the familiar smokable joints to oils, gummies and baked goods — as well as a schedule to tax the new legal market according to the potency of individual products.
Legalization was supposed to take off like a rocket; as late as last year, giddy officials initially predicted that 100 licensed dispensaries would be open in New York City alone by 2023. But a check of the agency’s dispensary list shows a grand total of only 20 storefronts were open statewide as of the end of November, including a paltry eight in the city — and a smaller number still of delivery-only services.
Some inner-city neighborhoods, ravaged by decades of substance abuse and police crackdowns, don’t necessarily welcome the new businesses.
A combination of questionable bureaucratic choices and lawsuits slowed the process of opening a storefront. OCM, which has received hundreds of applications for licenses, has issued dozens of full or conditional approvals — but things are moving slowly, thanks to the agency’s insistence on making sure the first licenses went to operators with a past history of marijuana convictions. To help these formerly justice-involved licensees, OCM has taken on an extraordinary level of involvement in the setting up of individual businesses.
Far from simply awarding licenses, the state actually scouts out locations, finances and designs the buildout, and then hands over the lease to a licensee. $50 million in state funds went to launch a newly created Cannabis Social Equity Investment Fund, housed within the state Dormitory Authority, with the mission “to identify, acquire, design, construct and outfit locations for cannabis dispensaries.”
However commendable the intention, it was probably never a good idea to have a government licensing agency also act as a quasi-entrepreneur trying to create turnkey weed operations. To launch a for-profit business means taking on market risk, and even merchants selling attractive, highly addictive consumable products sometimes fail — just ask anyone who’s ever run a bar, ice cream shop or Starbucks franchise. Figuring out the elusive magic of making a buck is generally not something government is terribly good at.
And it turns out that some inner-city neighborhoods, ravaged by decades of substance abuse and police crackdowns, don’t necessarily welcome the new businesses. Gotham Buds, the first legal weed location in Harlem, is located across the street from the famed Apollo Theater, drawing complaints and staunch opposition from nearby businesses, the 125th Street Business Improvement District and State Assemblywoman Inez Dickens.
The slow pace of dispensary openings has negative consequences beyond New York City. Legalization — which only allows for the sale of cannabis grown in New York — was supposed to benefit upstate growers. Two years before the legalization bill was signed, an estimated 400 farmers were cultivating 18,000 acres of hemp, which is the same species of plant as cannabis but with a drastically lower level of tetrahydrocannabinol (THC), the ingredient that produces a high.
The illegal dispensaries, selling an illegal product in all-cash settings, are magnets for crime.
But with so few legal stores open, growers last year harvested $750 million worth of weed with no place to sell it — an inauspicious start. “We’re all losing money,” one upstate grower told Fortune. “Even the most entrepreneurial and ambitious amongst us just can’t move much product in this environment.”
As OCM dutifully attempts to simultaneously regulate and operate businesses — with nonmonetary social justice goals thrown in for good measure — illegal operators, unencumbered by morality or the law, have brazenly opened an estimated 1,500 storefronts all around the city, some right near City Hall. Efforts at enforcement are being led by the city Sheriff's Department, a division of the Department of Finance that is outgunned with only 118 officers and limited to civil enforcement, like seizing illegal product or padlocking a location. Fines of only $250 for illegal sales were written off as the cost of doing business; but even a ratcheting up of penalties to $20,000 does not seem to have slowed the proliferation of outlaw shops.
Political leaders seem reluctant to crack down on the illegal operators. Manhattan District Attorney Alvin Bragg sent out a letter in early 2023, warning unlicensed shops that “In instances where criminal charges are warranted, including but not limited to tax evasion, money laundering, or the sale of cannabis and other narcotics to minors, my office will work with our law enforcement partners to prosecute those crimes.” Despite that threat, the number of illegal operators appears to have grown, not decreased.
The illegal dispensaries, selling an illegal product in all-cash settings, are magnets for crime. John Chell, the NYPD’s Chief of Patrol, said at a City Council hearing that there were 593 smoke-shop robberies in 2022, a huge jump from 137 in 2021. In November, a 24-hour shop in the Bronx was the scene of a fatal shootout between the weed-seller and a would-be robber.
Much of the problem with New York’s weed rollout can be tied to the haste with which legalization rules were thrown together — notably, without input from scientists about the long-term effects of selling this powerfully addictive product to the general public.
Before becoming executive director of OCM, Chris Alexander was an advocate for legalization, and remains reluctant to launch a crackdown on criminal operators. “It's not about Prohibition 2.0. It's not about locking individuals up. We are building something special here in New York,” he told me. “Despite my advocacy background, I actually think the folks who are operating [illegally] are operating in violation of the principles that we had laid out in the campaign to end prohibition.”
It will be a scandal if cannabis follows the same path as tobacco. According to the Tax Foundation, more than 53% of all cigarettes sold in New York State are going untaxed — the highest rate in America — at an estimated cost to the treasury of more than $1 billion a year in lost revenue. Will weed become one more gray-market commodity that benefits criminals rather than the public?
Much of the problem with New York’s weed rollout can be tied to the haste with which legalization rules were thrown together — notably, without input from scientists about the long-term effects of selling this powerfully addictive product to the general public.
On the day Cuomo signed marijuana legalization into law, I interviewed Dr. Yasmin Hurd, director of the Addiction Institute at Mt. Sinai Hospital. “I think it's really important for people to understand that this is not a benign drug,” she said. “Cannabis that was consumed in the beginning of the hippie ’70s generation, it was about 4% THC. In the cannabis that's mainly consumed recreationally today, it’s over 20%. And in dispensaries you can even get 70% THC cannabis oils.”
Hurd’s take-home message: “The earlier someone starts using cannabis and the more frequent, the greater their risk for addiction and greater for psychiatric related disorders, and the higher the concentration of THC, that exacerbates it even more.”
Although she is among the nation’s leading researchers on the effects of cannabis, Hurd never testified in Albany before legalization was passed. “I was not invited to be part of those discussions. And I think that that's a shame,” she said. “Not necessarily me, but scientists, physicians who are, you know, boots on the ground and understand the long-term impact or even the short-term impacts of cannabis use … just having more cannabis stores around certain communities, it's not going to improve their health. In fact, it can dramatically decrease their health.”
The weed reset New York needs would combine tougher, meaningful enforcement with sleeker, market-driven licensing that gives new licensees a fighting chance to succeed. And a crash program of public education to explain why dose matters and why this drug, which holds so much promise, can cause great harm if misused.