After three years of fits and starts, the rollout of New York’s recreational cannabis market gained speed in 2024, most notably with the opening of about 50 licensed dispensaries so far this year.
But the licensed retailers, who number about 85 in total, are far outnumbered by more than 2,000 rogue head shops, the target of complaints that they siphon customers, sell to children and attract criminals.
The quick and brazen takeover has left many people frustrated with the government’s slower and stricter approach to expanding the legal market and has emerged as the most pressing challenge facing the rollout, as the authorities struggle to keep the state’s promise to deliver a $5 billion market to diverse small businesses and people harmed by past anti-marijuana policies.
“They need to get a handle on that quickly,” said James Stephenson, a co-founder and chief executive of oHHo, a wellness brand that depends on dispensaries to sell its cannabis-infused chocolates, gummies and seltzers. “You can’t have one set of people playing by the rules.”
While the illicit shops multiplied, legal dispensary openings stalled for months because of lawsuits, the rule-making process and the state’s broken promise to finance the leasing and renovations of the first 150 licensed dispensaries. Just 10 stores are in operation with the state’s help, while another 375 dispensaries, licensed for nine months or more, have yet to open their doors.
Gov. Kathy Hochul, who has increasingly voiced her disappointment, recently ordered a review of the Office of Cannabis Management, the agency handling the rollout. She has also proposed legislation expanding the power of local authorities to punish unlicensed shops and complicit landlords, as well as a measure to slash taxes that drive up the price of legal products. The changes have broad support in the State Legislature.
The review began days after Damian Fagon, the cannabis agency’s chief social equity officer, was placed on administrative leave amid a misconduct investigation. Jenny Argie, the founder of a licensed cannabis business, accused him of retaliating against her after she recorded a conversation with him that was used in an article criticizing the agency.
Ms. Argie sued the state, adding to the list of lawsuits against the agency. They include a complaint that the state’s social equity policies discriminate against white men in favor of women and minorities. Another case seeks to stop the state from using lotteries to determine the order in which new applications will be considered. Others protest decisions about where dispensaries can open and oppose the use of taxpayer money to support them.
Chris Alexander, the executive director of the state cannabis agency, has defended his agency’s “intentional and methodical” focus on licensing businesses owned by a diverse range of people, which regulators believe can survive in a notoriously difficult environment. He points to the failures in states that moved faster. And officials bristle at how frustrations with the rollout have overshadowed what they have achieved in the two years since the agency was set up.
New York now has more licensed recreational dispensaries than any state on the East Coast except Massachusetts. The owners include people with criminal convictions, veterans, women, nonprofits and people of Black, Latino and Asian descent. The stores have added over 1,000 jobs to a retail sector struggling to rebound from the pandemic, chipped away at the state’s mountain of unsold cannabis and paid millions of dollars in taxes. Several are profitable and expanding, and many upstarts are close to breaking even.
However, they are struggling to break the illicit shops’ hold on consumers, who often don’t know or care which shops are licensed. Last year was the first full year of legal sales, and state-licensed dispensaries sold about $150 million. By comparison, shops in New Jersey, where recreational sales started eight months before New York, raked in $673 million last year.
While New Jersey and Massachusetts allowed medical dispensaries to jump start recreational sales, New York reserved its first retail licenses for people with criminal convictions and only started allowing medical dispensaries to sell to the public this year. Critics, and even some supporters, said that decision made the program vulnerable to lawsuits that stalled the rollout for months, while the illicit market boomed.
With few places to sell their products, New York’s cannabis farmers have found themselves in financial binds just as the market is expanding.
The Cannabis Control Board is scheduled on Friday to vote on a resolution to waive new licensing fees for those who want to continue growing for the state or open craft businesses.
Damien Cornwell, the president of the Cannabis Association of New York, said the board should approve the measure because the fees, as high as $40,000, are prohibitive for farmers whose cash has gone to taxes while they wait for retailers to pay them back for product orders.
“They’re cash poor,” said Mr. Cornwell, who also owns a dispensary called Just Breathe in Binghamton. “They’re not liquid enough to do this.”
Local and state authorities have raided dozens of illicit stores, issued millions of dollars in fines and sent hundreds of letters pressuring landlords to evict businesses selling cannabis without a license. But the unlicensed retailers have continued undeterred, reopening within hours or days of raids and contesting fines in administrative hearings that take months to resolve.
In addition to Ms. Hochul’s enforcement and tax proposals, state lawmakers are considering measures to provide financial assistance for struggling farmers and to protect a special licensing program for business owners with marijuana-related convictions from lawsuits. New York City prosecutors have also requested changes that would expand their power to evict shops that market and sell cannabis.
“I want a system that works,” said Jeremy Cooney, a state senator from Rochester and the chairman of the cannabis subcommittee. ”
Pilar DeJesus, a housing activist who also fought for cannabis legalization, said the state should be doing more to help people who were harmed by anti-cannabis policies to develop legal businesses.
The need for such assistance has grown. Last fall, the Office of Cannabis Management received 7,000 license applications, and about 4,800 applicants qualified for loans and grants, which are required by law, to support businesses owned by low-income people with prior arrests, as well as by women, minorities, veterans and distressed farmers.
The Office of Cannabis Management provides some reimbursement to organizations helping people to submit applications, but Ms. DeJesus said the money should be increased and paid to grassroots organizations that are already helping people to develop the skills they need to run businesses in the industry.
“We’re talking about a lot of different skill sets that the community does not have because of the barriers created by the war on drugs,” she said. ”
