People walk past the Weed World store on March 31, 2021, in Midtown New York. - New York Governor ... [+]
New York cannabis regulators came back to crack down on unlicensed retailers, sending on Thursday, July 7, cease-and-desist warning letters to 52 unlawful businesses across the state.
According to New York's Office Cannabis Management (OCM), the unlicensed merchants falsely depict their operations as legal cannabis dispensaries. However, they are not licensed by New York State and are selling untested products that put public health at risk.
In a press statement, Tremaine Wright, Chair of New York's Cannabis Control Board (CCB), said that licensed sales and a regulated market are the only way New York's customers will be assured that the cannabis products they are purchasing have been tested and tracked from seed to sale.
"There are no businesses currently licensed to sell adult-use cannabis in New York State. Selling any item or taking a donation, and then 'gifting' a customer a bag of untested cannabis does indeed count as a sale under New York's Cannabis Law," she said.
Chris Alexander, Executive Director of the OCM, said unlicensed cannabis businesses are breaking state tax and municipal laws, creating confusion among New Yorkers.
"These stores are masquerading as licensed, regulated businesses, but they are nothing of the sort. They aren't creating opportunity, they are creating confusion – New Yorkers think they're buying a high-quality, tested product when they aren't," he said.
The letters warn unlicensed cannabis businesses to cease any illegal activity immediately. Its failure would put their ability to obtain a license in the legal cannabis market at risk. In addition, the unlicensed sale of cannabis could lead to substantial fines and possible criminal penalties.
The OCM also warned landlords that host illegal cannabis storefronts on their premises that they could lose the opportunity to house licensed retail dispensaries or on-site consumption lounges in the future.
It's not the first time New York regulators have sent warning letters to unlicensed businesses.
In February 2022, the OCM sent over two dozen letters ordering businesses suspected of illegally selling or gifting cannabis to end such activities.
Although New York legalized recreational cannabis in March 2021, regulators have yet to issue licenses to implement the Marijuana Regulation and Taxation Act (MRTA).
Regulators have already issued several conditional cultivation and processing licenses as they expect the first batch of dispensaries to open their doors in late 2022. They also approved a series of proposed rules for packaging, labeling, advertising, and testing requirements.
However, unlicensed cannabis businesses took advantage of the transitionary period between enacting cannabis legislation and its implementation. They popped out across the state selling cannabis or gifting it through the sale of t-shirts, stickers, or other gadgets at an increased cost, even though the OCM stated that the loophole of "gifting" is illegal.
In order to contrast the activity of unlicensed businesses, Senator Diane Savino introduced in March 2022 a bill that would make illegal selling and transferring cannabis without a license.
Senator Liz Krueger (D) proposed a bill in May 2022 that would authorize the Commissioner of taxation and finance to revoke the certificate of registration of the sale of adult-use cannabis, increase penalties relating to illicit cannabis, and authorize the OCM to provide enforcement. Although New York Senate approved the bill in early June, the State Assembly didn't pass it.
New York's cannabis regulators often depict the MRTA as the most equitable cannabis industry in the United States, aiming to prioritize the communities most harmed under cannabis prohibition and put high-quality and lab-tested products on the market.
In fact, the first round of adult-use cannabis retail licenses will go to people convicted of a cannabis-related offense before the legalization or those with a parent, guardian, child, spouse, or dependent with a cannabis conviction.
However, the rise of the gray market of unlicensed businesses may threaten cannabis legislation's spirit.
In a press statement, Damian Fagon, Chief Equity Officer at the OCM, said that illicit stores don't contribute to our communities, don't support our public schools, and don't protect consumers.
Furthermore, regulators explained that the activity of unlicensed cannabis retailers is harming the community. Unlicensed businesses aren't contributing to the New York state cannabis revenue fund as they are not paying any taxes, which will be used to support communities hit by the prohibition policies over the last decades and cover the administration of the program and implementation of the cannabis legislation.
Another aspect that the OCM pointed out when warning unlawful businesses to continue illegal sales is the safety of cannabis products. As unlicensed retailers don't sell lab-tested products, their cannabis may threaten public and health safety.
The gray market created by unlicensed retailers shares mixed feelings.
Some operators say that they are acting according to the law. Others wish to get a license in the future, but their current selling could jeopardize their applications to enter the legal industry. Some others will continue to gift cannabis products even without licenses.
If unlicensed cannabis businesses wouldn't cease their activity, the cannabis market in New York will face a scenario similar to other US legal cannabis states, such as California.
On one side, cannabis retailers that would obtain licenses from regulators will follow the industry's rules, paying taxes and meeting specific requirements to sell cannabis products. But on the other side, unlicensed businesses would take advantage of the situation to continue to sell untracked cannabis products.
