Is it Possible for the Regulated Cannabis Legacy Market to Survive if Black Market Sales Continue?

Is It Possible for the Regulated Cannabis Legacy Market to Survive

If Black Market Sales Continue?

by Lateef Bell

August 13, 2022

With the passage of Marihuana Regulation and Taxation Act Tax (MRTA) New York is on its way to becoming one of the largest markets for cannabis in the country. The problem then becomes, how to encourage consumers to participate in the legal market for cannabis, when the illicit market has been and continues to thrive throughout the metropolitan area. Moreover, since passing MRTA, the emergence of the “grey market” has been prevalent throughout New York.  

Indeed, on July 7, 2022, the Office of Cannabis Management (OCM) sent cease and desist warning letters to 52 unlawful businesses across the state. There is confusion in the marketplace which seller is legal and who is breaking the law.  According to Chris Alexander, Executive Director of the OCM, “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 thing they’re buying a high-quality, tested product when they aren’t.”

Thus, a key problem for the OCM, is how to create an equitable legal cannabis market that can adequately compete with the current black and grey markets. In addition to the cease-and-desist letters, the OCM has stated that unlicensed cannabis retailers will be prohibited from applying for a license in the future. If the illegal cannabis is being sold out of a physical location, that site may also be barred from obtaining an on-site consumption license or any other license in the future. This will invariably push those retailers back into the shadows of the grey and black market.

To make matters more complicated, Mayor Adams has stated that he wants the city to take an active role in the rollout of the cannabis market. In fact, in late July, the Department of Small Business Services (“SBS”) posted a job opening for a “Founding Director, Cannabis NYC” position, a liaison between the OCM and the city. The position is described as “help[ing] unlock economic potential and create potential and create economic security for all New Yorkers.”

However, Mayor Adams has also stated that he is taking a hands-off approach to the black and grey market.  These diametrically opposing messages will only hinder New York’s cannabis rollout. A legal market for cannabis cannot be successful if the grey and black markets are allowed to thrive. On the other hand, mercilessly fining, suspending and eventually arresting grey and black-market dealers will disrupt the legal market as well. Moreover, it completely disrupts the envisioned use of cannabis legalization— the remedy to wrongful incarceration of black and brown New Yorker’s.

The OCM’s goal to create an equitable legal cannabis market in New York will be an uphill battle, but the mission must not be lost in the application of proven unsuccessful principles. That is, the bureaucracy of NYC’s licensing, fines, suspensions, and banishment system. The message must be clear otherwise parties will take advantage of the confusion. When confusion of this magnitude persists, the most vulnerable will suffer at the hands of larger economic interests.