New York eyes crackdown on illicit weed shops. Will it work?

New York’s elected officials can agree on one thing when it comes to the state's troubled marijuana market: The state must do something about the thousands of unlicensed cannabis sellers.

And they appear near a deal to give local governments more authority to crack down on the illegal stores as part of a state budget that could come together as early as next week.

Changes can't come soon enough, according to legal sellers and lawmakers. Three years after legal weed became law, only 94 licensed storefronts have opened up shop to sell their wares to adults over 21.

New York City officials have estimated it has at least 2,000 illicit cannabis storefronts — though the actual number is likely far higher — and illicit operators have sprung up all over the state to meet the demand of one of the nation’s largest marijuana markets.

The botched implementation is posing problems for Gov. Kathy Hochul, who ordered a review of the troubled cannabis agency and called her own administration’s handling of the market “a disaster.” It’s also impeding the state’s efforts to repair the harms of marijuana enforcement by licensing entrepreneurs impacted by cannabis convictions.

Empire State officials are facing growing pressure to address what’s become a national example of how not to launch a legal marijuana market. Hochul laid out a series of measures in her budget proposal in January that are poised to be in the final deal — such as greater local enforcement, more money to aid authorities in closing illegal shops and tougher penalties.

“A lot of common sense errors occurred throughout the [legalization] process — all done in the name of social equity,” said Joseph Sinagra, the former police chief of Saugerties, New York, who says he tried to warn lawmakers of pitfalls in the legalization law. “They just failed to recognize they were creating a bigger problem.”

Lawmakers must navigate a delicate balance as they focus on a final deal: increasing enforcement without returning to war-on-drugs policies that disproportionately targeted Black and brown people.

But even if lawmakers do figure out a way to clamp down on illicit sellers, more illegal stores are sure to pop back up to meet the Empire State's demand for weed — unless far more licensed dispensaries open in a hurry.

The problems that have led to the state’s burgeoning illicit market are numerous.

Former Gov. Andrew Cuomo’s sexual harassment scandal and resignation led to delays in appointing regulators. Then, an ambitious program to help entrepreneurs impacted by marijuana enforcement struggled with mismanagement, fundraising and finding and building out real estate to pair with licensees. And numerous lawsuits targeting the licensing process and marketplace rules have repeatedly stalled the rollout.

Other states that have managed to get adult-use sales up and running faster than New York — like Missouri and Maryland — have done so by allowing existing medical marijuana operators to sell to adults first. New York lawmakers and regulators wanted to avoid giving first-mover advantage to large, multi-state cannabis companies that dominate the medical market — instead opting to favor small business owners first.

But the resulting delays in creating an industry from the ground up is harming the very entrepreneurs that the state is trying to help.

Manhattan dispensary CONBUD is one of the early dispensaries licensed to entrepreneurs who were impacted by past cannabis enforcement. Alfredo Angueira, co-founder of CONBUD, estimated that there are more than 70 unlicensed weed sellers within a 1,200-foot radius of his New York City dispensary.

The unlicensed operators can market their wares flagrantly — signs featuring pot leaves, neon lights — tactics that are off-limits to a regulated, compliant operation like his business.

The proliferation of open, illicit sales "continues to harm communities disproportionately impacted ... [and] creates a public risk," said Ruben Lindo, founder of the cannabis brand Blak Mar Farms. "It’s a risk that‘s now taken on epic proportions.”

How to crack down

Lawmakers in Albany have put forth several proposals to try to roll back unlicensed cannabis sales. With budget talks in Albany approaching nearly two weeks late, how to crack down on illegal operators has become a key part of final negotiations.

Hochul wants to allow the state to padlock unlicensed cannabis stores and give municipalities expanded enforcement powers. The Senate included an expanded version of Hochul’s proposal in their own budget proposal, while the Assembly left out cannabis provisions entirely.

Democrat Jeremy Cooney, who chairs the Senate subcommittee on cannabis, said an enforcement plan for cracking down on illegal shops would be in a final budget agreement.

He also expects a deal that would swap out a potency tax for cannabis, which fluctuates based on different products, with a flat excise tax. The potency tax has put legal cannabis retailers at a disadvantage, he said.

"It’s very clear to me the priority of the Legislature is fixing the enforcement issue, making sure we can padlock these illegal stores in a timely manner,” he said. "But let’s not also forgot our responsibility as a legislature to opening up new legal dispensaries."

Sen. Jamaal Bailey and Assemblymember John Zaccaro introduced a bill that would revoke licenses for things like tobacco and lottery sales for storefronts that sell cannabis without a license. And Assemblymember Jenifer Rajkumar and state Sen. Leroy Comrie introduced legislation to give municipalities more power to crack down on illicit cannabis storefronts.

A final deal is expected to include elements of both Hochul and Rajkumar's proposals, the Times Union reported Tuesday. The legislation would give civil enforcement powers to municipalities and require local government approval to how municipalities crack down.

New York’s rampant illicit marijuana market is reminiscent of California, where most cannabis sales still take place through unlicensed channels more than five years after the state’s adult-use market launched.

California is also one of the main suppliers of the rest of the nation's weed demand — three-quarters of America's cannabis market occurs on the illicit market, according to Whitney Economics. And California also is contending with a lack of licensed dispensaries as most jurisdictions still ban those businesses.

Lawmakers in both California and New York have attempted to target landlords with fines for renting to unlicensed smoke shops, but that tactic hasn’t proven effective in either jurisdiction.

“I don’t think it’s too late,” said Sinagra. “If [local law enforcement are] all involved and working together, that will be able to combat the problem as long as the government properly funds those efforts.”

Lindo, who lives in Saugerties, says his town of less than 20,000 has three unlicensed cannabis storefronts and not a single regulated dispensary.

“They have big neon signs — they’re saying ‘BUY YOUR WEED HERE,’” he said. “It’s a failure of the OCM and their ability to get licenses out.”

Lindo wants to see additional consequences for landlords — like a tax lien on the building, in addition to empowering municipalities.

But at the end of the day, enforcement won’t necessarily keep unlicensed operators at bay if there aren’t enough licensed shops.

“Unless [regulators] are going to put licensed operators in those same vacancies, [unregulated shops] are going to keep popping up,” said David Holland, an attorney at Prince Lobel Tye. “There’s not enough competition.”

Jason Beeferman and Nick Reisman contributed to this report.