How New York's legal cannabis rollout ended up in the weeds

The end of March will mark three years since New York became one of the states that legalized recreational cannabis use. When the state announced it was putting social equity at the center of its cannabis plans, many insiders and activists praised the state's prioritization of people whom the war on drugs had unfairly targeted. However, the program that was expected to usher in a more equitable cannabis market has floundered, leaving some of its most vulnerable potential cannapaneurs behind. How did New York end up dropping the ball with its legal cannabis market?

Legal weed as reparations

New York State legalized adult-use, or recreational, cannabis on March 31, 2021, when it passed the Marijuana Regulation & Taxation Act (MRTA), a law that "would have seemed unthinkable just a short while before," Jia Talentino said in The New Yorker. At the time, former governor Andrew Cuomo had been "pushed left on the issue during a primary challenge from Cynthia Nixon," said Talentino. He was "knee-deep in multiple scandals" after his reelection and pliable. Besides making cannabis legal for adults, the law would also allocate 40% of cannabis-related tax revenue to communities disproportionately affected by marijuana arrests. It also set the lofty goal of awarding half of all licenses to "social and economic equity" applicants, including "women, people of color, service-disabled veterans, distressed farmers and residents of those overpoliced communities," Talentino said. The idea behind CAURD (Conditional Adult Use Retail Dispensary) was simple: legal weed as reparations.

It can cost millions to open a dispensary, and the drug still being illegal on the federal level presents unique barriers for potential business owners. Some marginalized groups not being able to apply for a typical bank loan makes securing funding for new business even harder. The CAURD program was meant to help licensees by providing renovated locations for dispensaries and access to a $250 million loan fund. The MRTA was designed to "stave off corporate capture" and provide opportunities for those without access to other venture capital funding. New York required companies already dominating the medical marijuana market to wait three years before entering the recreational market, unlike other states that gave similar companies immediate business opportunities.

Talentino said Office of Cannabis Management (OCM) employees likened their work implementing the state's new cannabis programs to "building a plane while trying to fly it." Similar social equity programs had flopped elsewhere, so industry eyes were on New York. If the OCM successfully built a profitable industry rooted in social equity, it could shift the trajectory of national legalization. If it failed, some could see it as a "death knell for social justice having anything to do with legal weed," Talentino said.

Why the rollout was labeled a disaster

The eventual rollout of New York's cannabis program was beleaguered by delays caused by lawsuits and the proliferation of illegal cannabis retailers. The unmissable pungent aroma of cannabis wafts from both corner stores and shiny Apple Store-esque businesses across New York City. You might assume that means New York City has a thriving legal cannabis business. But Governor Kathy Hochul's recent remarks to The Buffalo News editorial board slamming MRTA's implementation as a "disaster" and "insane" underline the unfortunate reality of the state of the industry three years later.

About 900 people applied for CAURD licenses during the first round of applications. But only three dozen applications were approved when the OCM announced the debut collection of authorized retailers in November 2022. According to The New York Times, there were supposed to be over 150 licensed dispensaries in the state by the summer of 2023. As of today, there are only 80 legal dispensaries open to the public, and some of them only offer delivery.

Several factors contributed to the CAURD program's delays. Some people went to court seeking "restraining orders on the CAURD licenses," an issue that became a "huge problem" for the rollout, Lorraine Collins, director of the Center for Cannabis and Cannabinoid Research at the University of Buffalo, said in an interview with Curbed. Last summer, one such lawsuit filed by military veterans led a New York State Supreme Court judge to put a restraining order on licenses, causing months of delays for the OCM. The process was also complicated by having an opt-in or opt-out clause in the law for cities, towns, and villages throughout the state.

The stall in opening dispensaries hurt those with cultivator licenses, who now have no market because "if you grow it in New York, legally, you're not supposed to sell it elsewhere," Collins said.

Amid the delays, New York City has become overrun with an estimated "thousands of unlicensed smoke shops," said The City, though with little oversight, "the exact number remains unclear." The unlicensed shops can be "cheap and easy to set up," and unlike their licensed counterparts, they do not have to pay state taxes, "which means their weed is often cheaper." Many of the shops circumvent regulations by operating as private membership clubs where pot isn't sold outright but gifted to members. Others look like your average bodegas. In a collaborative effort with New York Magazine, The City counted at least 34 unlicensed stores selling cannabis on the Lower East Side, all within a few blocks of the area's only approved retailer.

Opening the floodgates to Big Cannabis

Hochul told the Buffalo News that the law was doomed from the start because it was "crafted in a way that was not poised for success" and lacked the teeth to keep the illegal market from booming.  She also said it was a bad idea to have the Dormitory Authority of the State of New York, which usually focuses on construction and financing, be in charge of finding locations for retail shops promised to CAURD applicants because it was "not their forte."

"There's a strong part of me that would just like to go in and just start over," she said, though she acknowledged that doing so is unlikely. Instead, she plans to ask the NY Legislature to add strict fines for selling without a license. "The Legislature needs to increase the penalties, and I've tried. I'll try again," she said.

The next phase of license-granting has begun after the state's Cannabis Control Board voted in October to expand access to the application to the general public, as well as large multistate manufacturers and medical companies for retail, cultivation, processing and distribution, reversing the original plan to have these types of businesses wait three years before entering the space. With more than 400 CAURD licensees still waiting to open their dispensaries, the prospect of larger corporations coming in casts a cloud. These businesses will likely go in and "overwhelm the smaller retail outlets with the variety of products and the competitive pricing," creating an "uneven playing field," Collins said in her Curbed interview. Rural areas or small towns in the state might be disregarded, but in the five boroughs. "the Big Cannabis industry is just drooling, waiting to get in."