With the arrival of official adult use retail licenses anticipated next Monday, New York’s Office of Cannabis Management is preparing to drop the hammer on New York City’s ever expanding quasi-legal cannabis market.
While the applicants for the state’s first round of legal adult use cannabis dispensaries await a decision from regulators, businesses across New York City have already started selling flower, concentrates, and edibles, most of which come from questionable sources, whether they’re bootleg Delta-8 products or illegally imported products from California, Michigan, or other states. All of this means New York City hosts a vibrant market, defiant of state oversight.
“Well, we’re not happy about it,” said Damian Fagon, Chief Equity Officer for OCM.
Fagon explained that the state has taken a slow approach to enforcement, in part because the agency is still growing. While the agency lacks the resources for a mass scale series of raids, it has been slowly, yet surely, picking off illicit operators in the city.
Thus far, the city has worked toward pushing trucks selling cannabis out of Times Square, but quasi-legal smoke shops and dispensaries persist.
“We have warned these shops on numerous occasions, in person, with our enforcement teams, to give them an opportunity to stop,” said Fagon. “A lot of them have gotten the cease and desists. They are at risk of not ever being able to get a legal license to sell cannabis in the state of New York. We want license holders to demonstrate a little bit more responsibility, honestly. People who are licensed are going to be held to pretty strict regulatory compliance requirements. If you can’t demonstrate that you can heed a cease and desist letter, it’s gonna be pretty difficult to work with you.”
Fagon explained that OCM was still in the process of growing its enforcement, but the plan is to eventually be able to shut down illicit businesses, with the anticipation that it could take a severe show of force.
“Sometimes they’re not going to be friendly when we walk in there with our investigators and they start bagging up all their products,” he said. “We have to assume that at least a few of them, for their own protection, may have weapons on the premises. So there are security precautions you have to take.”
Fagon was also dismissive of operators who are attempting to use a gifting loophole, where a non-cannabis product is sold to consumers with the understanding that it comes with a free gift of cannabis, such as an NFT that comes with a pre-roll.
“Anyone who does that as well will be shut down,” said Fagon. “It’s so absurd to me that they think that this is some kind of loophole that they can go around. There’s a reason there aren’t gifting shops in Washington State with the mature legal market or Colorado because they shut them down.”
Lonny Bramzon, who owns a consumption lounge in the Lower East Side that uses gifting while operating a cannabis business, was skeptical about a state crackdown on the practice.
“There’s never been a case on gifting,” he said.
Fagon noted that he was not surprised that a gray market had emerged in the city between legalization and the start of the legitimate adult use market.
“This is New York state, if you give them an inch, they’ll take a mile,” he said.
Jeffrey Hoffman, an attorney in New York City who specializes in cannabis law expects a lot of change in the immediate future in response to ongoing raids.
“It doesn’t take a lot of arrests for people to get the message and it’s blowing up,” said Hoffman. “It’ll be very interesting to see how this all plays out. I took the OCM at their word that if they send you a cease and desist and you don’t stop, you’re never getting a license. So we’ll see how that plays out.”
Hoffman said that he has heard from prospective clients in the gray market space and noticed that some operators hope to become legal operators, while others are simply interested in a short-term cash grab.
“They get what they’re doing isn’t legal,” he said. “There’s a big differentiation between what is really legacy market and bodegas that started selling six months ago. They thought that the cops are not gonna enforce this, so let’s start selling cannabis, right? I make a big differentiation between the two.”
New York City has a storied legacy market. For years, consumers could finagle a phone number where they could order something innocuous, such as “tickets” and a bike courier would show up at their apartment with two or three flower options. In contrast to the legacy market, there has been an abundance of gray market operators in NYC that are not shy about media coverage.
“Back in the Eighties and Nineties here in New York City, you bought cannabis by dialing up a guy’s pager number, you were very quiet, and so it’s very tough to enforce against people that you don’t know about,” said Hoffman. “However, when you look at the store that was taken down yesterday, they literally were on CBSNews.com like three or four weeks ago with the owner saying, ‘The cops just let us do it, they don’t care.'”
Back in October, New York’s Fox5 interviewed the co-owner of Big Chief, a Brooklyn-based cannabis shop that was operating without a license. “We’re not hiding anything,” he told the Fox5 reporter. About three weeks later, on November 16, Big Chief became the latest in a series of gray market pot shops in New York City getting raided.
Hoffman suggested that this should have not been a surprise for the owners of Big Chief, given their public appearances and candor about selling cannabis without a license.
“Who are the easiest people to shut down?” asked Hoffman. “The ones that have been in the news.”
Hoffman said that he expects there be an increase in reading activity from OCM, especially considering anticipation for new developments in the creation of a legal adult use market.
“Pay very careful attention to everything that’s about to happen here in the next two or three weeks,” said Hoffman. “This is gonna be a seminal couple of weeks here in New York’s cannabis industry. You’re going to get some licenses issued on Monday, then we’ll get some regs and then we’re gonna be off to the races.”
Fagon lamented the fact that many of the folks already selling in the city could be forfeiting their future in adult use cannabis.
“It’s unfortunate because they clearly have the talent for selling cannabis, but not the patience or the character to wait for that opportunity like everybody else,” he said. “I am trying to tell them that this boat is leaving the station and you guys will not be on it and it’s a shame that you aren’t thinking about your future more concretely.”