High cannabis taxes are black markets’ best friend
Politico recently ran a headline that read “The black market stifled California’s legal cannabis industry. Now it’s coming for New York.” How true is this statement? Was it the black market or high taxes that are helping slow down legal cannabis sales in California? The answers, both, since they are one and the same. High taxes on cannabis in California, reaching 45% of order value in some areas, have prompted people to look for cheaper alternatives to get their cannabis cure. High taxes are the black market’s best friend.
As reporters JULIAN SHEN-BERRO and SHANNON YOUNG found out during their investigation…
A case of legal hemp and CBD is piled high in a Brooklyn smoke shop amidst pipes and other paraphernalia — but a store clerk has some tips.
A reporter silently watched the exhibition as he confided in me, “This is not the article you want.”
Unprompted, the clerk leans behind the counter and pulls out a plastic bag filled with natural cannabis gummies said to have been imported from California, but not without casually noting why the reporter looks like a cop.
He continues: “I can also sell you mushrooms.”
In New York City, the scene has become an everyday spectacle. Although it has been more than a year since the state legalized marijuana for adult use, not a single issuance permit has been issued. The result was a weed free-for-all: head shops, bodegas, and even street corner picnic tables seemed to sell marijuana everywhere. Many vendors brag that their items were grown in California, and other vendors are bold in selling to the public.
This result is comparable to what happened after marijuana was legalized in California. Six years later, illegal producers and sellers are still thriving. Despite these difficulties, New York authorities have been gentle with anyone who sells cannabis without a license. An industry expected to add more than 20,000 new jobs and a $4.2 billion industry by 2027 may now struggle to gain a foothold given the thriving illicit market.
Some well-known companies that had planned significant investments are already fleeing. “Everyone seems to be selling cannabis and until there is enforcement there really is no concern about a penalty,” said Owen Martinetti, executive director of the Cannabis Association of New York. Owen is a personal advocate for more civil enforcement. Suppose competitiveness already exists and is not enforced. The question then arises whether [the regulated stores] are actually set for success?
Lawmakers saw an opportunity to right historical wrongs when New York became the 15th state to legalize cannabis last year. They deleted specific cannabis-related crime histories and gave justice participants with prior cannabis offenses first access to marijuana business licenses. Against this backdrop, lawmakers resisted slamming the book to individuals currently caught selling cannabis without a permit, and issued dire enforcement guidelines to the state Bureau of Cannabis Management.
State Senator Liz Krueger, a supporter of legislation to legalize recreational cannabis, stated that since they did not believe this would happen, they did not put anything in the bill, which allowed extremely clear regulations for OCM and police departments of the street to order to close them. Krueger argues that police already have the power to seize illegal goods and shut down businesses that break the law. However, Democratic Mayor of New York Eric Adams seemed to disagree.
A police officer cannot simply proceed with an arrest or seizure. There is a process, he explained last month. Adams, a veteran police captain, urged New Yorkers to report illegal dealings to the police and said he plans to petition the state Legislature in January for more clarification on what the NYPD and the New York Sheriff’s Office can do.
According to City Hall spokeswoman Kayla Mamelak, Adams has made it clear that illegal businesses will not be allowed. Local and state organizations are working closely together to ensure equity and compliance in the growing cannabis market,” she announced in a statement. The New York City Department of Treasury Sheriff’s Office conducted hundreds of business inspections this year to ensure compliance with all applicable regulations.
Thousands of illegal products have been seized during such inspections, and civil and criminal sanctions have been imposed where warranted. We will continue to work constructively with all of our partners to ensure compliance with all public safety laws of New Yorkers.
A bill that would have increased penalties for illegal marijuana sales and defined the OCM’s role in enforcement ran into a roadblock in Albany earlier this year. The measure’s creation of additional criminal penalties alarmed some lawmakers.
Many businesses that sell cannabis products without government regulation also have licenses to sell alcohol, cigarettes, and lottery tickets. Governments could suspend retailers’ permits, but “we didn’t try at all,” claimed Crystal Peoples-Stokes, majority leader of the assembly.
Adams impounded 19 vehicles illegally selling marijuana in August. The alleged violation: distribution of edibles and other cannabis-infused products without the necessary permits from the city’s health department. Smaller cities in different regions of the state have closed branches. The Cannabis Administration Office issued cease and desist orders to 52 retailers nationwide earlier this year.
Built to fail
However, with the first licensed stores set to open in the coming months, recent enforcement efforts may not be enough to mitigate the impact of the illicit market.
A medical and adult cannabis business executive with offices in New York stated, “I think we’re already reaching the tipping point. This executive asked to remain anonymous as regulatory discussions are still ongoing. According to lawmakers in the first round of pharmacies, the government will either have to spend more money to support them, or it will see companies return their licenses if they don’t fix the problem before next year.
OCM spokesman Aaron Ghitelman said that since its inception, the organization has maintained an open dialogue with police departments and other government agencies across the state and is committed to investigating and shutting down unlicensed businesses.
OCM and law enforcement officials have successfully contained unlawful activity across the state, from the city of Cheektowaga to New York City,” he claimed. This operation included the seizure of products, the sending of cease and desist papers, and the seizure of trucks used to illegally transport marijuana. They will continue to enforce the rules in place to stop these illegal businesses from operating as they undermine the goals of our office and the fair market we create.
Other aggravating circumstances: New Yorkers are used to buying marijuana illegally; As a result, the state must convince them to switch to regulated marijuana for the legal marijuana market to thrive.
Prices in illegal stores can be much lower. Their goods are often imported from countries with lower production costs, and they pay no taxes or royalties.
If the existing rates prove too onerous for legal operators, Krueger reiterated that as just a sponsor of the original measure, she is open to re-evaluating their taxation, formulas and calculation.
According to the Chief Knowledge Officer of cannabis intelligence firm New Frontier Data, Amanda Reiman, the cannabis pipeline between California and New York is very old and very well established. California’s legal sector has been threatened by the illegal market there. Six years after the state voted to legalize recreational marijuana, illicit sales have significantly exceeded the authorized market, and many business owners have closed their doors.
In the country’s most populous state, the legal cannabis market is struggling due to high taxes, local government opposition and black market competition. We haven’t had much success in California encouraging people to embrace the controlled market, Reiman said.
In California, according to Reiman, we haven’t had much success encouraging individuals to take over the regulated market. New York may be going through a honeymoon period as customers are drawn to the newness of legal pharmacies. However, industry participants fear that sustained success could falter.
The faster legal pharmacies are developed, the easier it will be to take action against illegal operations. In August, Ascend Wellness withdrew a $73 million bid to buy a New York company’s medical licenses, citing concerns about state legalization of recreational marijuana and inadequate black market enforcement, among other things.
The state should support [long-standing unlawful] operations go mainstream, but instead it undermines the confidence of investors and other stakeholders,
NEW YORK CANNABIS MARKETS, READ MORE…
IS NEW YORK READY TO BECOME THE KINGPIN OF WEED ON THE EAST COAST?