Unlicensed NYC stores do better than the Naked Cowboy

New York is home of the naked cowboy, the city with the most billionaires and a reputation for getting what you want, when you want it. Now it’s famous for the large number of unlicensed marijuana stores — even one near City Hall.

Cannabis isn’t new to New York. Long before recreational (or adult-use) cannabis was legalized in 2021, there was a thriving underground cannabis market supplying the Empire State. Decades of criminalization failed to stop the spread of cannabis across the state, with New Yorkers developing a robust illicit market known for famous strains like Sour Diesel. The Marijuana Regulation & Tax Act legalized adult-use cannabis on March 31, 2021. While the act provided a regulatory and licensing system to build a legal adult-use cannabis market, things didn’t go so smoothly.

The introduction of the adult licensing program in New York was initially delayed by former Governor Cuomo’s failure to select members of the Cannabis Control Board (CCB) during his tenure. While Governor Hochul was now quickly establishing the CCB and thus starting the adult use program, the unlicensed market was already beginning to flourish. While some unlicensed operators continued to sell after legalization, many new operators saw this as a golden opportunity. Recently, New York has opened a few licensed storefronts, but their single-digit number compares favorably with the estimated 1,400+ unlicensed stores. Some products currently seen on the unregulated market resemble pre-legalized cannabis (such as pre-rolls or simple bags of cannabis flower), but many do not.

Photo by Dia Dipasupil/Getty Images

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You only have to walk a few blocks in Manhattan to find a shockingly large selection of cannabis products. Unlicensed operators have evolved, with many unlicensed products mimicking licensed products (and non-cannabis products) by appropriating familiar brand iconography and/or simply using the recognizable California cannabis warning. What might be even more surprising, however, is the fact that some unlicensed vendors are now selling “legal” cannabis. While its sale (and interstate trade) is not legal, cannabis was once legal. By diverting legal cannabis products to the illicit market at some point along the supply chain, these licensed operators make an ancillary profit (free of their often significant taxes). But does it even matter if people buy and sell unlicensed cannabis?

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Every state, even those with robust licensed adult cannabis markets, has some sort of unlicensed cannabis market. While this was inevitable in NY, the scale of unlicensed growth in New York is nearly unmatched. New Yorkers will smoke metric tons of cannabis every year, legal or not. The underlying concern is competition (or lack thereof) between unlicensed and licensed businesses. Even after establishing enough cannabis dispensaries to supply the state, unlicensed cannabis operators will be able to sell cannabis products significantly cheaper. This is due to much higher overheads for licensed operators and effective tax rates of up to 40-80% (due in part to excise taxes and the state 280E issue). The inability for licensed operators to compete will not only lead to widespread, untested cannabis, but will directly harm many of those most disenfranchised by the war on drugs, such as: But then how does NYC, NY or the nation solve this?