The unlicensed side of the marijuana market in New York state is still a major hurdle for both lawmakers who want to replace them with licensed businesses and for licensees trying to stand up legal companies, a range of legislators said during a budget hearing on Wednesday. And it’s not yet fully clear what can be done about it.

During testimony to a joint legislative budget hearing, the New York Office of Cannabis Management’s acting executive director, Felicia Reid, agreed with lawmakers that “there’s certainly room to do more” regarding enforcing the law on unlicensed cannabis sellers.

But, she said, civil fines have thus far proving to be an effective deterrent.

“I’m not sure, in fairness,” replied state Sen. Liz Krueger, one of the principal authors of the 2021 Marijuana Regulation and Taxation Act (MRTA). “My understanding is we have some large warehouse operators that are doing delivery without licenses and delivery through the mail. And I’m just not sure we have the tools yet to track these and shut them down.”

Reid agreed that the OCM doesn’t have the purview to go after unlicensed businesses that may be operating as remote or mobile delivery operations, only “brick-and-mortar” storefronts that lack permits. But she said the agency is looking for any way it can to crack down on unlicensed sales.

‘Doesn’t seem to be a lot of compliance’

Krueger raised the possibility of the legislature granting even more authority to law enforcement and the OCM to use civil asset forfeiture against those who are found to be selling marijuana without a permit, and other lawmakers said they’ve received complaints of mobile cannabis sellers operating out of vans.

Reid reported that the OCM has shuttered roughly 500 unlicensed cannabis shops around the state, and said enforcement actions are ongoing. She also noted that there are separate city-run enforcement efforts also going on, including in New York City, where Operation Padlock to Protect had reportedly shut down more than 1,000 unlicensed sellers as of last fall.

But those efforts have not been nearly enough, lawmakers told Reid, and said their offices are still being flooded with calls from angry constituents who want more action taken against lawbreaking cannabis entrepreneurs.

“In New York City, there still is a problem, and some of the ones that were actually shut down … have somehow popped back open and with a hemp license,” said State Assembly Majority Leader Crystal Peoples-Stokes while she questioned Reid. “There has to be some opportunity to look at who has a hemp license and what are they doing with it?”

Peoples-Stokes said that a state task force last year launched by Gov. Kathy Hochul to shut down unlicensed cannabis shops “worked temporarily. It’s not working anymore.”

State Sen. Thomas O’Mara said he’d even heard estimates that there could be as many as 10,000 unlicensed cannabis sellers operating across New York.

“So 300 doesn’t sound like a lot to me,” O’Mara said, referring to the number of illicit shops that Reid initially said OCM had closed, before she corrected herself and said the number was closer to 500. “There doesn’t seem to be a lot of compliance.”

Reid repeatedly told lawmakers that enforcement is still ramping up, and that her office is also coordinating with both law enforcement agencies and local municipalities all over New York to help in any way possible.

“There are many opportunities to ensure that these operators don’t think New York is a place where it’s okay to operate … because it’s not,” Reid said.

Supply chain challenges

Reid also indicated to lawmakers that the OCM and state Cannabis Control Board won’t be issuing an unlimited number of business licenses, but it’s still a moving target as to exactly how many growers, retailers and other permit types will ultimately be approved.

“The industry is in a place where we’re cooking with gas. But, understanding that means it’s flammable, we have to be incredibly careful about balancing our supply chain,” Reid said. “Because we’ve seen across Michigan, California, other states that have legal schemes, where there’s oversaturation of licenses, there are licenses that are not active. That’s something that in New York I don’t want to see. Aside from the fact that’s fundamentally waste, that would be a real disservice to the economic development goals of the market.”

Those were far from the only concerns lawmakers brought to Reid. Sen. Jeremy Cooney, a longtime vocal ally of cannabis companies, said he’s been getting reports of farmers “worried about not having enough supply” to keep the legal market fully stocked.

“If this really is going to be a New York-based market, how are we going to meet the supply demands?” Cooney asked Reid.

Reid replied that the OCM is actively monitoring the supply chain and working to stand up the seed-to-sale tracking system, which will be run by BioTrack. But the bottom line, she said, is it’s still a wait-and-see game this year, to find out how much inventory licensed outdoor growers will produce, and how much the handful of medical “registered organizations” like Curaleaf will grow with their indoor facilities.

And in answering, Reid appeared to indicate that she is also a home grower of marijuana.

“Last year was an incredible growing year. As someone who grows myself, it was a great year. But every year is different,” Reid said. “We want to see what happens this upcoming year in terms of yield.”

Troubled social equity fund

Krueger and several other lawmakers also tried to question Reid about the state’s social equity fund and the Dormitory Authority of the State of New York (DASNY), which received some bad press this week in a New York Times article. Krueger said she learned recently that Social Equity Impact Ventures, the Los Angeles-based firm tapped by DASNY to oversee the fund, has been lobbying to get more contract work from New York state. Krueger said she wants to make sure that doesn’t happen, and said the fund’s work thus far has been a “disaster.”

“The cannabis company that DASNY contracted with, that did 24 or 25 stores, that all I hear was ‘disaster,’ they showed up in my office the other day and said they want to do another 25. I said no,” Krueger said, and asked if Reid had any knowledge of whether that was in the works.

“As to my knowledge, that’s not happening,” Reid said, but deferred on all other questions about the fund to DASNY.

The fund, which was originally supposed to pay for the acquisition and build-out of up to 200 social equity dispensaries, had only helped pay for 20 such shops, according to a legislative report released in October.

When asked by one lawmaker for advice to small business owners, Reid replied, “Don’t plan for the cannabis industry that exists today. Plan for what may exist in one year, five years, 10 years. The way to do that is to look at what’s happening in other jurisdictions.”

“There’s a lot of high hopes in opening a cannabis business, but it really requires a degree of research and understanding what’s happening across the supply chain,” she said. “It really takes a degree of incredible due diligence to keep up with the pace of business.”