New York Dispensaries on the same trajectory as California legal retailers

Three months into the legalization of recreational cannabis in New York, the illegal cannabis market still commands much of the market share in the state.

by Paul Iacampo · March 20, 2023

Much like California, illegal shops and lack of enforcement hindering the legal market

A few months into the legalization of recreational cannabis in New York, it’s unsurprising that the illegal cannabis market still commands much of the market share in the state. Such a fact alone in such a short period of time would not be so concerning if it were not for what is happening in California, a state that legalized weed more than five years ago, where illegal market sales still outpace those in the legal market. Over-regulation and taxation in the new legal market, combined with lax policing in the illicit market, make for a difficult path ahead for New York’s legal cannabis dispensaries.

Stiff competition from the illegal market

Much like California, New York’s illicit cannabis industry is thriving, with operators brazenly selling products out of food trucks, unlicensed storefronts, online dispensaries, and delivery services openly advertised publicly around the city.

Shutting down these illicit enterprises has proven difficult, even as law enforcement continues to seize millions of dollars worth of illicit products. The push to open new adult-use stores to compete with the illegal market has also been a challenge, as the wait for costly regulatory approval proves to be a long one. There are currently about 60 retail locations, and more have been promised, but there is, as of yet, no clear word from New York authorities when new shops will open to counter those illicit ones already in operation. Authorities hope that New Yorkers will be enticed by safe, regulated cannabis products when they are more readily available, but this could take significant time.. Even the state’s 10 regulated medical cannabis businesses may have to wait as long as 3 years before they can enter the recreational market.

What happened in California?

Licensed dispensaries in city centers across the state have seen a decrease in sales in the last year, with no sign that the missed revenue went anywhere else but the underground market. Legal cannabis sales in Los Angeles dropped from $404 million in 2021 to $353 million in 2022. In San Francisco, legal cannabis sales decreased from $260 million in 2021 to $228 million last year.

It’s somewhat of an unfair fight, since entrepreneurs in the legal industry must contend with licensing and compliance costs that illegal operators don’t face. It’s a problem that California dispensaries have contended with for some time. High taxes for legal businesses and the ability for local districts to opt out of the recreational market make it too difficult for California to shrink the illegal market, which never ceases in any district regardless of how its leaders vote.

More leniency on illegal cannabis businesses in the name of social justice, noble in itself, has had the unintended consequence of doing little to deter other illicit operators from continuing in the illegal market and little to motivate such operators to switch to the legal market. This only hinders the legal industry, which needs continual expansion to offer real competition for illegal markets that are so numerous and so easily accessed.

Illegal cannabis sales and effect on the legal market

Some experts think illicit cannabis sales double legal sales in California, while others think that only a quarter of the cannabis currently being purchased on the market is from a legal source.

Costs associated with licensing, regulation, and taxing the plant often means legal weed is more expensive than illegal weed. Businesses that want to sell recreationally must first submit for approval by the state and then pay for a license which can take years and cost hundreds of thousands and even millions of dollars.

Until the process of starting a legal cannabis business and staying compliant is refined to be more efficient and less expensive, legal cannabis markets will continue to struggle to compete with established illegal markets, and New York’s bumpy legalization rollout won’t get much smoother any time soon.