On the heels of New York becoming the 16th state in the nation to legalize recreational marijuana, the cannabis community is rejoicing in the afterglow. Making this milestone especially sweet is that it rehabilitates New York’s troubled history with marijuana, its progressive image notwithstanding. These wrongs include draconian anti-drug laws and a painfully small medical market in which mostly large multistate operators could afford the expensive licensing fees. Then there is the not so minor matter of hosting one of the the largest illicit markets in the country.
Of course, there is no mistaking the obvious correlation of neighbor New Jersey legalizing last November with New York finally approving recreational marijuana even though lawmakers had previously scuttled Governor Andrew Cuomo’s attempts to legalize. Ending prohibition in the Empire State apparently boiled down to not wishing to cede a potential revenue bonanza to New Jersey in lieu of legislators undergoing moral epiphanies. However, with a market estimated to possibly generate billions of dollars, creating a multitude of jobs and pumping much needed cash into New York’s COVID-ravaged economy, does it really matter?
Many industry bigwigs do not think so, even as some acknowledge that dispelling the flourishing black market in New York will not be easy.
“The [New York] tri-state area is destined to become the world’s largest cannabis market, eclipsing even California,” said Keith Cich, co-founder and president of California-based cannabis company Sunderstorm, referring to the Golden State being the largest legal cannabis market in the country (and possibly the world). Yet when it comes to New York’s “thriving” black market, the “state will need to monetize that business to reduce its budget deficit.”
Charles Gormally, a cannabis attorney at Roseland, New Jersey-based Brach Eichler, echoed Cich’s view. To suppress the black market, which has no quality controls, safety standards or product testing, the pricing in the legal market will need to be lower than what is available in black market channels.
“This will be a challenge as government is salivating at the prospects for high taxes imposed on cannabis purchases, much of it being utilized to fund expensive new government agencies to regulate access to the marketplace,” explained Gormally. “Government should let the marketplace mature, temper taxation for the first few years and the black-market will be priced out more quickly.”
Unfortunately, these solutions may not be enough. “The black market will unfortunately still thrive regardless because most New York weed comes from California just like every other state,” said Kelly Dooley, a serial cannabis entrepreneur and licensed cannabis distributor. “It’s like comparing a tomato grown in the middle of nowhere to a tomato grown in Italy.”
A bone of contention for some experts is the 13% taxation that will be levied on cannabis products as stipulated in the new law. “[It’s} just too high,” said Dustin Robinson, founding partner of Mr. Cannabis Law, a cannabis and psychedelics-focused law firm based in Fort Lauderdale, Florida. “If New York truly wants to create jobs and a robust legal market, it will need to reduce taxes, provide entry points for black market participants and educate the public on the value of consuming third-party tested legal product rather than non-tested black-market product.”
Strong leadership will be key to achieving this goal. “The New York legislature will need to closely monitor this,” added Robinson, “and be flexible in its regulations to strike the right balance of heavily taxing the legal market to bring in revenue, while also allowing these legal businesses to operate at a low enough cost to be competitive on pricing and service.”