The gray market vs. legal marijuana – undefined

Congratulations! You were just selected by the State of New York to receive a license to open a cannabis dispensary. You worked very hard to win one of just 150 licenses, rightfully issued first to people with prior marijuana convictions or their family members.

You devoted dozens of hours to the application. You paid lawyers thousands of dollars for assistance. If awarded a license (and if the rollout isn’t held up by ongoing litigation) you’ll soon be on the hook for staff, security, and, most importantly, costly New York State-cultivated cannabis. But at least you now hold something — a state-granted license — that almost no one else has. That’s really valuable. Right?

It should be, but it’s not. I own a bookstore on the Lower East Side on Orchard St. between Houston and Stanton. There’s a smoke shop two doors down that sells all kinds of weed — edibles, carts, flower, tinctures, you name it. They were recently robbed; the owner ran out onto the street after the robbery to confront the thieves and was shot twice. He didn’t have a license. There are dispensaries operating one block to our east on Allen St., one block south on Stanton and two blocks south on Rivington. None of them have licenses either.

It’s convenient for customers, including me. But letting them exist is terrible public policy.

First, why would anyone go through the trouble of applying and paying for a state license if the guy next door can just sell the same product or even a more attractive product? State restrictions on indoor growing will make it much harder to buy smokable high-quality flowers from legal dispensaries. But the products sold at the illegal shop down the street don’t need to be grown in New York State and don’t face the same restrictions. Your illegal competition is actually stronger, and likely cheaper, than you are.

Second, there were specific arguments promulgated in favor of cannabis legalization. Licenses are supposed to go first to people who have been convicted of a marijuana-related offense or their family members. That makes sense: The war on drugs has been an amoral, cataclysmic failure, especially for communities of color. But how is social justice being advanced if the person intended to be given a leg up now has competitors operating illegally on every corner?

Safety is an even bigger concern. While none of the dispensaries are also manufacturing edibles or tinctures or vapes, products sold by state-approved dispensaries can be regularly inspected and tested. This better guarantees the potency and quality of the weed you’re buying, and reduces the risk it contains harmful additives. The government can’t inspect and test every smoke shop that decides to sell weed. But it can keep New Yorkers safe if the number of dispensaries is kept to a manageable amount, with safety regulations over what they sell. Right now, the lack of enforcement makes this impossible, and New Yorkers are at risk

As a small business owner, I’m sympathetic to anyone trying to make a living selling products in brick-and-mortar stores in this city. It’s incredibly hard. But as a former government official and as a venture capitalist, the logic of undermining the economic value of a dispensary license, its social justice value and the safety of the general public by just letting anyone and everyone sell weed wherever they want is crazy.

It also comes at a real cost to the state. New York’s hands-off approach to illegal dispensaries was a specific reason that Ascend Wellness scrapped a $73 million investment in New York’s cannabis industry. The state’s FY 23 budget estimated $1.25 billion in taxes and fees from sales of legal weed over the following six years. More money spent outside of legal dispensaries is less money for things that really matter like schools and health care.

The city and state aren’t without power here. Use public nuisance laws to enforce compliance. Revoke the license to sell beer or lottery tickets from stores illegally selling weed. Mandate significant fines and penalties. Store owners operate rationally based on their economic interests. If you make selling weed illegally more costly and risky than the profits it brings in, they’ll stop doing it. That’s called capitalism (or common sense).

Of course cannabis should be legal. In my view, virtually all drugs should be legal and regulated. But creating a license that’s supposed to be an asset and then completely undermining its value by not enforcing the law defeats the entire point of the program. Government can help people. It can right wrongs. It can protect consumers. But only if it does its job. So far, that’s not happening.

Tusk is a venture capitalist and political strategist who also owns P&T Knitwear, a bookstore on the Lower East Side.