New York’s adult-use marijuana market faces hurdles after long-awaited sales launch

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Image from the opening day of adult-use marijuana sales at Housing Works Cannabis Co.

A DJ entertains customers awaiting their turn to make a purchase at Housing Works Cannabis Co. on the first day of adult-use sales in New York state. (Photo by Gary Gershoff, Wire Image)

NEW YORK – It fell to Chris Alexander, the executive director of New York’s Office of Cannabis Management, to personally usher in the era of legal adult-use marijuana sales in the state on Dec. 29.

But it will take more than Alexander – and more than the $95 cash he paid for an eighth of an ounce of New York-grown cannabis and a 100-milligram package of watermelon-flavored THC gummies – for New York’s legal market to fulfill its lofty social justice promises and its multibillion-dollar potential.

Alexander’s ceremonial first purchase of recreational marijuana came amid the nation’s most audacious illicit cannabis market and a host of other uncertainties.

It’s unclear, for example, when the next legal adult-use retail operator will open its doors in New York state – or deliver recreational product to a customer’s front door.

Dozens of entrepreneurs are on the sidelines waiting – and hoping – for regulatory approval to begin operations.

“We’re going to keep working as fast as we can to get more stores operational so New York consumers across the state can experience the sun-grown cannabis products made by the experienced family farmers in New York,” said Office of Cannabis Management (OCM) spokesperson Aaron Ghitelman, who acknowledged that one adult-use store isn’t adequate and that it’s still not clear when the next operation will open or where it will be located.

Purchase No. 1

After a flurry of impassioned speeches from dignitaries such as state Sen. Liz Krueger, a co-author of New York’s 2021 legalization measure, it was Alexander who enjoyed the honor of being the first “customer” to ring up the initial purchase in the first legal adult-use store in the state to open for business: Housing Works Cannabis Co., a subsidiary of New York City nonprofit Housing Works, in the Village in lower Manhattan, which would open for the public a few hours later on Dec. 29.

That met state officials’ self-imposed deadline to ring up the first adult-use sales before the end of the year.

However, one operational shop is far below Gov. Kathy Hochul’s promise of 20 operating stores in New York before the start of 2023 – a missed goal that prompted some public snickering across the Hudson River in New Jersey, where sales began at about 12 locations on April 21, 2022.

And with no clear word from the state as to when or where the next shops will open – and whether they will be delivery services or storefronts or whether they’ll be run by other nonprofits or individuals impacted by the war on drugs – New York’s legal program opened with more questions than answers.

But that was still enough to leave both Housing Works as well as the OCM “overjoyed,” as spokespeople for both organizations told MJBizDaily via email Tuesday.

“The lines around the block and happy faces of customers leaving Housing Works Cannabis dispensary affirms what we’ve known for months: New Yorkers are sophisticated consumers excited about regulated, reliable and trustworthy cannabis products,” Ghitelman said.

More than 500 customers passed through Housing Works’ doors in a little less than four hours on the first day, according to a statement from Sasha Nutgent, the store’s retail manager.

Much work remains

But with only a few products available at Housing Works and with New York’s robust illicit market still doing a brazen banner business mere steps from where a crowd queued to be let in when general sales began at 4:20 p.m. ET, it’s clear the state still has a lot of work to do to fulfill its potential as one of the biggest marijuana markets in the country – as well as its own oft-repeated promises to the public that this market will also be the country’s most equitable.

It remains unclear which will come first:

  • More legal retail capacity.
  • More enforcement for the hordes of unregulated marijuana operators that have operated largely unimpeded for the past year.

What was clear was both will be necessary for New York to avoid the problems of other states and make good on the ambitious goals it set after the March 2021 passage of its Marijuana Regulation and Taxation Act.

“Even though we legalized, we didn’t say ‘just open up the market’ – that’s not what we did,” Alexander told MJBizDaily shortly after he flashed his historic purchase – a $65 jar of Banana Runtz and a $30 package of watermelon flavored THC gummies – to a bank of TV cameras and still photographers for a second time as a slowly swelling line of members of the public awaited their turn inside.

After dozens of cease-and-desist letters and a handful of raids of unlicensed operations involving New York City’s sheriff and police, Alexander did promise more enforcement would be coming for the city’s illicit market, where cannabis is openly sold out of unlicensed food trucks and unlicensed storefronts as well as online and via delivery services advertised throughout the city via QR codes pasted on stickers on traffic signs and on the subway.

“We seized millions of dollars of product already,” he said. “That’s what we’re going to keep doing.”

“The more dispensaries we open, as well as those other enforcement actions, is what’s going to create the push for folks to transition from the illicit to the regulated market,” Alexander added.

Neither state officials nor representatives from Housing Works would release initial sales figures – and those figures won’t be available until more retailers are open for business.

As for when that will be, Alexander added, “I don’t have a clear time frame on that.”

Neither New York City Mayor Eric Adams nor Hochul were present at the Housing Works Cannabis Co.’s grand opening.

Equity operators get priority

New York officials promised that the first 200 adult-use stores to open in the state would all be social equity applicants, including some so-called “turnkey” operations leased and built out by the state.

State officials announced only on Dec. 7 the signing of the first lease for a turnkey Conditional Adult Use Retail Dispensary (CUARD) license, at a location near the Apollo Theater in Harlem. It’s not known when that store will open.

The state issued the first 36 retail licenses only in November, though Housing Works is the only one that’s opened.

Both bureaucratic inertia as well as a lawsuit challenging the constitutionality of New York’s legalization regulations, filed by a Michigan-based company, have been blamed for the delay of the rollout of the state’s adult-use market.

The state does have 10 companies licensed to produce and sell medical cannabis, but these so-called “registered organizations” – which include some of the country’s largest and most prominent publicly traded multistate operators – might have to wait for as long as three years before they’re allowed to join the adult-use market, which could grow as large as $1.2 billion in 2023, according to the 2022 MJBiz Factbook.

A spokesperson for the New York Medical Cannabis Industry Association, which represents eight of the existing MMJ providers – including industry heavyweights Acreage Holdings, Columbia Care, Cresco Labs, Curaleaf Holdings and Green Thumb Industries – told MJBizDaily that the organization would lobby state officials to lift the three-year delay on “co-locating” adult-use products at medical dispensaries.

For now, shoppers at Housing Works are greeted by official signage, including a scannable QR code, indicating the store is the only legitimate adult-use show in town.

Officials are hoping that the bona fides will be enough to convince enough buyers to abandon the illegitimate sellers and come through the doors to pay more for a taxed and regulated product.

“An educated consumer makes the best choice, ultimately,” said Dasheeda Dawson, New York City’s cannabis liaison, who suggested that eradicating the illegal market is a mission doomed to fail.

“There is a peaceful coexistence of the illegal market and the legal market that can exist,” she said.

“This idea that it’s supposed to be immediate clearly comes from someone who doesn’t understand economics or process.”

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.