In New York, cannabis has been completely legal since April 2021. In the face of the continuing failure of the war on drugs and the racial disparities present in enforcement of drug-related crimes, not to mention the pure insanity of locking people up for something that a growing number of states, most of the U.S. population and whole countries like Canada support, the state made the smart move to legalize. However, the state neglected to make the equally smart move of making cannabis legally available to citizens, until December 2022, over a year and a half after weed became legal. You couldn’t buy at dispensaries, and you can’t grow your own either. So where did people turn? Well, the ‘street dealers’ got a little face-lift and an air of legitimacy and they’re (still) more than happy to meet the demand.
Welcome to the gray market.
Cannabis legalization is a consistent trend across the U.S. with many documented pros and cons. With New York legalizing cannabis, there have been no licenses given to sell cannabis via ‘consumer licensing’. 2021-22 has primarily facilitated research-only licensing for cannabis in New York [§ 38]. A unique case in New York City is the selling of drugs under a legal but yet still illegal banner, facilitated by a strained and resource-deprived police force. The consequences are vast: near-instant deaths from unregulated and toxic cannabis products, dealers as young as 17 in danger daily, money not entering the larger economy, and health, mental and physical, sharply declining—in an era already plagued by declining mental and physical health. Though literature on such a subject is limited, our analysis seeks to examine the relationship between the so-called “gray market” against that of wider legalization (and liberalization), and against the typical black market. As the evidence demonstrates, the safety of producers, consumers—and even dealers, depends upon the appropriate systematizing of cannabis to ensure New Yorkers’ wellbeing is improved, and not reduced, respectively.
Background: How New York Ended Up Here
New York legalized cannabis in 2021 through the Marihuana Regulation and Taxation Act (MRTA), which made it legal for adults aged 21 or over in the state to possess up to three ounces of cannabis flower and up to 24 g of concentrate. It also made it legal for adults to transfer marijuana to one another “without compensation.” However, the state spent some time ironing out the regulations for legal sales of marijuana, and as such, it wasn’t even possible to submit applications to open dispensaries for over a year after the law passed. In addition, home grow rules are only due to be released within 18 months of the first legal sale taking place.
This state of affairs created a thriving “gray market” for cannabis in New York. Since possession of three ounces is legal anyway, and you can give it to somebody legally provided you don’t charge money for it, even the opportunity for law enforcement to catch truly illegal activity is tiny. Many of the sellers technically give away cannabis for “free” with a suggested “donation” given in return. Some don’t even go through with this charade and simply sell the cannabis.
In July 2022, lawmakers announced their intention to crack down on this activity, with the Office of Cannabis Management (OCM) sending cease-and-desist orders to 52 sellers. Office Chair Tremaine Wright commented, “There are no businesses currently licensed to sell adult-use cannabis in New York State. Selling any item or taking a donation, and then gifting a customer a bag of untested cannabis does indeed count as a sale under New York’s Cannabis Law.”
In practice, though, there are still hundreds of stores operating, possibly even over a thousand, according to a July estimate. Despite apparent efforts to discourage and crack down on illegal cannabis sales, the gray market is continuing essentially unimpeded. The state approved its first 36 recreational marijuana dispensary licenses in November, and questions remain about how well they’ll be able to compete with the now well-established illicit sellers. California is a cautionary tale here, with the black market in the state, outstripping the legal one substantially. The question is: is New York walking down the same path?
Background: Black Markets and Violence
Although it’s difficult to gather a lot of data on black markets, research across time, geography and people groups shows an increase in violence & crime with prohibitions. The classic example of this is alcohol prohibition in the US, which led to a raft of speakeasies and organized criminal gangs running the alcohol industry. Worst of all, alcohol consumption increased. You can see the same effect when something goes from a legal to an illegal market, too: market-related violence increases.
There are many different ways black markets can lead to violence, but one of the most important is that the police cannot help to solve disputes in a black market. If someone is trying to steal your illegal product, 911 isn’t exactly much use to you. Guns and a few guys guarding the stash actually works much better, in a way. However, the resulting violence is clearly visible in homicide rates, for example during the crack epidemic of the 80s and 90s in the US. Overall, it appears that there is some “inherent” violence in any illegal drug market.
It is important to note that things do differ based on the drug at the center of it. For example, the marijuana black market doesn’t have as strong an association with homicide as cocaine does. The effects of marijuana also aren’t generally conducive to violence in the same way those of crack are, for instance. Another important aspect that links illicit drug markets to violent crime is the “addiction” element, when people become increasingly desperate to get another dose of the drug. Again, while cannabis could lead to issues like this, it’s generally regarded as much less addictive than other drugs such as crack or heroin.
Based on this existing evidence, it’s likely that a “gray” market will have some of the same issues as the black market when it comes to violence. However, the fact that the market is somewhat legal (at least not a priority for law enforcement) might offer some protection against this, and the fact we’re talking about marijuana rather than something like cocaine should also reduce the violence. However, a gray market is still expected to be more violent than a fully legal market, correlating with NYC self-reports.
The main focus of the study was a series of six qualitative interviews with illicit cannabis distributors and law enforcement officials. These were analyzed through the lens of quality of life indicators and compared with existing data on regulated and unregulated cannabis markets. We also intended to perform a lab analysis on several samples of gray market cannabis.
There is more detail about each of these points in the sections below.
To investigate this, we spoke to cannabis distributors and police officers in Manhattan, with a focus on how the current system in New York impacts key areas relevant to quality of life. We conducted six interviews in total, with two distributors at Times Square, some police officers at Times Square (stood beside the distributors), two distributors at Washington Square Park and one employee at Flower World. Their names will not be included here for their own protection, and any names given for clarity are pseudonyms.
Key Metrics: Quality of Life Indicators
The metrics we focused on during the interviews are some key quality of life indicators which are used in the modeling of international governance. Specifically, we focused on three main areas:
Health: One of the key components of any measure of quality of life. If gray market cannabis contributes or potentially contributes to health issues in either users or sellers, the situation is undeniably worse than it would be with a regulated, safer supply chain.
Economics: Economic prosperity is a key component of quality of life, but simply looking at Gross Domestic Product (GDP, on a national or state-level) doesn’t capture the reality of this for individuals. This can instead be looked at in terms of material living conditions, income and overall economic security.
Crime: The presence of, or even the perception of crime in the area you live is an important measure of quality of life. The question here is: does the gray market bring more crime to New York than a fully regulated market would?
Meta Analyses and Other Data
While most of the analysis here is based on the findings from the interviews conducted, we also looked at other data sources on cannabis in the black market vs. in regulated markets. On top of this, we also incorporated data on the risks of cannabis more generally, but particularly in a black/gray market context in which things like THC level can’t be guaranteed and where youth may easily get access. Using systematic ‘quality of life’ indicators for interviews, reviewing meta analyses and other data sources, we aimed to determine the likely outcome for cannabis in New York based on how things are now.
Lab Testing of Gray Market Cannabis
While existing data can be used to get an overall idea of how safe gray or black market cannabis is likely to be, we originally intended to send some gray market cannabis to a lab to find out first-hand. However, OCM rules prevented us from being able to do this. Their reply cited the law and stated:
“§ 38. Cannabis research license. 1. The board shall establish a cannabis research license that permits a licensee to produce, process, purchase and/or possess cannabis for the following limited research purposes: (a) to test chemical potency and composition levels; (b) to conduct clinical investigations of cannabis-derived drug products; (c) to conduct research on the efficacy and safety of administering cannabis as part of medical treatment; and (d) to conduct genomic or agricultural research. This would provide research for those licensed to produce regulated cannabis and would not include illicit cannabis. Additionally, regulations have not been promulgated to allow for issuance of research licenses currently. That said, at this time the testing of illicit product would fall out of the scope of permitted laboratory activities and will not be allowed.”
As a result, we were unable to conduct this testing, in October/November 2022. Luckily, the New York Medical Cannabis Industry Association (NYMCIA) was able to do this around the same time or a little earlier , apparently either unaffected by or in spite of the laws quoted to us by the OCM. So we are able to use their data on the safety of gray market cannabis to inform this report.
The immediate question when considering the potential health impacts of New York’s gray market is whether the cannabis is safe, or of similar quality to the stuff you’d find in a state-licensed dispensary somewhere like Colorado.
We spoke to the New York Medical Cannabis Industry Association (NYMCIA), who stated they’ve expressed “significant concern” about the current gray market, and underlined the level of quality expected from the medical industry:
“The existing medical cannabis market in New York is highly regulated, with strict guidelines for testing, packaging, and sales – all of which protect consumers (and non-consumers) and ensure that patients receive high-quality products they rely on to maintain their quality of life and treat a variety of ailments, illnesses, and symptoms.”
A worker in a NY-based cannabis retail store (Flower World) was similarly skeptical when asked if products on the street are safe:
“Probably not. Usually it’s weed that someone has grown in their house, you know, so you don’t really know if they’re using the right product safety testing, the right drying, the right growing agents, you don’t know what chemicals they’re using, if they are using chemicals, you don’t know if they’re cutting it with stuff. I don’t really know anything that they’re doing. Our stuff comes prepackaged, from the growers, shipped here.”
Out on the street, distributors tended to address questions of quality either with claims of trustworthiness or that they simply test their product to judge its quality. One Times Square dealer, Johnny said:
“I smoke it. If it gets me high then I know it’s good. If it tastes bad then it’s really not good,” adding, when asked whether he looks for lab tests, “I don’t really look for that, not really, nah.”
A Washington Square Park dealer, Sprinkles, expanded more on the theme of trust:
“As far as safety, I only get weed from people I trust. You can also take it and get it tested. You gotta just have trust. […] I got a pound of weed sitting here in front of me that I got from New York. I don’t know how they got that weed, I don’t know how the person before them got that weed, and I also don’t know how the person before that person got the weed, so how am I supposed to know? Something could have happened to the weed four people ago and everybody is thinking they got good weed because they trust their dealer so I’m getting weed from a person that might not even know their weed is laced. That’s how I think of it. I don’t go home and test my weed. I’ve never been laced before through any edibles or any weed.”
And another Washington Square Park dealer, Steve, said:
“We’re doing this inside, all the sources are very connected and very trusted. We also work on a principle of loyalty and every day is credibility. In the store, you could mess with somebody because they have good business but you don’t know what they secretly do to keep their business going. All the moves we make is reviewed and verified. We’ve been smoking for years so I know what’s good quality.”
Adding a little barb for the operations that appear more legitimate at first glance:
“That’s the irony of it all because they’re the ones selling CBD and claiming it’s weed. I’m not pointing fingers but most of these guys are selling CBD weed. I’ve been personally seeing people buying CBD thinking it’s weed and it hurts me. I like people seeing my face and walking to me and buying weed from me, they’re like this is Steve and his shit is good and I pride myself. We’re selling legit products because we smoke it ourselves, and I’m sitting here all day everyday nine to nine most days and I smoke every thirty minutes. I pride myself in having my shit legit. Most of those guys (stores) don’t even smoke, they just look at it to make money.”
Another Times Square dealer, Bill, also made the claim about stores selling CBD to people assuming it is cannabis:
“80% of the stores they have open now are selling fake weed in there…CBD, that shit taste like turkey seasoning. It makes you sleepy and drowsy. How do you put stuff like that on the market? You legalize marijuana and let them put stuff like that in the store that harm them. We don’t harm them. I smoke like an ounce a day. Good weed. I ain’t running around snatching up this guy or beating her up, nah.”
Steve from Washington Square Park also had experience of problems resulting from less reputable sellers:
“I don’t like to shame other companies but there’s been three to four times where kids that bought prerolls from those stores and they’ve come here because we had to buy them water and stuff because they hit the ground right in this spot, and police had to come and pick them up. There is a lot of synthetic weed going around in New York, it’s like K2 Spice and it’s really dangerous. A lot of people are clueless and it’s unfortunate that they become a victim of that.”
Bill at Times Square also knew of people being sold synthetic marijuana (K2/Spice):
“And another thing I don’t do, I would never go in that field, is K2. I would never go in that field. I would never sell that. Never. That shit makes you go crazy. It fucks you up. Young boys like that. They don’t sell it right over here. It’s dangerous. I saw a young boy, he was anywhere from 12 and 14. He was sitting there and smoking this thing. Zombieland. Lots of K2 and crack. It’s dangerous.”
Sprinkles from Washington Square Park had an even more concerning story:
“I did hear a story actually. Somebody came here and they got caught with fentanyl, and basically the girl ended up texting the dealer back saying how her friend was sick in the hospital because their stuff was laced. What they said they got is not what they got, the doctor told them that it was something totally different, and basically that fucked up her friend’s mental health for life, her friend is basically crazy forever now just because they took the wrong stuff, and that is really sad. That’s really sad. But the person that they got it from claims that they didn’t know what they was given, they got it from somebody else and they just went off of what the person told them so that goes back to what I was saying earlier, what the person says to the next person puts them in jeopardy too because now look that was a big crisis in the park.”
We asked the employee at Flower World about this, and she commented:
“Oh! I’ve heard of stories, but I’ve never experienced anything like that personally, and I don’t know anyone personally that has experienced that, so I don’t have too much to say. I would just say watch out where you buy your shit from, you know.”
Johnny, one of the Times Square distributors, had a confident response when questioned about fentanyl-laced cannabis:
“The people I deal with they don’t deal with nothing like that. They want the people to come back and keep the business going.”
While there is a point here, in that repeat customers are really crucial for these sellers, is the simple denial of the first sentence really dependable? This is the problem facing New Yorkers who want to take advantage of the new law. This guy selling cannabis in front of two police officers assures me that there’s no contamination, but would he even know if there was? This is the same guy who “doesn’t really look for” lab test results and bases his judgment of the cannabis on whether it gets him high.
Lab Results on NY’s Gray Market Cannabis
The NYMCIA, composed of big players in the medical marijuana industry, were able to conduct lab testing on illicit cannabis despite the OCM claiming this was not permitted. The good news is that while their report doesn’t contain much exact information about methodology or even the name of the lab that conducted it, it gives us some key results that underline the issues with the market. Notably:
- 40% of products failed at least one of various tests applied to legal cannabis products.
- This includes products testing positive for E. coli, salmonella, pesticides, lead and nickel.
- Potencies were often lower than advertised, often containing just half of the amount of THC promised.
- In some cases, products contained more THC than expected, with one gummy containing over double the 100 mg dose advertised.
- Many products used well-known brands and imagery likely to be popular with children, such as “Rice Krispies Treats” edibles with the branding and design of the cereal.
- 11 out of 20 locations (55%) didn’t ask for ID when entering the store or making a purchase.
Overall, the lab report makes it clear that weed on New York’s gray market poses a health risk to users. Some distributors may believe that “getting high” is an adequate pre-sale test for cannabis, but it clearly is not.
As the NYMCIA commented to us:
“As the report makes clear, the unregulated and untested nature of products sold by the illicit pop-up market presents a significant danger to unsuspecting consumers. Products purchased at a sampling of illicit New York City retailers and tested to the same specifications required for legal cannabis products found the presence of harmful substances like heavy metals and e-coli bacteria.”
We also spoke to Bob Miller, PhD, COO of Science and Operations at ACT Laboratories, who stressed that contaminated products pose a substantial danger to consumers:
“There are definitely health risks associated with smoking/ingesting contaminated products. Some of those include ingesting product which are contaminated with microbes (e.g. mold and Aspergillus in particular). There is a documented illness called Aspergillosis which attacks the lungs of immunocompromised patients who could smoke/inhale product contaminated with microbes. Heavy metals and pesticides which are known carcinogens are also a risk.”
Adding that, “I would never recommend buying/ingesting or inhaling product purchased from an unknown source. Our health and well-being is just too important.”
The economic impact of unlicensed cannabis in New York is a complex issue. On one hand, the proliferation of unlicensed, untaxed sellers isn’t good for the state and its tax revenue plans, with almost every sale pulling customers away from legal dispensaries. As Andrew Livingston, Director of Economics and Research at Vicente Sederberg commented to us:
“There is absolutely tax revenue loss when customers patronize the gray market rather than legal storefronts. While it is unlikely that a legal market will ever capture 100% of all consumers this does not mean that it is not possible to capture 90%+ of consumers if the market is well designed and provides good access to quality products at fair prices.”
On the other hand, it’s undoubtedly a benefit to the sellers (at least temporarily) and is possibly cheaper for the state’s stoners too. The Flower World employee commented that while people selling on the street doesn’t affect their business too much, people would likely go to them “because they are cheaper.”
For the distributors themselves, the reason they got into business is what you’d expect, as Bill from Times Square explained:
“Alright. Number one I went away. I came back, I couldn’t get a job. My back was against the wall back then. So I did the next best thing I could do. I have a family and kids. Old kids, and they all got good jobs working in law and criminal justice. I just want to let you know that that’s how I felt about this game.”
Even as gray market operators, it’s a pretty lucrative profession, as Sprinkles explained:
“On a good day, if you’re selling everything from edibles to pre-rolls to eighths, people even come for shrooms, you can make at least $1,200. On a slow day, $500. On a really bad day, like a bad day would be like $200. That’s not bad, but a bad day to me is $150 because you know I’m a girl, I just like to eat, as long as I make money to eat I don’t care. I don’t look at this as a long term plan. I have bigger plans than this.”
Steve, also at Washington Square Park, seems to make a similar amount:
“I’d say, if we’re being real, maybe two or three pounds. Everyday on a good day you’re probably making about $1,000 a day, on a good day if everything flows. Most of that would be profit.”
He also discussed coming into the business at first, and how he got set up on his own:
“For me personally, I worked for somebody first, literally like a job, I was like coming here every single day and I was helping my homie and I was making his prerolls and eighths every day and he was paying me a fixed price no matter how many he sells. Then I started getting popular and my face became familiar because people were coming up to me, so eventually I got my own tables and customers here.”
From a moral perspective some people may take issue with their line of business, since it undermines those who plan to operate legitimately, but it’s clearly beneficial to the distributors from an economic perspective. For example, Sprinkles also uses the income it generates to further her career in other ways:
“I still go to school, I want to be a doctor and stuff. I have bigger plans than this but I do smoke weed and sometimes I do this. School is expensive. And I am good with saving too so this does help. […] I’m also a hairstylist, when I have to go out and get products to do people’s hair, where am I getting the money from? Sometimes it be from me selling my weed. I sell the weed, get the money, do their hair, make the money. It’s cool, especially if you’re an outgoing person like me, I like to meet people and I’m a really nice person. People like that, they come back to me. It’s fun.”
Steve also intends to use his experience selling to permanently improve his financial situation:
“[I’ll continue selling] until I don’t need to. A lot of us aren’t educated about economics and investing. Right now I’m in a group where we’re teaching each other all of this.”
For customers, it seems the general economic hardship at the moment hasn’t really dampened their appetite for cannabis. As the assistant at Flower World argued:
“I think people buy more weed in recessions. Sales have been strong for us this year despite the inflation. I definitely think more people are more curious to trying it, especially with legalization. I have a lot of people that come in and they’re like ‘hey I’m not very experienced can you help me out’, or like ‘what’s your lowest dose, what’s the latest thing I can get here that’s just gonna get me buzzed just to get through work’. A lot of times it’s just to get through work, haha.”
Johnny at Times Square had the same experience:
“It enhanced it, people buy more. Before the pandemic you had to struggle to make $50, now we motherfuckers sitting here getting $2,000 to $3,000 if you got the right products.”
Steve, at Washington Square Park, pointed to the flexibility operating in the gray market offers as a benefit:
“There are a lot of people that are strict but I’m always very flexible with my customers because I like replay value, I want the return customer, I want the trust. Companies are gonna raise their prices with inflation but in the streets you’re always gonna get the same price.”
The situation for them is so positive that many are skeptical about switching to a legitimate operation in future, as he continued:
“It depends on how much the trouble is. And if you’re making that kind of money then it’s not a problem, but if me paying the government is hurting me then I’m gonna figure another way to do it.”
Sprinkles, on the other hand, basically ruled out ever going legitimate:
“No, because, um, one of my friends could get a license and I could be like I work with them but this is my table here you know. I’m not getting no license so ya’ll can be charging me. I’m gonna make $500 in the park one day and you guys take $250 of it. No way Jose, nah nah.”
However, Bill at Times Square was pretty optimistic about it:
“I’d be the next motherfucking Bill Gates. I guarantee you that. I’m not ashamed to tell it. I’d pay my tax with no problem, no problem. They can tax that because you get that back at the end of the year. Let em’ bring it to me like that and I don’t have a problem with that. The city knows what the fuck they’re doing. They legalized this marijuana for a reason. Things were going out of control, as time goes on they’ll be able to control.”
The whole idea behind legalizing marijuana is to take the industry out of the hands of criminals and reduce crime in the city, but by essentially tolerating the gray market, you could argue that New York has allowed crime to spread despite legalization. How does the city reconcile this thriving and kind-of-illegal market with the goal to regulate and tax the industry?
We spoke to some police officers, stood beside some cannabis distributors in Times Square, starting by asking if these open sellers are breaking the law:
“Weed in New York is legal. It’s in limbo, it’s in a gray area. We cannot actually enforce anything right now.”
He stressed that the current legal situation, in practice, makes it very difficult for them to take action even if they want to.
“No, we don’t give tickets for [buying or selling cannabis]. They don’t know what’s going on, because they legalized it but right now even the [prosecutable] amount is unknown. We had a guy with 5 pounds, the amount that is prosecutable, the [District Attorney] said no, said return [the cannabis] to them. So it’s like I get a guy with 5 pounds and you’re telling me you can’t prosecute it. What are they gonna do? Are they gonna regulate it? Are they not? So it’s kinda in limbo right now.
So let’s say I go and issue him a ticket, so he has to go back to court, what they’re gonna do is throw it away. If I arrest him, they’re gonna be like why did you arrest him, what are we gonna do? They’re just gonna toss it away. They don’t have a plan. They don’t even know what’s going on. When I arrest a guy, they don’t want anything to do with it. You can give him a ticket for this or that but not for weed. When we arrest somebody and they have weed on them, we take it and we give it back to them. It’s property, it’s theirs. Until they figure it out and point us in a direction, we’re gonna stay clear. We’ll leave it to them to set up the guidelines and then we’ll do this and that. They need to guide us.”
So while police officers can be there to make sure nothing else illegal is happening, for anything cannabis related it seems their hands are tied. The attitude of the sellers reflects this too. The assistant at Flower World didn’t even see it as a gray area:
“I wouldn’t say that. I know that we have something that allows us to sell because the only time cops ever come in here they’re like ‘hey you have any tobacco’ and we’re like no. So we’re not allowed to sell tobacco but we are totally able to sell THC. I don’t know the specifics on it but if places were to shut down we would not be one of them.”
Asked if she was worried about getting raided, she simply replied:
“No, I mean there’s police everywhere, and we’re right by City Hall, you know. We’ve never had an issue.”
Bill, at Times Square, had a more accurate take on the legality of what he is doing:
“The police know what we do here, they see us every day. They can’t do nothing because this shit (smoking) is legal. But what they can do is if they see us selling weed they can do something for that because weed is legal to smoke not to sell. A lot of us know that, they know that we know that. It’s legal to smoke but not to sell.”
He continued, “85% of them smoke too. Why would you focus on something that’s legal when you got a man around the corner sticking his finger up a girl’s dress, with mirrors running around looking…what can you get for that? You can get a ticket for that but you can’t get a ticket for [smoking cannabis]. They got more important stuff to focus on.”
Steve, selling at Washington Square Park, folded up his table when some police officers passed by, but he brushed it off as a show of compliance more than anything:
“The white shirt cops may give a ticket out once in a while but that’s his job, it’s not like they really hate what we’re doing but it’s their job to act like they’re doing something when they see it happening so to give them respect I just look like I’m gonna put away my table and they keep walking and nobody has to turn on their body camera or waste money on a ticket they know we’re not gonna pay.”
Sprinkles, also at Washington Square Park, pointed out that the perception of legality is a bigger issue for customers, but it is absolutely possible for sellers to get in legal trouble:
“I feel like the first person that’s most likely gonna be able to sell weed out here is Diddy. Yeah, people are talking about it. Because in New York we have plenty of smoke shops and stuff where we could go in and buy weed but a cop could find out about it and you’re most likely gonna get raided. There’s a smoke shop like two blocks away from here that got raided about two weeks ago, raided for about two pounds of weed or something like that. It should be on the news if you looked it up.
When you go to stores and stuff everybody is gonna tell you their stuff is legal because they want to get your money. Visitors do come out here that come up to the tables and be like ‘is this legal what you guys are doing?’ And if we tell them no, they won’t buy. Legalization is also a big factor in your income because there is people out here that want everything they’re doing to be legal. Even if it is drugs.”
But with money to be made and not a huge amount of protection for the distributors themselves, there are occasional issues around getting spots at the park and taking other distributors’ clientele. Sprinkles explained:
“There’s a lot of competition, there’s a lot of weed dealers. Some people that are in the park are paying homage, some people do pay to be in this park. I really don’t know [who they pay], but I do know there are people in the park that do pay to be in the park. I guess drug dealers are our way to the park. Like we do have people that have customers and clientele, so say you take somebody’s client it does get a little personal. Sometimes they do get a little personal in the park because people do really come out here to live, so people do come out here trying to make their living.”
Steve links the presence of the police officers to this type of dispute:
“That’s the whole reason there are cops in here. There was a few times when people that got into altercations because somebody took somebody else’s spot. People are trying to make a living here, to buy food, pay their mom’s bills, their cost of living. They are forced to work here or the money is good and they don’t want to work at a job where you’re getting paid $20 an hour whereas here you get $100 or $300 a day minimum and if you’re smart and self disciplined you can make a living.”
So while there are issues, the problems stem more from intense competition for a few good spots and some good customers than being driven by the cannabis itself. The distributors aren’t talking about getting robbed at gun-point; they’re talking about trying to get some prime park-side real estate for their store. And although many acknowledge that there is very little they really have to do, they act morally regardless, like Bill, who responded this way when asked if he can be sure he never sold to minors:
“Because I can tell. I’m 63, I wasn’t born last night. Two things I don’t do: I don’t sell weed to kids and pregnant women. Some woman walked up to me with her baby in the stroller wanting weed, I tell her ‘ma take your stroller and go.’ I got that kind of heart. I don’t sell pregnant women weed. They come to me with babies.”
While the quasi-legal nature of New York’s cannabis market appears to be protective to some extent, it is linked to many issues from health, economic and crime perspectives in the same way black markets are.
The biggest issue from a health perspective is for users. Not only is it possible that they would buy some cannabis that is actually synthetic (e.g. K2/Spice), they could even buy some that has been laced with something (even fentanyl), which has been reported prior to our interviews too. Quality control on products is also basically non-existent. The main “methods” people used were simply trust and first-hand testing. Of course, it’s entirely possible that these wouldn’t suggest an issue with something like fentanyl-tainted cannabis. As “Sprinkles” pointed out, you may trust the guy who sells to you but do you even know the guy that sells it to him?
Economically, distributors mainly benefit while consumers arguably pay the price. Admittedly, it’s likely that street distributors will remain more affordable than dispensaries even after they open, but just as in the black market, customers pay relatively similar amounts but get none of the assurance that comes with approved sales. If you buy from a legitimate dispensary, you don’t need to worry about who “Steve” gets his cannabis from and whether they made some crucial mistake during growing or harvesting. The distributors themselves are pretty happy with the situation, though, and really only intend to turn their operations legitimate if it’s convenient and if the state doesn’t try to eat into their profits too much.
For crime, the situation isn’t quite as bad as you might imagine. The gray market has some issues, definitely, particularly people fighting over good spots and misleading customers about what they’re buying, but the police officers are trying to stay on top of the situation. However, overall data for the state does show an increase in crime for 2021 compared to the previous 5 years, and recent results suggest that 2022 had even more crime than 2021. There are definitely positive signs, such as a decline in gun crime in the state, but there have been increases in burglary, robbery and grand larceny which mean that the post-legalization trend so far is upwards. It’s debatable how much this can be attributed to the gray market, and really we’d need more data to draw firm conclusions on that.
The wider base of evidence on the association between cannabis, violence and crime is complicated and often appears self-contradictory. Likewise, when you look at the impact of cannabis legalization on crime, it can appear that legalization increases crime, however, more detailed analysis questions this conclusion. It appears, for example, that people who use marijuana are more likely to behave violently, but it’s not clear from the data whether this is marijuana making people more violent or violent people being more likely to try marijuana. The direction of the association isn’t clear.
Similarly, there are many ways gray or black market marijuana could increase crime: it’s possible that cannabis does make people more violent, lots of cash-only businesses around could encourage theft, and the people who come to make easy money could also commit other crimes. However, there are also benefits in that sellers can use more “official” means to protect themselves (e.g. reporting theft to police rather than “solving” it themselves), for example. Completely legitimizing the market would also significantly improve this benefit, reduce the dependence on physical money and lessen or even remove the incentive for gangs or criminals to use cannabis to make quick profit.
We saw this effect to some extent in our investigation. While there were clearly risks around crime (paying someone for spots in the park to sell, for instance) relating to the gray market, the fact that police officers can be present while the business is going on undeniably protects against associated crime. The police officers aren’t arresting people for the cannabis anymore, so they can actually focus on the associated issues. It is very clear that a fully legal system would remove much of the industry-related crime, leaving only any violence caused by addiction to or use of cannabis itself.
Will New York’s Market Follow California’s (Bad) Example?
While the gray market may offer some improvement over the black market, there is a very real concern that New York’s industry is heading the same way as California’s. It’s safe to say there were many different issues with California’s implementation of the 2016 Proposition 64 vote to legalize recreational marijuana. One example is how they tried and failed to prevent large corporate interests from buying up all the growing licenses: the state limited licenses to one acre, but then made a change which allowed multiple licenses for the same owner, provided each was less than one acre.
However, the biggest problem in California was undoubtedly the provision which allowed localities to opt out of having dispensaries in their area. This seems very reasonable at first, because it’s understandable that you wouldn’t want to turn a sleepy little suburb into Amsterdam 2.0, but the consequences have been dire. The result is that 62% of California municipalities prohibit physical retail cannabis stores, with just 1,200 physical stores across the state (and around 600 delivery businesses) compared to the initial estimate of 6,000. In Orange County, for example, there are 34 cities but only Stanton, Santa Ana and Costa Mesa allow dispensaries.
Other states make the severity of California’s situation clear. In Oregon, for example, if a city has a large proportion of voters that supported the legalization measure, any ban on stores in the city also has to pass a vote. As a result of policies like this, there is one dispensary per 5,500 residents in Oregon. In California, there is one dispensary per 36,000 residents. It is no surprise that people would prefer to buy from a guy down the street than to drive for miles to get to a single legitimate dispensary.
New York needs to examine the situation very carefully. Their problem has been growing in the period of limbo between cannabis being officially legalized and it being permitted to sell. Customers have gotten used to the gray market and the tax-free prices they offer. It’s likely that when official dispensaries open, there will be a “honeymoon period,” but if they aren’t convenient or affordable enough, people will go back to buying from the likes of Sprinkles and Bill.
The state does allow opting out of retail outlets, provided applications were submitted by the end of 2021. The list of localities that have opted out is pretty big, and even though many are only opting out of onsite consumption venues and many come from small villages, the overall impact is likely to be the same. If people have to travel a long way to buy cannabis legally but they can buy it in a quasi-legal way down the street, what are they going to do? We don’t need to speculate because California shows us the answer: the gray market will win.
The solutions are pretty simple, though. As California tried municipalities that supported recreational marijuana could be required to have either 1 cannabis outlet for every 4 liquor licenses or one per 10,000 residents, whichever is fewer. This would improve the people-per-dispensary figure drastically, and give the legal market the best chance of being successful. However, a bigger and more important step would be ensuring that taxes are manageable enough to compete with the illicit market. This might reduce projected state revenues, but the projections aren’t worth the paper they’re printed on if the gray market retains most of the customers anyway.
Andrew Livingston gave an overview of the situation for states legalizing cannabis and wanting to stop illicit markets from forming:
“In my opinion the most effective way to prevent the unregulated market from expanding after adult-use legalization is to provide legal outlets for consumers to purchase at price points competitive with the existing legacy market. If cannabis is legalized and there is no convenient legal place to purchase, then consumers will continue to do what they have always done: Patronize illicit storefronts and continue purchasing from their existing dealers.
It is primarily about legal access and price. The longer consumers have to wait for legal storefronts the longer they will continue to purchase from their legacy network. If it takes an extended period to open adult-use stores, they are very limited or troublesome to access, or the initial price points are too expensive, consumers may decide that their existing sources provide cannabis at a better deal.”
The Gray Market and NY’s Social Equity Program
A big part of New York’s cannabis legalization bill was ensuring equity for communities and individuals most impacted by the failed war on drugs. In particular, the law stipulates that 50% of licenses for adult-use cannabis (e.g. for dispensaries, cultivators, processing facilities and more) will go to social equity applicants. However, the thriving gray market is likely to make this difficult, as Andrew Livingston commented:
“Competition from illicit operators who are not operating by the same rules, paying taxes, or following state regulations create an unfair playing field. This unfair competition is particularly problematic for social equity operators that are more likely to be smaller enterprises without the capital to take advantage of large economies of scale and beat illicit market operators on price.”
The NYMCIA also point out that the state’s mismanagement of the medical cannabis market is also strengthening the illicit market, and in the process undermining equity efforts:
“Unchecked illicit operators put consumers at risk and undermine the state’s robust equity plans to ensure that communities disproportionately impacted by the ill-conceived War on Drugs benefit from the legal cannabis market. In addition, the state has allowed the long-established medical cannabis program to deteriorate by failing to support and expand it, as required by law, which forces patients into the unregulated illicit market.”
In short, if New York does end up as California 2.0 in terms of the weed market, 50% of dispensaries (for example) will be owned by equity applicants. However, if 80% of the sales are still happening out on the street, where the equity provisions mean nothing whatsoever and anybody with a few ounces of weed and a table can make money, the equity applicants suffer. Lured in by the promise of a lion’s share of the market, they arrive to find gray market sellers have already taken the biggest piece.
Conclusion: Gray Markets Solve Some Issues with the Black Market, Legal Sales Fix the Rest
The conclusions from our analysis and the existing data are unavoidable. While the switch from a black to a gray market in New York made things slightly easier for consumers and less dangerous for sellers, many safety-related, economic and crime-related issues persist in the market. distributors and customers alike have no real assurance of the quality of what they’re buying, premium selling spots are dished out (by unknown figures) to anyone willing to pay, regardless of age, and legitimate-looking storefronts mislead tourists into buying CBD buds advertised as marijuana. While distributors benefit financially, community services gain no tax income and consumers pay for products without accountability for sellers. That said, it is good that police can give sellers some basic protections, and increasingly bringing the market out into the open is helpful for consumers who want to smoke but not feel “criminal.” However, crime in New York appears to be on the increase with the gray market, overall.
The solution is also pretty straightforward, and what the state planned anyway: make legal dispensaries widely available. However, this has to be managed very carefully to avoid issues like California is experiencing, where despite legalization, illicit sellers still meet the majority of demand. A key mistake has already been made: making cannabis legal without giving people a legal way to obtain it immediately creates a demand for the gray market to step up and meet. Issuing licenses as quickly as is feasible and making sure most citizens have a dispensary within a reasonable distance are crucial steps to giving control of the market to legal entities.
It’s unlikely that New York will be able to stamp out this illicit market entirely. The distributors we interviewed weren’t particularly interested in taking the step to sell legitimately. However, provided there aren’t huge regions with no dispensaries and that prices remain competitive, customers will voluntarily switch to legitimate operations and make dealing less and less profitable. The core lesson is one that states should have learned long ago: cannabis is already a market and it will remain in un-taxed, un-regulated and unlicensed hands until you proactively tax, regulate and license it. The longer you take, the bigger the black market beast becomes and the harder it is to kill.
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