As New York State Doubles Legal Cannabis Licenses, Gray Market Reigns in Hell’s Kitchen

The New York State Office of Cannabis Management (OCM) is to double the number of first-round dispensary licenses — but will the move be enough to stamp out Midtown’s prolific illegal gray market landscape? 

The OCM yesterday announced a plan to increase cannabis dispensary licenses from 150 to 300 across the state. Only 22 of the previous 150 licenses were earmarked for Manhattan, but the new allocation will boost that number to 44, according to an OCM press release.

“With this expansion, more entrepreneurs will be able to participate in the first wave of this industry, allowing them to capitalize on the growing demand for cannabis products,” said Tremaine Wright, Chair of the Cannabis Control Board. “As more businesses enter this market, the innovation and competition will increase, leading to better quality experiences for consumers. The expansion of New York’s cannabis market will benefit everyone involved in this exciting industry.” 

“New York is doing something special when it comes to launching our cannabis industry, and now we’re doubling the impact of our Conditional Adult-Use Retail Dispensary program,” added Chris Alexander, Executive Director of OCM. “It’s been exciting to see the positive energy around our efforts to support entrepreneurs who previously suffered at the hands of New York State. We will continue creating real opportunities for qualified applicants who’ve been shut out from legal cannabis markets across the country.”

Many New Yorkers responded to the news with skepticism, citing a slow rollout of licenses. Only three legal dispensaries have opened in Manhattan since marijuana’s legalization in March 2021.  “Hochul said last year there would be 100 dispensaries opened by December 31. I didn’t realize she meant 2098,” said one commenter on Twitter. Another added: “You realize there are thousands of dispensaries in this state already? They’re just unlicensed, thanks to your complete and utter failure to understand economics 101. Supply and demand.” Brad Racino, editor of NY Cannabis Insider said: “By the end of this month, Kathy Hochul’s state budget projected to have garnered $56 million from adult-use cannabis taxes. We don’t know the current number, but collection data shows the state received $20,000 in taxes in January.”

In Hell’s Kitchen, a legal dispensary has yet to be announced or approved — but there are plenty of gray market shops that have puffed up the West Side in a confusing cloud of smoke for residents and consumers. Last month, W42ST sent Catie Savage to conduct a comprehensive survey of the entire neighborhood’s smoke shops — tobacco, cannabis and “other.” She determined that there were more than 30 dispensaries, and while several of the shops were licensed for tobacco and e-cigarettes, many displayed the hallmarks of New York’s fastest-growing illicit enterprise — the “weed bodega.”

Easily identified by their sometimes jaunty, colorful interior decor and creative names, “weed bodegas” frequently appear to resemble high-budget, legally licensed shops — but their lack of ingredient safety, price and security regulations, as well as stolen market share from legal shops have led local lawmakers to regard the rapidly generating stores as deeply detrimental to the city’s legal dispensary development. New Yorkers argue that the combination of the slow legalization process and city’s previous enforcement strategy in which police would raid a shop, only to find it reopened the next day have created an environment where gray shops can continue to pop up like…weeds. 

Walking through Hell’s Kitchen, where shuttered storefronts morph into smoke shops on a daily basis, there was no sign of a slowdown — the 10th Avenue Strand Han’s Cleaner is closed to be replaced with a large “PINK TREEZZZ” dispensary sign. 

At a February 7 press conference, DA Alvin Bragg, Mayor Eric Adams, City Council Members Gale Brewer, Erik Bottcher and other legislators declared a new, eviction-based initiative to shut down gray market enterprises, which they argued not only stole profits from justice-affected operators of legal shops, but endangered the public by selling unregulated, sometimes contaminated marijuana and by marketing and selling to minors. 

OCM spokesperson Aaron Ghitelman told W42ST: “We understand the desire for everything to happen faster and all at once, New Yorkers have been eagerly waiting for a legal cannabis industry since Colorado and Washington first legalized cannabis in 2014. We have always advised hopeful entrepreneurs not to let the cart get in front of the horse. This is an industry we are thoughtfully regulating and standing up in ways that are designed to last. Thanks to New York’s two-tiered market structure, operators of all sizes will have the opportunity to compete and thrive. This is not a market that will be dominated or monopolized by a few well-capitalized players, but rather a market that provides all who hope to enter have a real chance at success.”