Thriving, unregulated marijuana businesses across the United States are undercutting legal markets awaiting banking and tax reform.
While it’s an issue in states like Colorado, Michigan and Washington, it’s a much bigger problem in New York. Unlicensed businesses are “taking a pretty hefty percent of the potential market share,” according to Amanda Reiman, a researcher at cannabis intelligence company New Frontier Data. None of the 36 newly licensed dispensaries in New York have even started operating yet.
The licensing program in New York is years behind the state’s sophisticated black market. New York doled out its first set of dispensary licenses last month, but recreational marijuana has been legal in the state for nearly two years.
“These shops are masquerading as safe, legal entities,” said Trivette Knowles, a press officer at the New York State Office of Cannabis Management, “but there are currently no licensed sales happening right now in the state of New York.”
The problem is particularly cumbersome in New York City, Knowles said. Weed can be bought from brick-and-mortar storefronts, trucks, pop-up shops, bodegas and even courier services that deliver directly to consumers. His office has sent out cease-and-desist letters to some of the unlicensed operators in the state, but some trade groups say there are likely tens of thousands of illegal businesses in the city alone.
“It’s almost like whack-a-mole,” said Reiman, of New Frontier Data. “If one goes down, another one just pops up.”
Reiman said her firm doesn’t track data on the many illicit businesses that have taken root across the country, but she estimates the national market is worth around $60 billion. The legally regulated industry is just half that, she said.
“When you have dispensaries and distribution systems that pretty much mimic regulated markets, it can be really difficult to get people to move over,” Reiman said.
Unregulated markets, she said, also pose serious health risks for consumers. A November study commissioned by the New York Medical Cannabis Industry Association found that after reviewing cannabis products from 20 illicit stores in New York City, about 40% contained harmful contaminants such as E.coli, lead and salmonella.
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