85 legal shops, 2,000 illegal ones

After three years of fits and starts, the rollout of New York’s recreational cannabis market gained speed in 2024, most notably with the opening of about 50 licensed dispensaries this year.

But the licensed retailers, who number about 85 in total, are far outnumbered by more than 2,000 rogue head shops, the target of complaints that they siphon customers, sell to children and attract crim- inals.

The quick and brazen takeover has left many people frustrated with the government’s slower and stricter approach to expanding the legal market and has emerged as the most pressing challenge facing the rollout, as authorities struggle to keep the state’s promise to deliver a $5 billion market to diverse small businesses and people harmed by past anti-marijuana policies.

“They need to get a handle on that quickly,” said James Stephenson, a founder and CEO of ohho, a wellness brand that depends on dispensaries to sell its cannabis-infused chocolates, gummies and seltzers. “You can’t have one set of people playing by the rules.”

While the illicit shops multiplied, legal dispensary openings stalled for months because of lawsuits, the rule-making process and the state’s broken promise to finance the leasing and renovations of the first 150 licensed dispensaries. Just 10 stores are in operation with the state’s help, and an additional 375 dispensaries, licensed for nine months or more, have yet to open.

Gov. Kathy Hochul, who increasingly has voiced her disappointment, recently ordered a review of the Office of Cannabis Management, the agency handling the rollout. She also has proposed legislation expanding the power of local authorities to punish unlicensed shops and complicit landlords, as well as a measure to slash taxes that drive up the price of legal products. The changes have broad support in the Legislature.

The review began days after Damian Fagon, the cannabis agency’s chief social equity officer, was placed on administrative leave amid a misconduct investigation. Jenny Argie, founder of a licensed cannabis business, accused him of retaliating against her after she recorded a conversation with him that was used in an article criticizing the agency.

Argie sued the state, adding to the list of lawsuits against the agency. They include a complaint that the state’s social equity policies discriminate against white men in favor of women and minorities. Another case seeks to stop the state from using lotteries to determine the order in which new applications will be considered. Others protest decisions about where dispensaries can open and oppose the use of taxpayer money to support them.

Chris Alexander, executive director of the state cannabis agency, has defended his agency’s “intentional and methodical” focus on licensing businesses owned by a diverse range of people, which regulators believe can survive in a notoriously difficult environment. He points to the failures in states that moved faster.

New York now has more licensed recreational dispensaries than any state on the East Coast except Massachusetts. The owners include people with criminal convictions, veterans, women, nonprofits and people of Black, Latino and Asian descent.

The stores have added more than 1,000 jobs to a retail sector struggling to rebound from the pandemic, chipped away at the state’s mountain of unsold cannabis and paid millions of dollars in taxes.

However, they are struggling to break the illicit shops’ hold on consumers, who often don’t know or care which shops are licensed. Last year was the first full year of legal sales, and state-licensed dispensaries sold about $150 million. By comparison, shops in New Jersey, where recreational sales started eight months before New York, raked in $673 million last year.

Local and state authorities have raided dozens of illicit stores, issued millions of dollars in fines and sent hundreds of letters pressuring landlords to evict businesses selling cannabis without a license. But the unlicensed retailers have continued undeterred, reopening within hours or days of raids and contesting fines in administrative hearings that take months to resolve.