Global Ganja Report

New York state is just now accepting applications for retail cannabis licenses. But the Big Apple already sees a thriving retail trade in cannabis products, from both storefronts and street stalls—more or less tolerated by authorities. What legal rights do these unlicensed operators have, and will they survive the imposition of the licensing regime?

The storefront on Allen Street, on Manhattan’s Lower East Side, proudly sports a cannabis leaf logo on its awning. Beyond the security workers who check ID at the door, buds, edibles and pre-rolled joints are on open display in glass cases. There isn’t the slightest hint of stealth or disguise.

Don’t call it a ‘loophole’
This is one of three Empire Cannabis Clubs locations around the city—the others are up the island in Chelsea and across the East River in Williamsburg. Co-owner Jonathan Elfand says three more are planned—for Hell’s Kitchen, the Upper East Side and Greenpoint.

Speaking to Cannabis Now in a small park across from the establishment, Elfand boasts of his legacy credentials. “I’ve been messing with the marijuana trade in New York City since the 1980s,” he says. “I’ve grown weed in New York, sold weed in New York. I’ve been arrested numerous times, including on federal cultivation charges.”

Elfand says including the 10-year term from that bust in ’98, he’s spent 14 years behind bars for cannabis.

“We want to make sure cannabis goes to the community, the way it’s supposed to. I refuse to get into the system,” he expounds. “After 215 in California, millions of dollars came in from people with no history in cannabis. Corporate cannabis is not taking over New York City, that’s not happening. We don’t want it to be just CuraLeaf and MedMen.”

And Elfand insists the law is on his side, dismissing the terms used in the media to describe his enterprise.

“I’ve read through the law. This isn’t a ‘gray area’ or a ‘loophole.’ As long as you are transferring it hand-to-hand without profit, it is not a sale under the law. I make money off membership fees, not the cannabis. I am not selling, I am facilitating transfer. The cannabis is sold for the price I pay to acquire it and get it on the shelf.”

Elfand says the club received a “cease and desist” letter from New York’s Cannabis Control Board in February. He says they replied to it with a letter explaining their legal position, and never heard back.

A press release issued by the business at that time stated: “Empire Cannabis Clubs is a not-for-profit cannabis dispensary (NFPCD) that aims to serve the goals of its members while ensuring an inclusive marketplace built upon social and economic justice for this rapidly growing industry before billion-dollar corporations are allowed to dominate the market and corrupt the process.”

And indeed, the official New York Courts website states that under the Marijuana Regulation & Taxation Act (MRTA), signed into law by then-Gov. Andrew Cuomo in March 2021, “it is now legal for a person 21 years of age or older to give or transfer up to three ounces of cannabis and up to twenty-four grams of concentrated cannabis, to another person 21 years of age or older, as long as it is given without any payment.”

Elfand emphasizes that he is conforming to every industry standard. “Everyone is scanned in, everyone is over 21. It’s all above-board. All products are lab-tested.”  Now the testing is mostly done out of state, he says, but adds that he hopes to open a laboratory in New York.

Quantity per sale is limited to three ounces of flower or 24 grams of concentrate—the permissible quantities for personal possession (outside the home) under MRTA.

Elfand is one of four co-owners, including his sister and brother. He says Empire Cannabis Clubs has some 100 employees, the majority with criminal records. “We try to get people who have been victimized by the war on drugs,” he says.

The business is paying sales tax (even though it denies making any “sales,” as legally defined), and is among several listed on the New York Dispensary Events website.

“Others may be flying under the radar in New York City, but that’s not me,” Elfand insists. “We’re paying taxes, we have a social equity program, and we’re providing top-quality product safely and securely. While making sure mom and pop can take some of that money back to the Bronx for their families.”

Legacy operators favored....
Do businesses on the model of Empire Cannabis have a future as the licensed retail market is about to come on line?

Officially, New York’s legal cannabis program is being crafted to prioritize legacy operators.

On July 14, the Cannabis Control Board issued long-awaited regulations allowing entrepreneurs to apply for licenses for retail establishments. The first round of Conditional Adult-Use Retail Dispensary (CAURD) licenses will go to “justice-involved individuals”—that is, those with past cannabis convictions.

The first 150 will be eligible to receive aid from a $200 million Social Equity Cannabis Investment Fund.

“This is a tremendous stride in the right direction,” Control Board chair Tremaine Wright, a former Assembly member from the Brooklyn neighborhood of Bedford-Stuyvesant, told the Daily News. “We’re leading with equity in this state.”

The Office of Cannabis Management, the Control Board’s parent agency, is headed by a figure with major activist creds. Chris Alexander, a native of Hollis, Queens, is a veteran leader of the Start SMART NY campaign that pushed for the MRTA—and a lead drafter of the law. He told the New York Times that he’s committed to “pulling the legacy market into the legal market.”

On Aug. 5, the Control Board issued the first 15 licenses for cannabis processors, and announced regulations for testing labs to apply for licenses. On that occasion, both Wright and Alexander made statements pledging inclusion for legacy operators.

“Processors aren’t just an important part of the cannabis supply chain, they are creators, who take a raw plant and transform into tested, consistent, high-quality products that consumers can trust,” said Wright. “When we open New York’s first stores, owned and operated by New Yorkers harmed by the misguided criminalization of cannabis, the shelves will be lined with infused edibles, topical creams and concentrated oils. None of those products would be possible without these first processors launching New York’s cannabis industry.”

Added Alexander: “These processors aren’t just expanding their own businesses, they are committed to also mentoring the next generation of cannabis processors. They’ll be teaching vital manufacturing skills to those with a passion for cannabis... New York’s entire cannabis ecosystem will create opportunities for those who have been shut out of jobs and industry, and will bring those skills to communities across the state.”

A Unified Legacy Operators Council (UNLOC) has been founded by a group of 25 entrepreneurs to advocate for this sector. Among the members are veteran rappers Umi and M-1 (formerly of Dead Prez).

Umi recently told the Albany Times-Union, “I’m not hearing enough about the culture that's behind the actual plant.” Added M-1: “There’s no way that the same capitalist exploitation that has happened in America can be good for cannabis.”

But Big Bud is circling in
And indeed the notorious multi-state operators (MSOs) are making no effort to hide their ambitions for the Empire State.

Their representatives were certainly out in force for the Cannabis World Congress & Business Exposition (CWCBE) held at Manhattan’s Jacob Javits Center the first week of June—featuring an “Industry Yacht Party” on the Hudson River.

New York City Mayor Eric Adams (a former NYPD cop) addressed the CWCBE, famously quipping to the crowd: “I’m a bit disappointed. I thought I’d walk in the room and have a nice scent of weed goin’ on in here.” (This despite the fact that the Javits Center does not allow smoking of anything.)

A more telling comment was offered by Gretchen Gailey, chief strategy officer for the CWCBE. She told the assemblage: “We say brands are born in California but made in New York. The real money is going to happen in this part of the country. This is where the population of the US is.”

MSO CuraLeaf has four medical marijuana retail locations in New York state, including one in the Queens neighborhood of Forest Hills. It is already applying to begin recreational sales at its location in New Jersey’s Bordentown, and is expected to follow suit in New York.

The 10 “registered organizations” that are licensed to distribute medical marijuana in New York are “scrambling” to position themselves for the adult-use market, in the words of the New York Times. The paper notes that some of these “ROs” donated to Gov. Kathy Hochul’s campaign, and nearly all have hired lobbyists, spending more than $2 million this year in expectation of a big share of a projected $6 billion market.

CuraLeaf got into a spot of bother with regulatory authorities in August, when it was forced to pull thousands of products from the shelves of its New York dispensaries for misleading labeling. CuraLeaf apparently began calculating THC content by “dry weight” rather than “wet weight” (the state norm) in order to jack up percentages. The Office of Cannabis Management said it couldn’t do that without prior official approval.

Speaking to the environmental contradictions of Big Bud, MSO Vireo Health apparently needs more electricity for its new cultivation and processing facility than can be provided by the technology park where it has set up shop. The Leader-Herald in upstate Gloversville reported that Fulton County industrial development officials were “shocked” to learn from Vireo that the county-financed transmission line into Tryon Technology Park wasn’t sufficient for the MSO’s planned operations.

And some perceive there are still obstacles to the little guy. The $2,000 non-refundable application fee for adult-use retail outlets is far below the $10,000 fee for medical marijuana dispensaries. But applicants must submit tax documents showing they’ve owned and operated a profitable business for at least two years. And Bloomberg Tax recently noted: “Those fortunate enough to obtain one of New York's recreational cannabis licenses will be forced to contend with a gauntlet of state and local taxes.”

Since June 1, the Cannabis Control Board has issued some 160 cultivation licenses for the adult-use market, with many hemp farmers getting in on the act.

In April, the state legislature passed a bill allowing already-operating hemp farms to get early adult-use cultivation licenses, to supply retail businesses as soon as they open. But the MSOs are certain to be next in line.

Crackdown on independent operators... sort of
In New York City, there has been much media hyperventilation about the proliferation of unlicensed retail establishments—often derided as “line jumpers.”

Typical is a recent story in the New York Post, “New Yorkers Worry Over Flowering Weed Market.” It sensationalizes about a “Green Mile” that has emerged within “Hell Square”—the name for a section of the Lower East Side filled with noisy bars and eateries that irk the locals. The article mentions both Empire Cannabis and Granny Za’s on Rivington St., where patrons are “gifted” a quarter-ounce of cannabis if they pay $75 for a piece of digital artwork. The Post calls this using “clever loopholes.”

Such coverage has contributed to calls for a crackdown by the New York Police Department. On July 8, the unlicensed open-air cannabis market that has been operating in Washington Square Park, the heart of Greenwich Village, won some bad press. A Parks Department worker tried to confiscate one of the tables that had been set up—and got into a physical scuffle with the merchants. Two were arrested and charged with assault.

There are growing calls from well-heeled area residents to shut down the Washington Square market, and the NYPD earlier this year announced a “zero tolerance” policy for unlicensed cannabis sales in the park. But in fact, the open-air market persists as summer fades into fall.

In the first significant move toward a crackdown, on Aug. 16 the NYPD seized 20 of the trucks that rove the city to make sidewalk cannabis sales. The Department’s Chief of Patrol Jeffrey Maddrey proudly tweeted: “If you are looking to buy illegal cannabis from the Weed World Bus located on 5th Avenue & 40th Street it is no longer open for business. We do not anticipate it opening for business anytime soon!”

Technically, however, the seizures were made because of parking violations.

In May, Liz Kreuger, the same Manhattan state senator who shepherded through the MRTA, won approval in the Senate for S.9452—a bill that would change the language of the MRTA to expressly prohibit unlicensed monetary transfers of cannabis. It failed to pass the Assembly before the legislative session ended in June.

Jonathan Elfand believes his Empire Cannabis Clubs set the standard for responsible practice in the unlicensed sector. He has this to say to the sector’s critics: “Tell all the people in line for licenses that I’ve been in this all my life and I don’t want to see it taken over by corporate money.”

Cross-post to Cannabis Now