Sunday, Feb 20, 2022


Welcome To New York, The Wild West Of Weed

Please click here for more information on Love Peace & Haze - Fractional Ownership Program

Welcome To New York, The Wild West Of Weed

As legalization spreads, entrepreneurs are opening unlicensed dispensaries in the Big Apple and other cities to establish a business before corporate cannabis descends. Inside the battle for billions in marijuana's grey market.

The Elfand family knows what it feels like to be targeted in America’s war on drugs.

In April 1998, Ralph Elfand and his son Jonathan were busted for operating a marijuana cultivation site inside a Brooklyn warehouse. Ralph, then 59, was sentenced to three years in prison for conspiracy to manufacture and distribute cannabis while Jonathan, 30, was sentenced to 10 years.

At one point in her life, all the adult men in Lenore Elfand’s family were serving time for cannabis. But after New York state legalized marijuana in March 2021, the Elfands decided to open a dispensary—despite not having a license. In September, Lenore, who had never been in the business, and her brothers opened Empire Cannabis Club—which charges $15 for a one-day membership in exchange for the ability to buy buds, edibles and vapes—in Manhattan’s Chelsea neighborhood.

“We opened here because we were on a mission: to take back the years lost,” says Lenore. “The years of being on the other side [while] my brothers have been in prison. It affects everybody in the family.”

New York State legalized recreational cannabis last year, but regulators have yet to award any licenses to businesses, creating a quasi-lawless period when the state’s prohibition on pot is gone but there is no official market yet. (New York does have a small, highly restrictive medical market.)

Without the threat of cops busting down doors, the grey market has flourished. Some entrepreneurs, including the Elfands, have decided to go after what they see as a once-in-a-lifetime opportunity in New York: get a head start on what is projected to be a $4.2 billion market within five years before publicly-traded companies like billionaire Boris Jordan’s Curaleaf ($889 million in revenue during the first three quarters of 2021) and Green Thumb Industries ($650 million in revenue during the same period), are operating retail stores for recreational consumers.

“We have watched state after state allow the big guns to come in and take over while the little guy is losing every single time,” Lenore says at her store on a Friday night in January as dozens of members come in to stock up before the weekend. “We decided to push forward because we don't have a shot, but we deserve it. We’ve had years of injustice.”

The Elfands are hardly alone: Dozens of shops have blossomed around the city since the state passed legalization. A criminal defense attorney named Lonny Bramzon opened an unlicensed “cannabis gifting lounge” in lower Manhattan. While Weed World Candies—which was cofounded by a man who calls himself “Dr. Dro”—and is famous for its trucks that sell CBD lollipops, has a big store near Madison Square Garden offering the real stuff.

There are also opportunists with less sophisticated setups. On a Wednesday night in mid-January in Times Square, about a dozen dealers pepper the sidewalk, standing behind folding tables covered with packages of California cannabis, as if they were selling sunglasses and pashminas, but with aggressive sales tactics like the performers in bad Elmo costumes.

“We ain’t worried about nothing,” says one vendor, offering passersby a sniff of potent piff to drum up sales. “Weed is legal and as long as you have a street vendor’s license, you’re good.” (When a reporter asks a policeman sitting in a van close by if selling pot on the sidewalk is legal, he says: “No comment.”)

New York’s cannabis regulators consider Empire, and the dozens of other stores that have popped up in the city, unlicensed and illegal dispensaries. In early February, the New York State Office of Cannabis Management sent cease and desist letters to many of them, including Empire, threatening that if they don’t shut down they won’t be eligible for a license—and might be on the hook for criminal charges.

“These violators must stop their activity immediately, or face the consequences,” Cannabis Control Board Chair Tremaine Wright said in a statement.

But Steve Zissou and Sally Butler, the Elfands’ longtime attorneys, says Empire is not operating in a grey area or loophole—they are abiding by the letter of the law. Empire is a not-for-profit dispensary, Zissou explains. He admits it’s an “imaginative structure” but says the law was written vaguely and that his clients are in full compliance. “It’s not more complicated than that,” says Zissou. “The law allows this.”

Under New York’s new marijuana laws, cannabis cannot be sold without a license. The law defines a sale as an exchange of something for “compensation”—but there is no definition for compensation. “If you go to Black's Law Dictionary, ‘compensation’ is not what's going on here,” says Butler. “If anything, it’s consideration.”

Such distinctions are important right now. New York’s cannabis entrepreneurs are on the front lines of the battle over what is expected to become the nation’s largest recreational marijuana market after California ($3.9 billion in sales during first three quarters of 2021). Despite the threats from the state’s cannabis regulators, Empire has no plans of shutting down. It already opened a second location on Manhattan’s Lower East Side and will launch two more shops in Brooklyn.

“If you want peace, prepare for war,” says Zissou, citing the ancient Latin adage. “If the battle comes to [The Elfands], they'll be ready.”

While 37 states have legalized some form of cannabis, most sales in America today remain illegal. Of the estimated $69 billion worth of pot bought in the U.S. in 2020, about $50 billion was sold on the black market, according to research by Cowen. Last year, the total market hit $72 billion, with 65% of all sales being illegal. The dynamics are projected to flip in 2026 when Cowen estimates that legal sales will constitute the majority of the market. By 2030, the U.S. cannabis market could hit $100 billion with legal operators bogarting a 65% share.

Vivien Azer, Cowen’s senior research analyst specializing in the beverage, tobacco, and cannabis sectors, says that while the legal market will surely eclipse what many refer to as the “legacy market,” it won’t kill it.

“Eliminate? I don’t know if that’s realistic,” Azer says.

Even in highly regulated industries, such as tobacco, a grey market continues to thrive because of sky high taxes: A pack of cigarettes now costs around $15 in New York City, of which $5.85 goes towards taxes. Currently, about 5% of the $50 billion U.S. tobacco market is estimated to be grey market sales, defined as legally produced cigarettes that are sold illegally in a different jurisdiction to avoid taxes.

Perhaps the biggest obstacle from a drug policy perspective is that the law can incentivize many shades of grey: the legal, illegal and quasi-legal markets all exist at the same time and taxes and regulations can affect the size of each. After the end of alcohol prohibition in 1933, for example, the number of bootleggers and speakeasies decreased but when the government raised alcohol taxes during World War II, bootleggers flourished.

“You don’t have a white market, a grey market and a black market—what you actually have is a spectrum,” says David Courtwright, a drug policy historian and author of The Age of Addiction. “The more you ratchet up the regulations and taxes, the more you’re going to have quasi-legal or illegal activity. It’s not just death and taxes that are inevitable—it’s death, taxes and grey markets. The second leading ineluctably to the third.”

While New York’s cannabis grey market is robust, virtually every state in the country has a grey and illicit market problem, but they are more pronounced in the country’s longtime epicenters of marijuana cultivation and high-tax jurisdictions like California and Oregon. In the Golden State, where pot taxes can run as high as 40%, the black and grey markets are so large that legal operators are having a hard time competing. One cannabis executive, who did not want to be named, says that many licensed companies have one foot in the legal market and one foot in the illicit market just to stay in business. In Oregon, where marijuana taxes are 20%, Jackson County regulators declared a state of emergency due to the number of illegal cannabis growers.

Even the nation’s capital is not immune to the grey market phenomenon. In Washington, D.C., medical marijuana is legal, but recreational use is still a grey area. It remains illegal to sell pot so many entrepreneurs have set up businesses that sell t-shirts or lighters for $60 and then “gift” customers a cannabis product of their choice. These gifting shops are “legal under the letter of the law, but violate the intent and spirit of the law,” says Justin Strekal, the founder of Bowl PAC, a cannabis political action committee.

“We are talking about 80 years of illicit activity to meet consumer demand,” Strekal says. “We will have this transition until regulators and policymakers address consumer access issues, which means increased licensing to foster competition and diversity.”

Now that cannabis is legal in New York, the city’s grey market entrepreneurs don’t feel like they need to hide. Perhaps the most visible example of this new breed of entrepreneurs is The Green Truck, also known as “Uncle Budd.” The company operates six small, repurposed buses throughout the city and people can walk up, read the menu, and offer a “donation” and get pot in exchange.

Jimmy, one of the company’s owners, who would not give his last name, said the Harlem-born company is Black-owned and recruits “guys who sell weed in the neighborhood” to help them transition to the legal market when licenses are available.

“Most drug dealers are pretty good businesspeople,” Jimmy says. “We say to them, ‘Look, instead of you sitting on the corner and selling marijuana, work with our truck.’ We're actually going to the people that were hurt by the marijuana laws, and we're trying to bring them into the industry based on our understanding of the guidance that's being offered today from the state.”

Jimmy says he knows they’re operating in a grey area, but he thinks it’s important to make sure the people who’ve been affected by the war on drugs benefit from legalization. “The Green Truck is by-the-people-for-the-people,” he says. “It's Harlem, it's New York.”


Add Franchises To Basket
For Free Information

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Review our cookies information for more details.