Last month, New York regulators made waves after sending cease and desist letters to more than 50 operators who were allegedly selling marijuana illegally. These “grey market” businesses have cited language in the new state cannabis law that allows “gifting” as a loophole to sell weed without a license.
Under New York’s Marijuana Regulation and Taxation Act, it’s illegal for unlicensed operators to sell weed, but legal for adults to give each other cannabis for free. As a result, some operators are exploiting that ambiguity to, for example, sell bumper stickers for $50 and include with each one a “gift” of 3.5 grams of weed.
Officials at the Office of Cannabis Management say there is no such ambiguity in the MRTA, nor is there a workaround.
“There’s not a loophole, there’s not a grey area,” said Chris Alexander, the office’s executive director, in an interview with NY Cannabis Insider last month. “The gifting language that people are relying on is between two individuals outside of a business transaction.”
But prosecutors across the state aren’t so sure.
DA’s differ on legality
NY Cannabis Insider reached out to five district attorneys’ offices this month and found positions differ from county to county: The Onondaga County DA’s Office takes no position on the legality; The Erie County DA’s Office views “gifting” as legal, as long as it’s within allowable limits; and the Albany County DA’s Office awaits further guidance.
In addition, NY Cannabis Insider found these offices appear unwilling to prosecute such cases regardless of the legality.
“I think companies and people who are not licensed are taking full advantage of the uncertainty of things,” Albany County District Attorney David Soares said. “I think a lot remains to be seen.”
As of March 23, OCM spokesman Freeman Klopott said cannabis management officials had sent warning letters to 52 individuals and groups.
“These so-called ‘gifting’ transactions are considered sales, where there is a remuneration being provided, whether directly or indirectly as a result of that transaction,” Klopott said in an email. “These are illegal as there are no licensed adult-use cannabis sales at this time in the State of New York and we will work with our partners to enforce the law.”
That’s not the take of the Erie County District Attorney’s office, which covers part of the state’s western region, including Buffalo.
NY Cannabis Insider emailed the district’s spokeswoman, Kaitlyn Munro, and described a hypothetical situation in which a person or group sold stickers for $50, and included a bag of weed as a gift. She said that would not be illegal.
“The current criminal penal law does not prohibit the conduct of an adult transferring a lawful amount of cannabis in conjunction with the sale of a non-cannabis product to another adult,” she said.
Munro clarified that if a seller possessed more than the maximum amount allowed under the law – 3 ounces of cannabis or 24 grams of concentrates – that would be illegal, as would “gifting” marijuana to anyone under 21 years old.
But the act of including a “gift” of weed with another purchase falls within the law, she said.
The Onondaga County District Attorney’s office does not take a position on the legality of grey market operations, said Joseph Coolican, the county’s first chief assistant district attorney. But, he added, prosecutors from his office are not currently pursuing any marijuana cases that do not involve other drugs or firearms.
“We’re not prosecuting marijuana cases right now,” Coolican said. “At this point, the lab does not possess the technology to meet the legal threshold” to prove a substance is marijuana, he added, citing a change in the definition of marijuana under the MRTA.
The new state law repealed Section 221 of the New York Penal Law, and replaced it with Section 222. Under Section 221, it was illegal to possess marijuana. Under Section 222, it’s legal to possess up to three ounces of cannabis and 24 grams of concentrates. Coolican declined to elaborate on how that change affected his office’s ability to prove a substance is marijuana.
David Soares, the Albany County DA, said he’s unsure whether grey market businesses are prosecutable, and that he hasn’t discussed the issue with colleagues. Such cases haven’t come across his radar in Albany County. He said the situation would likely change if a bill that state Sen. Diane Savino introduced this month clarifying the illegality of the alleged “gifting” workaround is approved by the state legislature and signed by Gov. Kathy Hochul.
However, there isn’t much payoff to prosecuting cannabis crimes anymore, Soares said. If no other drugs, weapons, or violence is involved, he questions whether the cost and effort of pursuing cannabis cases are even worth a guilty verdict.
“You’ve almost eliminated any incentive to move forward with these cases,” Soares said. “You have to ask whether the juice is worth the squeeze.”
Spokespeople from the Brooklyn and Manhattan DA offices declined to comment.
Unlicensed grey market and legacy operators aren’t a big problem for John Sullivan, a former co-owner of medical cannabis company Fiorello Pharmaceuticals. Sullivan is currently seeking a retail cannabis license to establish a New York branch of Oregon marijuana company Bridge City Collective.
Sullivan said that anyone entering the licensed New York adult-use market should be aware that they will be competing with a well-established legacy market. He said the fact that unlicensed operators will continue selling weed is something he worked into his business model.
“As a prospective licensee in retail, does that concern me? Yeah, a little bit,” Sullivan said. “But it’s a business factor that I’m aware of … and I have no problem competing.”
Sullivan said he thinks customers will gravitate toward licensed businesses because their products are tested and confirmed as safe. These businesses can also hire expert staff to help customers find the right items for the experience they’re looking for, Sullivan said.
However, that hasn’t necessarily been the case in other states that legalized adult-use cannabis. The Guardian reported in November that between 80% to 90% of the weed sold in California is on the illicit market. People in the state’s legal market say high taxes and stringent regulations have made it difficult to compete with illicit operators.
The Oregon Liquor and Cannabis Commission, which oversees that state’s legal cannabis industry, told Politico earlier this year that the illicit market there may be double the size of the Beaver State’s $1.2 billion licensed marijuana sector.
Reggie Keith, a legacy operator who runs Canna-House, a Buffalo-based private social club centered around marijuana, said his conversations with prosecutors and police have led him to believe that there will likely not be any legal penalties for grey market “gifting” businesses. The real risk that these operators run is the possibility of being denied a license later, he said.
“The biggest concern is not jail time or anything, the biggest concern is the threat of ‘if we catch you doing this before licensing is open, you may risk not being able to get a license,’” Keith said.
He said he doubts the issue will affect people’s’ decision whether to apply for a cannabis business license.
“If you weren’t going to apply already, this didn’t change your mind,” Keith said. “If you were going to apply already, I don’t think this changed your mind.”
Albany DA Soares said another problem with prosecuting illicit marijuana sales is that public perception around the drug’s alleged danger has shifted, and people in New York don’t seem to view it as a harmful substance with which law enforcement should be concerned.
“I think that the industry did a great job in messaging how not dangerous it is, and they were successful,” Soares said.
