Just more than a year after Governor Cuomo signed a law legalizing cannabis for adult use in New York, its rollout under Governor Hochul is bogged down by red tape, raising questions on whether New York’s system will be able to compete with the existing market.

“There is a barrier to entry as far as not even knowing how things are going to be or what things are going to cost,” an attorney who specializes in cannabis-related issues, Andrew Sick, told The New York Sun.

He was referring to a lack of clarity regarding New York’s upcoming recreational cannabis regulation, as well as the possible barriers to entry for smaller operators.

“The average person just can’t do it,” Mr. Sick added. “There’s a lot of information that goes into these applications. It’s still not clear how New York is going to do it — that’s part of the frustration.”

The New York tri-state area is expected to become among the world’s largest legal cannabis markets once it is fully rolled out.

One state-sponsored study from 2018 found that New York would foster a market with more than a million users selling and consuming between 6.5 million and 10.2 million ounces of cannabis annually.

“At an average retail price of $270 per ounce, the market for marijuana is estimated to be approximately $1.7 billion; at $340 per ounce, the market is estimated to be approximately $3.5 billion,” the report says.

New York is planning to tax cannabis at 13 percent. Although liquor and tobacco have similarly high taxes in the state, observers in the cannabis industry worry that New York might snuff out its young legal cannabis industry with taxation.

That’s because unlike with tobacco and alcohol, there is already a thriving black and gray market that currently fulfills that $1.7 billion to $3.5 billion in demand. 

The state’s current tax scheme doesn’t follow that 2018 report: “We recommend that the state begin with low taxation (e.g. between 7 and 10 percent).”

A founding partner of Mr. Cannabis Law, a law firm focusing on the cannabis and psychedelic industries, agrees with the assertion that New York may need lower taxes if it wants to outcompete the black market.

“If New York truly wants to create jobs and a robust legal market, it will need to reduce taxes, provide entry points for black market participants, and educate the public on the value of consuming third-party tested legal product,” Dustin Robinson said.

He said the problem isn’t only taxes, pointing to licensing and applications to operate in the cannabis industry in the state.

Currently only “eligible hemp growers” can apply for licenses to grow cannabis in New York, meaning that if you were not growing hemp prior to legalization in the state you must wait for regulators to solidify the application process.

New York’s Office of Cannabis Management, which regulates the state’s medical and recreational cannabis industries, has posted “Proposed Adult-Use Conditional Retail Dispensary Regulations” online. 

Eleven pages of the proposed regulations are dedicated to listing information that the state plans to require in the application for a license. They are fairly comparable to those required by other states, according to Mr. Sick.

Some proposed requirements include years of audited financial statements, personal financial information, the resumes of people who will be involved with the business, and a $2,000 non-refundable application fee.

The difficulty and expense of navigating the process could put the idea of starting a cannabis business out of reach for most ordinary people or push operators to continue in the black or gray market.

A study published in the Journal of Rural Studies in 2021 found that about a third of cannabis growers in California continued to operate in the black or gray market a full five years after recreational cannabis was legalized in the state.

The reasons why operators chose to circumnavigate regulation vary, but researchers pointed to financial, administrative, and psychological barriers as the chief reasons people chose to not comply with regulations.

The authors said these barriers “disproportionately affect farmers with fewer resources” and recommended “policy efforts to mitigate the administrative burdens of compliance, such as streamlining permitting processes, extending agricultural support services, and supporting farmer collectives.”

New York State will be receiving comments from the public on the proposed regulations until May 31, so residents still have time to try to convince the state to heed such recommendations.