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New York’s Massive Cannabis Gray Market Could Cost The State $2.6 Billion In Lost Taxes

According to a new report, with only 4 licensed cannabis dispensaries in the Empire State and more than 1,400 unlicensed pot shops, the Wild West of Weed will lose billions in revenue if it doesn’t stop the lawlessness soon.

If New York doesn’t tame its Wild West of Weed, unlicensed cannabis dispensaries and illegal marijuana sales could siphon $1 billion a year from the legal market through 2030. That translates to some $2.6 billion in tax revenue over the next seven years, according to a new report exclusively obtained by Forbes.

While the numbers appear sound—according to analysts contacted by Forbes—the report is not completely unbiased. It was prepared by research and policy advisory firm MPG Consulting and commissioned by cannabis company Acreage Holdings, which has 23 dispensaries across nine states, including 3 medical dispensaries in New York. The report suggests that New York State’s slow rollout of licensed recreational dispensaries—there are only 4 state-regulated stores, 3 of which are in Manhattan, to serve the state’s 19 million residents—and proposed rules that will prevent multistate operators (MSOs) like Acreage from entering the adult-use market for three years—is hamstringing the legal industry and strengthening the state’s ubiquitous gray market for cannabis.

New York, which opened its first licensed recreational dispensary in December 2022, is expected to become the country’s second-largest marijuana market after California, with legal sales projected to reach $4.2 billion in five years and more than $6 billion by 2030. But with the glacially slow rollout of the legal market and the strength of the unlicensed market, analysts can’t project when New York will actually hit these numbers.

Matthew McGinley, an analyst who covers cannabis at Needham & Co., believes the report’s findings are accurate and portend future losses. “The regulators have created a thriving cannabis market for illicit sales, not legal sales,” says McGinley. “What they seem to have ignored are the basic economics of operating a state-regulated cannabis business. I would say regulators failed to launch this program.”

New York’s lackluster medical marijuana program, which launched in 2016, is also disappointing—there are 40 licensed medical dispensaries that sold an estimated $168 million worth of cannabis last year, down 0.5% from 2021. Compared to Florida, New York’s medical program is a joke. Florida launched medical marijuana sales in 2016 and currently has 545 dispensaries that sold $2 billion worth of weed in 2022, a 25% increase from 2021.

“After you bust them, within two days, they’re back up and running,” says New York City Councilwoman Gale Brewer. “I’ve never seen anything like it.”

Unlike many other states that have legalized recreational cannabis and left businesses to operate in a free market, New York is attempting something different. The state, which legalized recreational marijuana in March 2021, is trying to foster an industry devoted to social equity with the goal of righting