Hochul’s cannabis conundrum: Stronger action, but greater political risk

NEW YORK — New York Gov. Kathy Hochul is finally weighing in on the state's troubled cannabis market rollout — and she’s not happy. 

In recent weeks, Hochul has criticized her own administration for the slow pace of dispensary openings and the proliferation of the illicit market. And she signaled changes could be coming to the state cannabis office.

"I’m not satisfied,” Hochul told reporters in Syracuse earlier this month. “I want more enforcement. I am looking at leadership; I’m looking at opportunities to make major changes.”

Hochul has already stepped up her involvement. The governor has hired a new staffer to focus on cannabis, foreshadowed further cannabis leadership and enforcement changes and pushed the Cannabis Control Board to cancel its January meeting.

The harsh criticism from the governor's office could portend some bigger changes to what could be one of the largest legal recreational cannabis markets in the country. But she also faces political risks if she can't turn around the troubled state agency and alleviate growing displeasure in the industry over the slow pace of the market rollout.

While Hochul has sought to cast some of the blame on her predecessor, she appointed the state's top cannabis officials after former Gov Andrew Cuomo’s resignation.

New York is already home to a multibillion dollar cannabis market, but the vast majority of cannabis sales are illicit. Currently, 56 legal cannabis dispensaries are open in all of New York.

That’s far different from what Hochul predicted.

In October 2022, she vowed New York would have 20 dispensaries open by the end of that year, and then be on pace to have 20 new dispensaries open every month.

If the state stuck with Hochul's original timeline, there would be 280 dispensaries open by now — or 220 if you factor in a three-month court-ordered injunction on dispensary openings.

"There are promises being made that aren’t being kept," said Kaelen Castetter, managing director of the industry lobbying firm Castetter Cannabis Group.

While officials are quick to blame the courts for the slow rollout of regulated stores — the state has been sued at least 10 times, and the licensing process has twice been held up by injunctions — that’s far from the only issue.

“The advocacy efforts of different constituencies within cannabis and the local municipalities concerned about the number of illicit stores has reached the governor's desk,” said state Sen. Jeremy Cooney, chair of the chamber's cannabis subcommittee. “She is personally now involved and invested in making sure we do things better.”

Hochul’s office would not say what changes are coming — like who may soon be out of a job or who could join the ranks — but the governor made her desire for new leadership clear.

Meanwhile, municipal officials are also fed up with the boom in illicit marijuana stores in their communities.

The number of unregulated cannabis sellers in New York City Councilmember Gail Brewer's district continues to grow, despite her efforts to combat the problem. There are now about 70, including one particularly problematic one that is near four high schools.

"It makes me crazy," Brewer said. "The state did do a raid and put a sticker [on the storefront]."

The next day, the store opened back up for business. Brewer called the cops to implore them to do something, but the store is still open and serving customers under 21. Enforcement agencies need to do three buys before escalating enforcement.

"I'm now trying to get more buys," Brewer said. "I’m so frustrated."

Cannabis business owners are also feeling aggrieved.

Growers are sitting on old harvests and are struggling to sell their crops and plan for the future amid a lack of retail dispensaries.

Processors are feeling the twinge of the state's onerous THC potency tax. And retailers are finding it difficult to compete with the legions of unlicensed smoke shops that don't have to adhere to the state's costly regulatory requirements.

"The news that has been coming out [about cannabis] … it’s always bad news," Castetter said.

Advocates and lobbyists who work with cannabis entrepreneurs have differing opinions on how Hochul could best address the market rollout.

But there is one thing that pretty much everyone agrees on: The Office of Cannabis Management needs to do a better job of communicating with entrepreneurs.

A case in point: Entrepreneurs were recently confused about the date of the next Cannabis Control Board meeting. After receiving an email from the OCM about the February date, they were surprised to hear the executive director tell a local news outlet that the meeting had yet to be scheduled.

The scheduling of the highly anticipated February meeting comes after Hochul requested that the CCB cancel its January meeting.

She told reporters she was expecting 400 licenses to be up for consideration and was unhappy that only three dispensary licenses were scheduled to be approved. That marked the first time Hochul intervened in the implementation of the cannabis law in such a concrete way.

Regulators are now slated to meet Feb. 16 to approve cannabis business licenses for entrepreneurs who applied in the state's first general round of licensing. More than 100 licenses are up for approval, including nearly 40 dispensaries. Before the general application period, only entrepreneurs with a past cannabis conviction or an immediate family member with a past conviction could have applied for a dispensary license.

Infighting among cannabis regulators broke into public view during a December CCB meeting where officials became visibly heated, argued and talked over each other.

"It was embarrassing," Castetter said.

In December, Hochul hired Chelsea Davis as the chamber's first-ever staffer to focus exclusively on cannabis. Davis has a background in public health, criminal justice policy and New York City government.

The governor is also eyeing changes to enforcement in an effort to crack down on illegal cannabis sellers, according to Assembly Majority Leader Crystal Peoples-Stokes, the sponsor of the original legislation to legalize cannabis in New York.

“I won’t disagree with the governor that the legislation needs some tweaking on a number of issues,” Peoples-Stokes, a Buffalo Democrat, said Tuesday on an episode of WCNY'S "The Capitol Pressroom."

“There’s going to be some recommendations this year that would add some additional enforcement language. … We’ll have to find the right kind of language to be able to get these illicit businesses shut down.”

Industry advocates largely agree that Hochul has an opportunity to turn the cannabis program around. The governor has already proposed to reform the state's THC potency tax, which Castetter described as a "huge step."

That reform would relieve the tax burden on processors, who turn cannabis into products like pre-rolls or edibles, which can be upward of 60 percent depending on the potency of the product.

Joe Rossi, who leads the cannabis practice at lobbying firm Park Strategies, recounted a recent tour of a large processor in New York that just laid off 50 staffers.

For cultivators and processors that are struggling financially, their biggest mistake was believing that they were told by government officials on how the market would be rolled out.

"The regulators are just making stuff up as they go along and it’s having a consequential effect on people’s lives," Rossi said. "[Hochul] is the only person in New York state that can fix it."