The New York City Economy Tracker is a 🌱joint project between Investopedia and , using publicly available data to evaluate the economic he🌌alth of the city across a variety of metrics.

For the week of October 2, 2023, we’re﷽ looking at how sales for legal recreational cannabis in New York City are lagging behind other stat𓆏es.

NYC’s Cannabis Sales Lagging Behind Other States

New York’s first dispensary opened in December 2022, after recreational cannabis was legalized for adult use in March 2021, but sales in New York City and state are lagging behind other states that recently opened legal markets for adult-use.

Notably, legal dispensaries are only set to bring in about $12 per capita of taxable sales, according to budget data from New York state and city.

The number is far below the range of $36 to $83 received in the first full year of business by other states that have recently legalized recreational cannabis, such as Colorado, Washington, Oregon, California, and Massachusetts.

Cannabis Tax Revenue Not Set To Meet Projections

New York’s lackluster start compared to other states also means it currently isn’t on track to hit tax revenue projections the city has previously laid out. The city anticipates cannabis tax collections to increase from $12M dollars in FY ‘24 to $38M dollars in FY ‘27, according to the financial plan from the 2024 adopted NYC revenue budget.

This projection shows the overall cannabis sales market in NYC is relatively on par with sales figures from other states such as 🍷California, Washington, and Massachusetꦦts. 

However, when looking at the current rate of dispensaries that have opened since December 2022—about 1 per month—and the current rate of annual sales at each dispensary, the actual amount of tax revenue the state and city are slated to collect in coming years is far less. Based on the rate of current sales, the city is only on track to reach about $17.4M in cannabis tax revenue in FY ‘27, as opposed to $38M.

Ban On New Licenses, Robust Unlicensed Market Affecting NYC’s Cannabis Market

Why is New York selling so much less cannabis than other states? There are a few main reasons. First, New York state is one of the last states in the region to legalize recreational cannabis, with New Jersey, Connecticut, Massachusetts, and Vermont all having already established a legal market within the last five years. The only state that borders New York that has not legalized recreational cannabis is Pennsylvania. This means that New York will not benefit from a first mover&nb🍒sp;advantage and draw additional revenue to their cannabis market from out-of-state buyers.

Additionally, the state has been temporarily banned from issuing new recreational dispensary licenses, and businesses with current pending licenses must refrain from opening due to a lawsuit filed against the New York Office of Cannabis Management.

As of August 2023, only nine of the 358 businesses that have received recreational cannabis business licenses in NYC are currently open in the city.

Although it is unclear when, orꦇ if, the lawsuit blocking the development of the cannabis industry in the state and city will be resolved, every day that it continues to be in effect further decreases revenue expectations for the city.

Lastly, NYC already has a robust street and unlicensed cannabis market that currently operates in the city. Both of these markets are untaxed by city and state authorities, and are potentially eating into both revenue for the legal recreational market and tax revenue the city and state would collect on it. According to the NYC Sheriff's office there are anywhere from 1,500 to 2,000 unlicensed cannabis stores currently operating in the city.

Based on data from the NYC Sheriff’s office and product seized by law enforcement in the past year, these establishments hold an estimated $484M in cannabis product that the city is not collecting tax on.

Statewide, New York Governor Kathy Hochul has cited enforcement actions that have led to the seizure of more than 8,500 pounds of illicit product worth an estimated $42 million dollars.

The city government and the Manhattan DA have also said they will push landlords to evict tenants who are selling cannabis without a license,

Governor Kathy Hochul has also created a new partnership between the state’s Office of Cannabis Management and the New York Attorney General’s office to increase inspections and enforcement against illicit cannabis retailers.

However, it remains to be seen if increased enforcement against the unlicensed market will translate to growth for the legal recreational us🐼e market.