Black Markets

New York's Heavy Hand Keeps Illegal Marijuana and Tobacco Dealers in Business

High taxes and heavy regulations are as effective as prohibition at creating black markets.


While I have fond memories of life in New York, many of them involve defying some stupid rule or regulation. It's a pleasure to now live in Arizona where government, while still idiotic, generally has a lighter touch. Unfortunately for friends and family I left behind, Empire State officialdom still hasn't learned its lessons, as evidenced by the heavy regulatory hand stifling sort-of-legalized marijuana, and proposals to similarly reinforce the black market with an outright ban on cigarette sales.

"Governor Kathy Hochul today signed new legislation to increase civil and tax penalties for the unlicensed and illicit sale of cannabis in New York as part of the FY 2024 Budget," the New York governor's office announced this week. "The legislation, first proposed by the Governor in March, provides additional enforcement power to the Office of Cannabis Management and the Department of Taxation and Finance to enforce the new regulatory requirements and close stores engaged in the illegal sale of cannabis."

But Isn't Marijuana Legal?

News of a marijuana crackdown is a bit of a head-turner for a state that legalized the stuff in 2021. But the legislation intended to bring the booming underground market into the open was hobbled from day one. "New York's law…is surprisingly permissive in some respects but includes high taxes and other provisions that compromise the interests of consumers," Reason's Jacob Sullum warned at the time.

Last year, as taxes and regulations added up, and licenses were issued based on social justice grounds, it became increasingly obvious that the state was creating a "legal" market "so hobbled that it will offer uncompetitive prices to consumers and daunting barriers to vendors," as I noted in August.

Now, a bare handful of legal vendors operate across the state. They're somehow supposed to replace a thriving underground market that delivered high-quality weed to my door in the days of the beeper (after I quit the business myself) before further innovating. Unsurprisingly, the "unlicensed and illicit sale of cannabis" has been barely challenged by tax- and rule-hampered legal-ish competitors.

"New York legalized cannabis possession in small amounts in 2021," The Wall Street Journal's Zusha Elinson observed on April 28. "Two years later, just five shops sell marijuana legally in New York City, while 1,400 bodegas, smoke shops and other outlets without licenses do, according to an estimate by the city sheriff."

"Steep taxes and heavy regulation are making it hard for licensed pot sellers to operate in some states, driving more producers and buyers to illegal outlets," adds the story's subhed.

Failure to Learn From the Past

New York officials could have avoided the odd sight of a crackdown on illegal vendors of a legal product if they had learned from others' experience. For instance, they could have observed California's "high taxes and baffling regulation that have crushed small farmers [and] empowered a still-thriving black market for marijuana" as reported last summer by The Washington Post. Or, they could have read the 2018 marijuana-legalization impact assessment they commissioned which examined earlier efforts and cautioned that "some states had to lower their initial tax rate since a higher price did not incentivize consumers to move from the unregulated to the legal market."

New York officials might have learned from their own cigarette policies. Those so burdened tobacco with taxes and rules that they managed to (this sounds familiar!) hand the majority of the market for a legal product to illegal vendors.

"Nationwide, New York continues to have the greatest rate of cigarette smuggling, with smuggled cigarettes accounting for 53.5 percent of total cigarette consumption in the state," the Tax Foundation's Adam Hoffer reported in December 2022. "New York also has one of the highest state cigarette taxes ($4.35 per pack), not counting the additional local New York City cigarette tax ($1.50 per pack), yielding a combined rate of $5.85 per pack."

Eric Garner, let's not forget, was killed during an arrest by New York City cops on suspicion of selling loose cigarettes in violation of state tax laws.

Double-Down on Prohibition

That New York officials are as hooked on authoritarian policies as, well, nicotine fiends are to their smokes is evident from the fact that, instead of freeing the market for marijuana, the state government is considering applying prohibition policies that failed to curb cannabis consumption to cigarettes.

As Reason's Liz Wolfe recently noted, the state Health Department's Bureau of Tobacco Control has been sounding out lawmakers and community leaders. They were polled about their support for "a policy that would end the sale of all tobacco products in New York within 10 years" and "a policy that would ban the sale of all tobacco products to those born after a certain date" (already adopted in New Zealand).

This after the state of New York quasi-legalized marijuana because, as that 2018 impact assessment noted, "marijuana is easily accessible in the unregulated market… The status quo (i.e., criminalization of marijuana) has not curbed marijuana use and has, in fact, led to unintended consequences, such as the disproportionate criminalization and incarceration of certain racial and ethnic groups that has a negative impact on families and communities."

Of course, like outright prohibition, heavy regulation and taxation acted as a lifeline for the existing black market in marijuana and sparked the creation of a thriving illicit trade in nominally legal cigarettes. Yet somehow we're supposed to believe that prohibition will work this time despite a long history of failure in New York, California, and elsewhere. No way will a tobacco ban once again supercharge an innovative and adept underground industry, we're told, because…because…

This Time, Restrictions Still Won't Work

There's no "because." Government officials have yet to come up with a solution to the unwillingness of buyers and sellers to abide by expensive and inconvenient restrictions, let alone their repeated refusal to submit to explicit prohibitions. Creatures like Governor Hochul won't acknowledge reality even as they grudgingly sort-of-legalize a product that was widely consumed in defiance of earlier restrictions. Instead, they propose a new round of bans modeled on laws already proven impotent.

In truth, New York officials (who just added a dollar-per-pack to the cigarette tax) are only a little thicker-skulled in their dedication to control freakery than some of their counterparts elsewhere. Politics seems to attract people determined to coerce their neighbors and to be frustrated in the attempt, though the New York variety is especially stubborn in their pursuit of prohibition over and over again.

Then again, New Yorkers have learned to be stubborn too. No doubt, state residents will continue to make fond memories, as I once did, in defiance of stupid rules and regulations. They'll probably enjoy some cannabis or tobacco along the way.