Social Justice Dooms Legal Pot Shops to Failure

Reading about the enthusiastic ganja-preneurs who scored the New York’s first recreational marijuana sales licenses, I couldn’t help feeling sorry for them. They don’t know how much the deck is stacked against them.

Appeals to social justice propelled legalization of recreational marijuana. The winning argument was that communities were harmed, not from drug use, but from incarceration during the War on Drugs. So, in order to right these wrongs, marijuana needed to be legalized and those arrested for drug offenses given reparations. New York’s law offered restitution by rushing cannabis criminals to the front of the line for the limited licenses to operate pot shops. 

However, for legal pot stores to survive, the illicit market needs to be closed. Given New York’s widespread illegal marijuana industry, such a crackdown would make the War on Drugs look like a spitball fight. In other words, to repair the harm of incarcerating people for selling drugs, more people will need to be incarcerated for selling drugs. Call it the Social Justice Paradox. And seeing as New York City tolerates open-air opioid sales, there is no chance that we will see mass arrests of undocumented marijuana vendors. Therefore, legal pot shops will fail.

Legal weed stores are not financially viable unless the illicit market is stopped. The newly minted pot shop owners will have to follow 282 pages of regulations, pay taxes, pay employees on the books, and jump through all the hoops that small businesspeople face. Meanwhile, the illegal market will thrive by offering product at lower prices. 

That’s not just a theory. Just look to the first jurisdictions that legalized weed. The black market is stronger than ever in Canada, California, Colorado, Oregon and elsewhere.

Opening pot shops is reminiscent of when the Off-Track Betting (OTB) started. New York legalized OTB in a bid to curb illegal bookmakers and provide tax revenue. In the long run, however, it accomplished neither. As a patient of mine—a former bookie—explained, “OTB increased my business.” He took bets right at the OTB parlor where he had access to the latest odds and results. Moreover, he had the advantage of taking bets on credit. 

OTB didn’t curb the illegal gambling market and it didn’t fare well financially either. New York City Off-Track Betting Corp. closed in December 2010 despite the efforts of the current Mayor—then, the State Senate Racing Committee Chairman—Eric Adams to rescue the failing business. Failure was blamed on the high rake taken by the State and competition from other larger gambling operations. Now, sports gambling flourishes, but larger national companies dominate.

Like with OTB, politicians predict that recreational marijuana sales will bring a tax windfall–$120 million per year on average over the first 6 years, said Governor Hochul. However, this rosy prediction doesn’t consider include the costs of legalization which include: the state’s contribution to a $200 million social equity fund for start up costs, administrative burden to manage the program, increases in drugged driving and traffic fatalities, as well as the costs of increased ER visits and hospitalizations from pot related illness such as cannabis-induced psychosis, schizophrenia and cannabis hyperemesis syndrome.

Pot shops will follow a similar trajectory as OTB. After an initial flurry of activity, they won’t be able to compete with unlicensed operators who ignore regulations and don’t pay government its 13% cut. And when marijuana is legalized federally, the small stores won’t be able be able to compete with large corporations. 

I can see history repeating itself. In a few years, New York City’s pot shop owners will end up asking Eric Adams to once again prop up an addiction for profit industry.  

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