Happy fifth birthday, legal New York weed.
The Marihuana Regulation and Taxation Act — which ushered in legal cannabis to the Empire State — passed five years ago Tuesday.
The law aimed big, envisioning a market that could uplift the very people that cannabis prohibition harmed, turning those incarcerated for marijuana offenses into successful entrepreneurs.
But New York’s legal market has been beset by delays, lawsuits and leadership turnover as the state attempts to implement the lofty goals set out in the legalization law. Many entrepreneurs that the state law aimed to help have sunk their life savings into starting businesses, only to complain that they're being hampered by red tape. Others who have opened up shop find themselves struggling to compete with unregulated sellers.
The Office of Cannabis Management's new acting executive director, John Kagia, is taking the helm with support from state officials and all corners of the industry. Kagia has been at the agency almost since its inception, joining as director of policy in September 2022. Before that, he spent more than seven years at the cannabis analytics firm New Frontier Data.
Now, he takes charge of the agency as the market matures, hitting $3 billion in sales this month.
“We're no longer in the startup mode," Kagia said.
POLITICO sat down with Kagia at OCM’s offices in Lower Manhattan to talk about how he'll approach his new job, the challenges of combating the illicit market and what keeps him up at night (hint: supply and demand). He also discussed a recent New York Times' op-ed that had the cannabis policy world up in arms, after it argued that states had gone too far in embracing legal weed and conflated highly regulated state markets with unscrupulous sellers on the illicit market.
Kagia also takes the helm amid potential major shifts in federal cannabis policy, with President Donald Trump directing his administration to change the federal classification of marijuana, a looming ban on cannabinoid hemp products and a pilot program that would cover CBD products under Medicare.
"These big, sweeping changes that are happening in federal policy could have really meaningful implications for our state market," Kagia said.
This interview has been edited for length and clarity.
What are the highlights of the first five years?
We're celebrating the opening of our 600th store, which is an incredible number to have gotten to. It feels like such a powerful number [because] we remember the days when we were at 10 stores, 15 stores, when the cultivators were complaining that they were very concerned that we didn't have enough retail.
One of the complaints was that the legal market was uncompetitively expensive relative to the unregulated market. That's certainly not true anymore. There was a lot of criticism about the quality of the product, and now the pendulum has swung hard. We're seeing some extraordinarily high quality product available in the market. There's a lot more consumers who, when you think about buying cannabis, they think about buying legal cannabis.
The OCM has gone through a lot as a nascent agency that had to launch a market and deal with lawsuits. There's been all this turnover in leadership. How will you approach your new role going forward? How will you right the ship, so to speak?
I may push back on the question of righting the ship, because that suggests the ship has capsized. I certainly don't think that's what our situation is. We have built both an agency and an industry literally out of whole cloth.
Folks seem to forget that none of this existed five years ago; the industry didn't exist three years ago. There's been an incredible amount of work done to build infrastructure to support this market that was done incredibly quickly with very limited resources and very aggressive timescales.
We were always going to evolve out of the startup mode into becoming a more formalized bureaucracy. We've built most of that infrastructure now. So now it's about execution and stabilization.
I'm not here to upset the apple cart. I think we're doing phenomenal work, and I think we have a well defined set of priorities. What I am going to be focused on is how to optimize the work that we're doing.
A really big project that we actually currently have underway where we've opened up our entire regulations package, and we're open to and welcoming suggestions, recommendations, proposals for changes to the regs to try and improve our oversight of the market and to improve the experience for our licensees.
A recurring theme I've heard in public comment is that a lot of licensees seem to have trouble communicating with the office. In your efforts to improve this, what are the pain points? Do you need more resources?
Resources have been a perennial challenge for the office. We've done an incredible job with the resources that we have. We're just over 260 employees governing a $3 billion industry with 2,000 licensees, 7,000 applicants, running programs across 14 different areas of this industry.
Once you start kind of thinking about individuals being assigned to each of those lanes, that 260 gets spread pretty thin pretty quickly.
I've been very heartened by the commitment by the governor's office to continue to support the agency, to grow our capacity as industry grows around us.
Licensing is one area where we have been quite resource-constrained. We put together the single point of contact so that every applicant or licensee, once we have begun to work on your file, then you have a single point of contact to who will be handling your case file through the licensing process. The communications with the office is one of the areas where we're going to be looking at as we talk about trying to improve the efficiency of our processes.
I'm curious for your approach on how to manage the whole balance of supply and demand and not wanting a big boom and bust cycle like we've seen in a lot of other states.
This is one of the things that has kept me up at night for much of the last three years. We've certainly seen what has happened in other jurisdictions, and plotted some data where we looked at the average price of cannabis in some of the more mature markets – Colorado, Michigan, Massachusetts. We're seeing that it took different amounts of time in these other markets, but somewhere between the five- and 10-year mark, the average price of a pound of cannabis fell between 65 and 75 percent. That sort of price compression is massively destabilizing for the industry, and it becomes a spiral that becomes very difficult to pull out of.
We've been really focused on this question of: How do we ensure that we have adequate supply to meet the needs of the market as it currently is, and as it grows? But how do we ensure that we're also not over building in a way that results in all of the negative outcomes from having too much capacity?
The board has been very well aligned on this idea of a stoplight model, where [they] issue capacity to meet anticipated need. Pause, assess how the market is behaving, assess the health of the market, and then make a data-driven decision about what the next date [for issuing licenses] is going to be.
How does this intersect with how you view the illicit market in your efforts to combat that?
For most consumers, the legal market does not need to be at price parity with the illegal market. Consumers have clearly demonstrated that if the delta between the legal and the unregulated market pricing is close, then the legal market can win out.
We have got to continue to prioritize enforcement against the unregulated stores in New York. They're undermining the legal market, and they're a very visible public health and public safety risk.
The best antidote to the unregulated market is setting up an efficient, effective, competitive, legal market, while also aggressively continuing our enforcement actions against the unregulated market. You need both of those to be happening simultaneously, coupled with a lot of consumer education to help them understand the distinction between the two.
New York has prioritized justice-impacted entrepreneurs, social equity entrepreneurs. For those who already have licenses, to what extent do you think the state has a responsibility to those entrepreneurs, for them to succeed, versus their own abilities as an entrepreneur?
It's a really important question, and it's actually a question we discuss and debate internally. What are the bounds of the office’s authority and mandate here? Where does the office’s responsibility end and the licensees responsibility begin?
New York was always intended to be a very competitive market. There was perhaps an era in cannabis where you could take the approach of — if you build it, they will come. Some of the early builders in Colorado's market who started their first dispensaries with three jars of cannabis and one lamp in a dimly lit store — they built empires. That season is long, long gone.
The office does have real responsibility to ensure that everyone understands the rules and that the rules are being applied uniformly. We're providing the support, the technical assistance to help folks bridge what is a challenging both financial market and a challenging regulatory environment.
Where the question becomes more challenging is whether we are responsible to guarantee the success of these licenses. I would say to anyone who is currently licensed, you have to bring your A game.
One easy example: We've been operational for about three years now. As an industry, we've seen our average price fall about 20 percent, less than many other jurisdictions, but it's indicative of where things are going. If you assume the dollars that you were making on day one were going to be the dollars you were going to be making on year three and going to be the same dollars you make in year six, then I think you're not thinking correctly about the trajectory of this market.
When will we have consumption lounges?
*Laughs*
We certainly understand the interest in consumption lounges, and it's an issue that we are very committed to trying to figure out the solution for. But some of the issues are intractable. There's real issues related to public health and public safety, and particularly the health and safety of the personnel working inside these facilities.
New York City in particular, has this Clean Indoor Air Act that has a blanket prohibition on combustion. It also applies to some outdoor spaces.
Looking at the continuum of how an environment for edibles might work, on one end of the spectrum, the option to order a cannabis-infused pizza. The other is that you're ordering a pizza and you have a cannabis-infused sauce that you can drizzle on it and dose it. Even there, there's issues that we need to solve for. There's real concern on the public health side: if the pizza is being cooked as an infused product, how do you guarantee that the dosing is consistent throughout?
On the other hand, if you're just ordering a pizza and then you're getting some dosed sriracha sauce, what are the protocols for selling what is essentially a packaged cannabis product in that establishment?
We recognize that there's an intense amount of interest in the consumption experience. We are trying to balance these tensions between a consumer economy that's really interested in this and our obligations to protect public health and safety and build a regulatory structure that we actually can have the ability to govern. I'm hopeful that we'll be able to make some inroads this year, but I want to set expectations that I don't think we're going to be launching a consumption license in 2026.
What did you think of that New York Times op-ed?
In the context of the states being laboratories of democracy, it's healthy to be having a debate about the form and function of legalization. Has it achieved what we had anticipated, are these programs working the way we had intended and what can be improved?
It feels premature to judge legalization as an exercise when there's still so much that remains unresolved. We sometimes lose sight of the fact that we are still operating essentially illegally under federal law. We're judging individual state outcomes based on market models that are not reflective of how this would have evolved had it happened in an ecosystem where you weren't facing all of the structural barriers that come from it being illegal at the federal level.
We also sometimes seem to lose sight of the reality that legalization isn't creating a new market, it is serving a very large base of existing consumers, trying to give them a safer option. Our public health team just shared this stat with me, and it just always blows me away: The number of New Yorkers who consume cannabis daily or near daily is the same as the number of New Yorkers who buy coffee from a coffee shop daily or near daily, 1.2 plus million people.
We have 2.2 to 2.4 million New Yorkers who consume cannabis at least once a month. That's over 10 percent of our population.
There's a lot more growth and innovation that needs to happen. There's a lot more public health and public education work that needs to happen. There's an incredible amount of scientific research that still needs to happen. But as we think about relative harms and outcomes, I would be concerned that some of the stigma that has long kind of haunted this industry may be influencing the way folks are looking at market outcomes without full consideration of the context.
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