NY clamps down on businesses offering marijuana as a 'gift'

While New York works on launching a legal market for recreational marijuana, some entrepreneurs have jumped into a legal gray area by saying they’re not selling pot but are giving it away while people buy something else

ByJENNIFER PELTZ Associated Press
February 9, 2022, 5:56 PM
FILE - Medical marijuana plants are shown during a media tour of the Curaleaf medical cannabis cultivation and processing facility, Aug. 22, 2019, in Ravena, N.Y. While New York works on launching a legal market for recreational marijuana, some entre
FILE - Medical marijuana plants are shown during a media tour of the Curaleaf medical cannabis cultivation and processing facility, Aug. 22, 2019, in Ravena, N.Y. While New York works on launching a legal market for recreational marijuana, some entrepreneurs have jumped into a legal gray area by saying they're not selling pot but giving it away while people buy something else. (AP Photo/Hans Pennink, File)
The Associated Press

NEW YORK -- While New York works on launching a legal market for recreational marijuana, some entrepreneurs have jumped into a legal gray area by saying they're not selling pot but giving it away while people buy something else.

Now, the state is saying they have jumped the gun and need to stop.

The Office of Cannabis Management said Tuesday it sent letters to more than two dozen enterprises it suspects of illegally selling weed, telling them to stop or face fines, potential criminal charges and risk to their prospects of getting a license once they are available.

“New York state is building a legal, regulated cannabis market that will ensure products are tested and safe for consumers” and will provide opportunities for people affected by the enforcement of now-scrapped marijuana laws, OCM Executive Director Chris Alexander said in a statement. “Illegal operations undermine our ability to do that.”

The agency wouldn't say what entities got letters. Messages were left with several businesses that have gone public about providing weed in what they have maintained is a legal way.

Hempsol CBD didn't get a letter, owner Jim Mackenzie said Wednesday, but his Rochester CBD shop nonetheless will stop offering a “gift” of marijuana to customers who buy a T-shirt or other garment.

Mackenzie said he believed the deal was legal. The state law that legalized recreational marijuana last spring doesn't discuss such “gifts” but does allow “transferring, without compensation” of small amounts of pot.

“But I'm going to do what the state wants because my goal is to have a state (marijuana) license,” said Mackenzie, who feels the state would be wiser to get to know businesses like his shop, where he prides himself on educating customers about the cannabis plant.

“It’s really in their best interest to work with the people who are actually trying to do it correctly and actually have knowledge in this industry,” he said.

Since March, it's been legal for adults in New York to possess and use small amounts of marijuana and “transfer” it for free, but the state hasn't yet issued licenses to sell it. The cannabis office is still working on rules for that.

In the meantime, some businesses started offering the drug as a “gift” to people who make what's described as a donation or who buy art or some other item. Others say they're clubs that acquire cannabis and provide their paying members with access to it.

To the state cannabis office, illegal sales “include so-called ‘gifting’ where consumers purchase non-cannabis items or services, such as a membership in a club, and are then provided cannabis as part of the sale,” according to a sample warning letter that the agency released.

The letter, which tells recipients to stop “illegal activity” immediately, comes after state Cannabis Control Board Chair Tremaine Wright warned in October of “severe financial penalties” for pot “gifting” connected to sales of other goods and services.

No such letter has arrived at Happy Munkey, a New York City-based business that has put on “bring your own” cannabis-themed events where goodie bags included a joint, spokesperson Stu Zakim said. He says that's not “gifting” tied to a purchase, but rather “doing what any sponsor does — provide a goodie bag to give away their product to help influence people.”

While the cannabis agency's action might not affect Happy Munkey, Zakim called it “offensive and insulting.” He said it would turn established underground sellers off the idea of engaging in the coming legal market, rather than continuing unlicensed, untaxed sales.

New York is expected to become one of the biggest U.S. legal marijuana markets, and making a name in it early is a big attraction to many entrepreneurs who have already waited almost a year since the legalization measure passed.

“There’s obvious frustration because people are so excited about this,” says Buffalo-based cannabis business lawyer Joseph Shafer, but “short-term gain in the gray-market period could ultimately cost long-term success in the legal market.”

“Gifting" and other arrangements have also cropped up, and sometimes faced crackdowns, in some other states when they legalized marijuana but hadn't yet licensed growers and shops.

New Jersey issued stop-it-or-else warning letters in June to four businesses, saying their pot “gifts” were really sales. Last week, authorities raided several shops and a warehouse associated with a different business and arrested the owners and three other people, the Bergen County prosecutor's office said.

——— Associated Press writer Marina Villeneuve contributed from Albany. Follow the AP’s complete marijuana coverage: https://apnews.com/Marijuana.

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