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Ellis Soodak opened Verdi, the first legal adult-use dispensary in Manhattan’s Chelsea neighborhood, about a month and a half ago. Already, he’s grappling with a regulatory issue that he believes could destroy businesses: advertising and marketing restrictions.
“We are really struggling to break even. I know for a fact that there are several stores that are really hurting,” Soodak said. “We’re being set up to fail, 100 percent.”
New York’s Cannabis Control Board finalized regulations that govern the state’s legal cannabis industry in September, including rules for how weed businesses are and are not allowed to advertise their products and stores. The rules prevent dispensaries from buying billboard ads, and stop all companies from using marketing techniques that could be attractive to children.
Business owners and prospective licensees in the Empire State’s cannabis industry have been criticizing the Office of Cannabis Management’s rules for advertising as overly broad and stringent since they were first proposed at a CCB meeting in 2022. Now that an increasing number of dispensaries are opening across the state, store owners are saying they’re prohibited from doing basic advertising, and potential customers don’t even know they exist.
“It’s an existential thing,” Soodak told NY Cannabis Insider. “The fact of the matter is: unless the government does something very significant in the next few months, we are going to see stores close.”
Current regulations allow dispensaries to display their name outside their storefronts, but prevent them from using logos or images there. Additionally, all legal dispensaries are given a 10-inch OCM placard with a QR code that confirms the store is a licensed shop. Dispensaries – and other types of weed businesses – may only advertise in venues where at least 90% of people are over 21. Dispensaries may not offer discounts or customer loyalty programs.
These rules make it extremely difficult to attract and retain customers, and even make it hard to indicate to passersby that the store sells weed, said Coss Marte, a co-founder of CONBUD dispensary in Manhattan’s Lower East Side.
“A lot of licensees, they’re expecting to open a dispensary and have a line around the corner – but the reality is you open a dispensary and nobody knows about it,” Marte said.
CONBUD is surrounded by unlicensed shops with large lit-up signage including pot leaves and product displays that are visible from the street – all of which can draw in customers, and all of which OCM regulations prevent licensed shops from using, Marte said.
By contrast, CONBUD can’t place a sandwich board in front of the store to indicate that it’s the first legal dispensary in the neighborhood. In fact, Marte said, the regulations are so strict that CONBUD is allowed to display the phrase: “adult-use dispensary,” but they may not display it in languages other than English; a problematic rule for CONBUD, which is located in a neighborhood where many residents’ primary language is Spanish or Chinese.
CONBUD, which has been featured in major media outlets for years, is currently earning enough revenue to do a little better than break even, Marte said. Considering the name recognition CONBUD has garnered, Marte said he thinks the store would be getting more customers if it could use more signage, and offer customer loyalty plans like many of the illicit shops currently do.
“I have so much PR, so much push out there, and I’m still just scratching the surface. Imagine how it is for those who just opened up,” Marte said. “Due to these regulations, I think a lot of these businesses that are opening will crash and burn, and it’s sad.”
The owner of Buffalo’s first dispensary, Dank 716, is also concerned with the restrictions marketing regulations have placed on retailers, and the effect they could have on emerging businesses.
Aaron Van Camp said his store received a lot of publicity because it was the first legal shop to open in Buffalo. But newer stores aren’t receiving the same amount of coverage, and they’re not allowed to get their names out there via traditional media like billboards and radio ads.
“Stores are opening, and people don’t know they’re there,” Van Camp said. “We’re still getting business at our store from areas where people could find a closer location; they just don’t know that [a new dispensary is] there yet.”
Dispensaries engage in marketing on social media, Van Camp said, but it’s not a very effective way of activating new customers. Customers who shop at dispensaries are unlikely to frequent social media channels that feature a lot of cannabis content, and those who do visit those sites are pretty likely to already know where to buy weed, Van Camp said.
One silver lining, Van Camp said, is the OCM hasn’t been very strict about enforcing minor violations of the regulations.
“Right now, I think they’re being very lenient on these issues … if you want to go and do something, they’re leaving that alone,” Van Camp said. “They’re learning to let some things go, and attack bigger things.”
Other shops have got the same impression, and both Marte and Soodak told NY Cannabis Insider they pass out flyers to adults, even though that’s against the rules.
But the OCM’s leniency enforcing the rules doesn’t affect what Soodak believes is the largest problem when it comes to advertising in a way that competes with unlicensed shops: Google searches.
As problematic as it is that licensed shops have to abide by strict rules for their storefronts and cannot engage in many types of traditional advertising, a larger problem for stores in New York City is that Google search results regularly point people to illegal stores, Soodak said.
Some of the unlicensed stores opened soon after cannabis became legal in early 2021 and have over 1,000 customer reviews, which has given them a huge advantage over legal shops – most of which are less than a year old – when it comes to search engine optimization.
“The elephant in the room is there are dozens upon dozens of unlicensed stores competing with every licensed dispensary,” Soodak said. “They’re allowed to advertise in ways that we’re not able to do, and they’re on Google Maps, they’re on Apple Maps, and they’ve been on these maps for longer than we have.”
Soodak believes that New York state officials should begin issuing fines to tech companies that platform illicit dispensaries. He said he thinks it could be near impossible for newer legal dispensaries in New York City to compete with unlicensed stores without a solution to the search engine issue.
He’s not the only one who believes the state should step in to address tech companies platforming unlicensed cannabis shops in New York.
Five New York-based cannabis business organizations – Service Disabled Veterans in Cannabis Association, NY Cannabis Retailers Association, Long Island Cannabis Coalition, Minorities for Medical Marijuana, National Hispanic Cannabis Council Tristate Chapter – wrote a letter to Gov. Kathy Hochul this week, urging her to take action.
“We urge you to take immediate action to address this issue by engaging with the State
Attorney General to initiate a lawsuit that sends a strong message to these main social media platforms to require them to remove unlicensed cannabis stores with-in the confines of New York State from their platforms, restoring trust and accountability,” the letter, dated Feb. 26, said.
Paula Collins, a tax attorney who has represented licensed cannabis clients as well as unlicensed operators, said she believes state officials should focus on loosening advertising restrictions, rather than going after tech companies. While it may seem like a good idea now, Collins said, taking such action could lead to licensed stores getting barred from Google searches alongside unlicensed operators.
Collins said things would improve significantly if legal dispensaries could simply advertise on billboards, and have bright displays at their storefronts that look welcoming to potential customers.
“I think that we need to rethink the visibility of products from the street, because it makes the shops look dark and foreboding,” Collins said.
And the sooner that regulators establish more permissive marketing rules, the better, Collins said.
“On a scale of one to 10, I would put it at a 7,” Collins said of how seriously the marketing regulations are affecting licensed retailers’ businesses. “I’ve seen shops that are in high traffic areas, that … people are literally driving past, not knowing that they’re there.”