On the corner of Allen and Stanton Streets in New York City's Lower East Side sits Empire Cannabis Club, a dispensary where anyone 21 and older can purchase cannabis.
"We're a fully-stocked cannabis dispensary. We carry flower, naturally on both sides of the aisle. So if you like sativas, indicas, hybrids — we carry everything. We carry a full stock of edibles, as well as pre-rolls and [cartridges] and vapes," said Empire Cannabis Clubs co-founder Julio Brinez. 
Membership fees of $15 daily or $35 monthly are required and members can purchase cannabis at cost "with loads of perks," co-founder Lenore Elfand added. Empire Cannabis Clubs also operates a location in Manhattan's Chelsea neighborhood and plans to celebrate the grand opening of a third location in Williamsburg, Brooklyn, on Sunday, according to Steve Zissou, attorney for the business.
The catch is: cannabis sales are not yet legal in New York. Cannabis possession and use are allowed in the Empire State following the passage of the Marijuana Regulation and Taxation Act (MRTA) in 2021, but regulators have not yet issued licenses for retail sales. On Thursday, New York's Cannabis Control Board approved regulations for conditional adult use retail dispensary licenses and approved what the application for these licenses will look like. Regulators say that puts the state on track to begin accepting applications later this summer and to kick off sales before the end of 2022. Those first licenses will be awarded to individuals most impacted by enforcement of cannabis prohibition and who also have strong business backgrounds.
That hasn't stopped would-be cannabis entrepreneurs from getting started. Since New York legalized adult-use cannabis, unlicensed businesses have popped up all around New York City and state. In many cases, they justify operations through practices like gifting. According to the MRTA, transferring up to three ounces of cannabis flower or 24 grams of concentrate is permissible among adults 21 and older, so long as there is no compensation involved. Some businesses have taken that to heart, selling nominal goods or services or accepting donations, and then offering cannabis for free on the side.
In the case of Empire Cannabis Clubs, the business is structured as a nonprofit, which according to Zissou, means it's all above board.
"What the legislature did is changed, fundamentally and hopefully for all time, the definition of a sale and included an essential element of compensation. And that is where, frankly, the idea of a non-for-profit cannabis dispensary came up," he said.
But regulators say neither these so-called loopholes, nor the businesses using them, are legitimate.

Not Quite Legal Yet

"The sale of cannabis at this time is illegal in New York," Tremaine Wright, chair of New York's Office of Cannabis Management, told Cheddar News. "Even if your organization, your entity is structured as a not-for-profit, it does not matter. You are still embarking upon illegal activity."
Legal experts agree.
"I don't think anyone's trying to break the law. I do think people believe that this is a loophole or a workaround. So I'm not implying any bad intent on their part. But it is risky," said William Bogot, co-chair of the cannabis law practice at Fox Rothschild.
Now regulators are taking action. As of July 7, New York's Office of Cannabis Management sent cease and desist letters to 52 businesses across the state, including Empire Cannabis Clubs. If they continue to operate, Wright said in a statement they could face "substantial fines and possible criminal penalties" or even reduce their odds of obtaining a license in the legal market. 
Wright told Cheddar News that regulators "really want folks to stop the sales and to wait for licensing so that they can join our legal market."
But Elfand and Brinez don't think waiting is an option. They worry that if they don't jump into the market early, they won't get a chance to compete, especially against cannabis companies that already operate in New York's medical market. 
Lawmakers wrote certain provisions into the MRTA that discourage anti-competitive behaviors, but there are some key exceptions that critics say could give big companies an unfair advantage. Existing medical marijuana operators in the state, for example, can remain vertically integrated. Many of the 10 medical marijuana operators in New York who stand to benefit from this exception are among the biggest names in U.S. cannabis like Acreage Holdings, Columbia Care, Cresco Labs, Curaleaf, and Green Thumb Industries, among others. Although as Wright told Cheddar News, medical operators "have not been afforded an opportunity to enter into adult-use, therefore they're waiting in line like any and every other potential licensee."
"This is our city, and we are not willing to allow them to take over. And that's exactly what's happening. And so we're taking our stand," Elfand said.

Challenges to Creating Equitable Opportunities

As cannabis legalization has taken hold nationwide, there has been an increased focus on the legacy of punitive drug policies and repairing the disproportionate damages they have wrought on vulnerable groups, like low-income or communities of color. When New York's MRTA passed, it was praised as ambitious and equitable, due to measures that seek to lower barriers to entry to the industry and allocate tax revenue for reinvestment in impacted communities. Part of this is an effort to give individuals who have cannabis convictions in New York state or who have immediate family with these convictions first crack at cannabis retail licenses. 
The Cannabis Control Board approved regulations on Thursday requiring the first 100-200 conditional adult-use retail dispensary licenses to go to individuals who were convicted of cannabis-related offenses in New York state before the MRTA passed — or who have immediate family with convictions. They must also be able to demonstrate ownership of or ownership interest in a business that made a net profit for at least two years.
Brinez as well as Elfand's brothers and father all have federal convictions that wouldn't qualify them for this advantage under the proposed regulations.
Vladimir Bautista and Ramon Reyes are co-founders of Happy Munkey, a legacy cannabis operation looking to go legit. They echoed concerns voiced by Elfand and Brinez that individuals who have been disproportionately impacted by harsh drug laws in the past might get boxed out of the new industry in spite of the intentions of regulators to include them.
"Most people that have been in the legacy market probably don't have a legal business that was profitable for two years," said Reyes, who is also the creative director of Happy Munkey. "Even though people might think that they're creating entry points, it's kind of creating moats, not bridges for people to cross over."
Happy Munkey operated as a cannabis speakeasy in New York City before shuttering operations amid the pandemic and pivoting to become a lifestyle brand. Bautista and Reyes have become advocates for the inclusion of legacy operators — or businesses that kicked off before cannabis was legalized — into the legal market, even as they seek out a legal license of their own.
"Part of our fight right now is to make sure that the barriers of entry for people that want to cross over from legacy to legal be as low as possible," said Bautista, Happy Munkey CEO. 

Reining in the Gray Market

Experts say it's in the state's interest to include legacy and unlicensed operators. If New York state authorities can't rein them in, experts warn of an entrenched illicit market that could undermine legal sales and tax revenue, which is intended for everything from public schools and health education to drug treatment and the state's equity program.
"I think a lot of these people want to apply and they want to be bonafide licensees selling cannabis. And if they are denied, then of course, they will be pushed from the gray market to the black market," Fox Rothschild's Bogot said.
Beyond risks to sales, there are health and safety risks to purchasing unregulated cannabis, too. Regulated markets require rigorous testing, but unregulated cannabis isn't subject to the same health and safety standards. Sometimes this can have disastrous consequences. In late 2019 and early 2020, for example, 2,807 people were hospitalized including 68 who died from e-cigarette or vaping product use-associated lung injury (EVALI). The Centers for Disease Control traced these illnesses to illicit market THC vapes that had been cut with additives like Vitamin E acetate.
There are no regulators yet overseeing the certificate of analysis process for adult-use products. Empire Cannabis Clubs said it still confirms the authenticity of its products, though. Regardless, customers at Empire Cannabis Clubs don't seem particularly fazed, especially after years of purchasing cannabis from illicit operators.
"It doesn't concern me. Also, I've bought worse from less. So I feel like it's … clean weed," said Empire Cannabis Clubs customer Mikael MacIntyre.
As for Elfand and Brinez, they have no plans to cease operations for now. 
"If we're operating the way we believe under the law [to be] 100 percent legal, then, no matter what happens with the license, they're gonna have to figure it out, not us," Brinez said. "It's going to be a long battle."