Monday, February 6, 2023

New York grapples with counterfeit cannabis

This week, guest writer Cailley LaPara takes a look at how New York's slow-moving legalization process has opened the state to a flood of im

This week, guest writer Cailley LaPara takes a look at how New York's slow-moving legalization process has opened the state to a flood of imitation cannabis products. This is both a public-health challenge and a threat to the newly formed recreational market. 

A wave of imitators

Kyle Kazan, from his company's headquarters in Southern California, often gets texts from acquaintances in Brooklyn asking him to authenticate a package of weed that really shouldn't be anywhere near New York City. 

Kazan is the chief executive officer and co-founder of Glass House Brands, a Long Beach, California-based cannabis company. Through East Coast friends and a recent visit to New York, Kazan has seen plenty of Glass House products on shelves throughout the city, despite laws designed to keep them in California where the company's cannabis is grown. 

To those reaching out, "I'm stuck going, 'I hope that's our brand,'" Kazan said. He can't even try to answer their questions or he risks becoming complicit in illegal supply chains — interstate commerce of cannabis is prohibited. But he finds himself rooting for the lesser of two evils: that the product is really Glass House, illegally moved across state lines, rather than counterfeit weed stuck in forged Glass House packaging.

Counterfeiting is a time-honored tradition of the weed industry, but it's reaching new heights amid New York's plodding legalization. At best, the imitation products are sowing confusion among consumers at the hundreds of illicit smoke shops that vastly outnumber licensed dispensaries. At worst, they pose health risks and could derail the emerging legal market. 

Counterfeit cannabis products range from generic weed in branded packaging to non-psychoactive hemp sprayed with delta-8 — a substance found in cannabis that the US Food and Drug Administration warns may be unsafe. There are also dupes of in-demand vape pens and products with falsified lab results and state certifications. 

Ron Gershoni, chief executive officer at California vape company Jetty Extracts, reported the recent discovery of "a large number" of imitation Jetty vape products in New York City. 

Counterfeit Jetty vape cartridge next to a genuine Jetty product.

Counterfeit vape products, which may be crafted with inferior materials, have sparked health concerns. After a rise in lung injury cases in 2019, the Centers for Disease Control and Prevention issued a recommendation that people avoid using vapes — "particularly from informal sources."

Fake packaging is easy to create, said Damian Fagon, chief equity officer at New York's Office of Cannabis Management. With Photoshop and a label printer, anyone can apply a labels to a package, implying the product inside has passed state inspection. "It's not hard to do and people are taking advantage of that," he said. And even the most discerning consumers may not be able to tell the difference between real and fake, whether they're shopping for vapes, West Coast brands or lab-tested products.

An estimated 1,400 shops selling cannabis products have popped up around the city since at least last summer. For comparison, only two adult-use retail dispensaries are in operation today. According to one survey, 71% of New York cannabis users believe they bought their weed through the "recreational market" in 2022, despite the market only officially starting on Dec. 29

"Consumer perception and industry standards don't always meld," said Maddie Scanlon, senior insights analyst at Brightfield Group, the cannabis industry data firm that conducted the survey. "And you're like, 'Oh my god, they all are thinking they're shopping recreationally?' They just don't know." 

Fagon, the Office of Cannabis Management official, said the burden falls on his agency to educate consumers. It plans to launch a public education campaign this spring to clarify the difference between illicit and legal retailers. 

Until then, the explosion of counterfeit products is overwhelming the adult-use market, which undermines the local and national push toward legalization, industry experts said. 

"Counterfeit products are a sign the cannabis industry is maturing," said Elliot Choi, chief knowledge officer at Vicente Sederberg, a cannabis-focused law firm. "But counterfeit products also mean lost legal sales and negative impacts to brand reputations, since the products are likely to be poorer in quality."

Fagon said the flood of imitators are re-stigmatizing an industry that has battled entrenched stereotypes for decades. "It's going to make it a lot more difficult for our legal operators, as they get up and running, to win that local trust, that community trust," he said. "Because the first image a lot of New Yorkers are going to have is of these illicit shops." 

For Kazan, the solution is opening up borders to allow the flow of cannabis between states. "Every brand in the world wants to be in the Big Apple," he said.

Number of the week

22%
The percentage of New York cannabis users in the Brightfield survey who said they travel out of state to buy legal cannabis. 

Quote of the week

"The number of illicit smoke shops has clearly exceeded a market saturation point, and they are most likely not as profitable as many would have you believe."
Damian Fagon
Chief equity officer at New York's Office of Cannabis Management

What you need to know

  • Bloomberg Intelligence expects US cannabis sales to increase at a high-single-digit annual rate through 2026, reflecting a combination of gains in existing state-legal markets and growing contributions from new legalizations.
  • Psychiatrists in Australia will be allowed to prescribe psychedelics, including MDMA and psilocybin, to some patients starting in July.
  • Florida activists pushing for recreational use of marijuana have passed a key hurdle to get it included on the 2024 ballot, the Capitolist reported
  • A law to decriminalize the personal possession of hard drugs took effect in British Columbia, Canada. 
  • Washington's mayor signed a law taxing the sale and use of medical cannabis.
  • Two former Arkansas paper mill employees who were fired for using medical marijuana were not protected by a state law that shielded patients because the employer had a drug-free policy, a US district court ruled

Events

Thursday 2/20

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