By: John Schroyer

The products bear state-specific markings indicating they were legally produced in California.

Despite the continued prohibition of interstate commerce for cannabis, legally produced and packaged marijuana products from California are increasingly making their way to hundreds of smoke shops and bodegas in New York City, according to industry sources.

The co-founder and president of multistate cannabis brand Binske, Alex Pasternack, said he recently encountered his own company’s cannabis products from California on the shelves at a bodega in the New York City borough of Queens.

When Pasternack questioned the proprietor about where he’d obtained the goods, he was told it was from what’s known as a “burner distro” in California. In layman’s terms, he got it from a licensed California distribution company that willingly broke state law by shipping legal cannabis out of state.

Pasternack said that he immediately recognized the California products due to specific state-mandated labels and packaging that all licensed California marijuana companies are required to use.

How Big is the Problem?

“Of the products in these 1,200 smoke shops, I’d say 99% have a California symbol on the front,” Pasternack said, estimating that burner distros in California are probably exporting “hundreds of pounds a month, if not thousands.”

He said he’s seen about half of Binske’s portfolio of SKUs at various New York City shops since he moved to the city in October, even though his company has yet to enter into any licensing deal with a New York processor.

Rather, all of the Binske products he’s seen in his newfound home city were either illegally smuggled from California to New York, or they’re illegal counterfeit packaging, which he said is also a major problem in the Empire State.

Other big-name California brands that industry sources have identified on New York bodega shelves include STIIIZY, Jungle Boys, Jeeter, Raw Garden, Cookies, Alien Labs, and Connected Cannabis Co. – all of which were likely trafficked straight from the West Coast, sources said.

The burner distro phenomenon is so well-known among industry insiders that even New York regulator Axel Bernabe, the chief of staff and senior policy advisor at the Office of Cannabis Management, said during a recent Green Market Report interview: “Burner distros are the bane of our existence.”

The term itself, burner distro, comes from the temporary nature of the licenses. Industry sources say the licenses typically are used until license holders think they might draw attention from regulators. At that point, the operators just walk away from the business permit, essentially “burning” it, the same as a “burner” cell phone, which are intended only for short-term use before being discarded.

Another factor driving the burner distro trend is the lack of profitability in California, which has pushed many legal companies to break the law and ship product to markets like New York, where they can still fetch a solid price.

“I know a lot of folks are doing burner distros just to keep the doors open,” said Southern California cannabis consultant Adam Spiker, who tried collaborating with state regulators at one point to find a way to solve the burner distro issue, albeit unsuccessfully.

Systemic Problem in California

From the California end, Pasternack said, the issue is that licensed distributors in California have been diverting legal marijuana to the illicit market for years, but there’s apparently little that state regulators can or will do to solve the problem.

The issue has been so pronounced for so long now that California regulators even faced a lawsuit in 2021 over allegations that “millions of pounds” of cannabis products were being diverted to the underground market by burner distros while state regulators were turning a blind eye.

The state prevailed in the case, with a judge ruling that the state has done its due diligence by establishing a state track and trace system with Florida-based Metrc. But the plaintiff in that suit – Elliot Lewis, the CEO of Catalyst Cannabis Co. – said an appeal is still ongoing.

The burner distro phenomenon, Lewis said recently, is “worse than ever,” and alleged that the state has still tried to ignore the problem.

“Large producers can push their weed right into the black market and wash their hands of it,” Lewis said.

“They know it exists,” Lewis said of California marijuana regulators. “They’re not going to do anything about it. It’s not going to get resolved anytime soon.”

In an email to Green Market Report, the California Department of Cannabis Control (DCC) declined to comment on the litigation, and also said it doesn’t comment on ongoing investigations.

The agency did say any licensed company that ships cannabis out of state risks losing their business permit and encouraged anyone with knowledge of such activity to report it to authorities. As of March 22, there were 1,260 active distributor licenses in California, according to the DCC’s online license database. But the same database also listed another 544 commercial distributor licenses that were expired, revoked or surrendered.

“Holding a license is not a defense for participating in illegal activity. If a business is inverting illegal cannabis products into the legal market, they are engaging in a crime and risk criminal prosecution or civil penalties,” the DCC said in an email.

The DCC declined to share numbers on just how much cannabis and cannabis products were produced since Metrc was first implemented or how many products were sold by legal retailers.

In an emailed statement, Metrc declined to comment on Lewis’s lawsuit or burner distro investigations, but said its California system “tracks over 300 data points across the supply chain, which helps regulators flag potential issues and maintain a safe and secure market. We work with our agency partners daily to better understand how they use the data tracked in Metrc – and how we can continue to make it more actionable to support the legal market.”

No Easy Fix

Spiker and others emphasized that the situation is not a simple one to fix, and there may not be an easy answer, other than letting free market economics sort out winners and losers in the broader national marijuana trade. Spiker said it’s not even clear how best to figure out who’s at fault.

“You can’t say with certainty one way or another, the brand whose product is showing up on shelves in New York did or didn’t have plausible deniability about what the distributor intended to do with their product,” Spiker noted.

“Can you make assumptions that some of these people don’t give a shit, and it’s their buddy running a burner, and they’re giving them a couple hundred bucks more per unit? Sure, but you can’t say in a general sense that there isn’t some plausible deniability, because some of these larger companies do business with 15, 20, 30 distributors,” he said.

There’s also a question of manpower and how best to actually monitor the California Metrc system, Spiker said, which is comprised of thousands of different companies, many located in different cities or counties around the state.

And because California’s cannabis system is set up with the local governments to be the gatekeepers for business licenses, that makes it automatically tougher to find and crack down on those breaking the rules, because not all of the local governments cooperate or even communicate.

“With these burners, you get your local authorization – and there’s plenty of jurisdictions up and down the state that will hand them out very easily,” Spiker said. “‘Pay your application fee, tell us what your location is and who you are.’ I’ve even heard stories where there’s no vetting.”

Others, meanwhile, are worried that the California burner distros could be accelerating brand competition in New York, where local companies and brands have yet to really find their footing.

“You have perhaps an erosion of loyalty to the emerging brands. That’s the problem,” said David Feder, a New York City attorney who’s helped several companies win business permits.

Feder also pointed out that the burner distro issue is complicated by the growing illicit trade for knock-off packaging sold online at Ali Baba and even in brick-and-mortar stores in New York City, where underground operators buy packaging resembling those of legal companies from states such as California, and stuff them full of whatever flower or other cannabis they have.

In other words, Feder said, burner distros and their supplying of illicit shops is one more symptom of a flawed New York market rollout.

“The bigger problem is that New York has decriminalized the use of cannabis … without creating the avenue for people to buy it legally, at a fast enough pace to keep up with demand,” Feder said.

“The faster the state is able to issue licenses, the less of a problem the unregulated market from California or anywhere else will become, because they are flooding the streets of New York with cannabis from everywhere – from California, Oklahoma, Oregon, Washington, Colorado, all the legal states.”

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