Legalizing marijuana is supposed to have economic benefits for the state, but the rapid increase of illegal shops threatens to take millions of dollars in expected taxes from the state.

“At the very beginning, I didn’t think it was going to be a problem,” said Joanne Wilson founder of Gotham, a legal cannabis shop.

But Wilson was wrong about illegal cannabis stores sprouting up across the five boroughs. The City Council counted 1,500 of them.

“It’s affecting our bottom line,” Wilson said.

Wilson said the illegal marijuana market is growing like weeds, seemingly with a new shop on every block.

“It’s not okay that I have to compete with someone who can sell products at half the price because they don't have to deal with the tax problems,” Wilson said.

There’s a 13% state tax on the retail sale of cannabis products.

Consumers are only paying the tax in the city at the seven legal stores. The state projected $56 million in marijuana related tax revenue for fiscal year 2023, but has lost millions due to the illegal market.

“We’ve confiscated over $14 million worth of product, and estimated at 13% sales tax alone, we’re losing $1,931,000 approximately in revenue," said Sheriff Anthony Miranda.

That's within the five boroughs alone. Miranda said his department has issued more than 260 notices of violations and counting. That’s in addition to other agencies as part of a task force established by the mayor in 2021.

“And even with the fire department, they can issue violations to have a greater impact and more immediate impact,” Miranda said.

The state Office of Cannabis Management awarded the first couple of rounds of licenses to people with marijuana related criminal offenses and businesses focused on social equity.

Wilson said there must be stronger laws so the legal stores can establish, as intended, before the pool of eligible applicants expands.

“All of these stores would be doing a tremendous amount more volume than they are doing now,” Wilson said.

"It's pervasive," said Jesse Campoamor a former senior advisor to Governor Andrew Cuomo.

Campoamor now works to help businesses enter the legal cannabis market. He also helped negotiate and pass the Marijuana Regulation and Taxation Act.

“We’re expecting this market to perform in certain ways that it’s going to take time for us to get there,” Campoamor said.

He said laws targeting illegal operators and new regulations holding their landlords responsible are a step in the right direction, with potential civil fines now reaching up to $20,000, but more needs to be done.

Despite the changes, Wilson says it still doesn’t seem like anything is being done and she's worried about her profits.

"It's not moderated by the state, and it's wrong," Wilson said.

A recently released report shows New York’s sales tax revenue projections of $56 million is lackluster compared to other state’s actual earnings.

New York’s projected earnings, if reached, will barely crack the top ten, slightly out earning Montana’s $42 million in sales tax revenue.

The next closest earnings is Oregon at $150 million.

In context, several of these high earning states were able to perform well because they did not have competition from surrounding states, while New York sits in close proximity to New Jersey, Massachusetts, Connecticut and others.