New York Regulators Shut Down a Marijuana Processor After She Criticized the State's Lax Enforcement

New York's botched recreational marijuana rollout just keeps looking worse.

New York's botched attempt to roll out an adult recreational marijuana market is facing even more scrutiny amid claims of whistleblower retaliation, favoritism, and the unchecked spread of illegal dispensaries.

The chief equity officer for New York's Office of Cannabis Management (OCM) was put on administrative leave last week, and Gov. Kathy Hochul has ordered an overhaul of the beleaguered program, which even she has admitted is a "disaster."

At the center of the story is Jenny Argie, CEO of Jenny's Baked at Home Company, a New York marijuana processor. Argie says the OCM retaliated against her after she leaked a recorded conversation with Damian Fagon, the OCM chief equity officer. In the recording, Fagon admitted that the agency wasn't enforcing rules against unlicensed pot dispensaries and brands that were importing untracked, untested marijuana from other states.

"They got power-drunk and forgot that these are real people's lives with promises they had made to them," Argie tells Reason. "And the more we spoke up, the more they closed the door on us."

New York gave the green light to recreational marijuana in 2021, and Argie was one of the first licensed cannabis processors. She invested significant money and took out a second mortgage on her house, hoping to establish herself early in the new industry.

But a two-year-long delay in the rollout of the legal marijuana industry, continuing long waits for licenses, and dubiously sourced pot saturating the market has all but crushed many small operators like Argie. There are over 2,000 illegal marijuana dispensaries in New York City alone and only about 85 licensed ones statewide. New York marijuana growers simply don't have enough legitimate dispensaries to sell to. 

"For anybody who's trying to enter a market as a small business, cash flow is king," Argie says. "We've already spent two years dying on the vine, waiting for the market to open up, which they told us was going to open but kept putting it off and putting it off."

Processors like Argie also quickly discovered that they were being boxed out of the limited market by large out-of-state companies offering dispensaries sweetheart payment terms and consignment deals that were supposed to be against the law.

Argie began speaking out about the problems facing New York marijuana growers and processors like herself. She wrote op-eds in local newspapers and testified before the New York state Legislature in October.

Her public comments led to a phone call that month with Fagon. When Argie confronted Fagon over the fact that she knew companies and dispensaries were illegally sourcing marijuana and breaking regulations, Fagon said the OCM would "probably" start cracking down on them in early 2024.

"We're not going to start a full-fledged crackdown," Fagon said in the recording. "We'd have to lose half of our dispensaries, probably, and it would further cripple the market."

Argie sent the recording to NY Cannabis Insider, an outlet covering the New York marijuana industry. According to the outlet, after the story was published last November Fagan called the reporter, screaming and cursing and saying he knew that it was Argie who leaked the call.

In December, a month after the story was published, state regulators issued a recall for Argie's marijuana—the state's first-ever recall for marijuana—because one of her edible products was 1 milligram lower in THC potency than advertised on the packaging. Argie had already fixed the issue but had neglected to have the product retested. 

The recall made headlines across the state.

"In a state of over 10,000 illegal dispensaries selling to children—[marijuana] we know has pesticides, heavy metals, and all the things that they do in these illegal dispensaries—to make me the example was just heartbreaking," Argie says. "I realized I was dealing with an agency that had no oversight at that point."

Multiple news reports have found that New York dispensaries are selling counterfeit or mislabeled products and marijuana tainted with high levels of bacteria, fungus, pesticides, and heavy metals. State labs are supposed to ensure the safety of marijuana products, but a NY Cannabis Insider story published last September found "a product with lab results showing 250-times the medical limit for yeast and mold and noncompliant pesticide testing today sits on a New York City dispensary shelf." 

(The reason for this is an amusing example of government logic: New York required marijuana to be grown outdoors in the name of sustainability, but when it discovered that outdoor growers couldn't keep the levels of mold, mildew, and yeast below required limits, it simply eliminated those limits.) 

Argie decided that since she was already being selectively targeted, she might as well reveal herself as the leaker to bring more attention to the issue. 

Earlier this month, six days after NY Cannabis Insider notified OCM that Argie was going on the record, state inspectors arrived at her facility for an unscheduled inspection and issued a full stop-work order, as well as a quarantining of all of her products.

The justification for the stop-work order was that Argie's processing facility was using an unapproved solvent in one of its machines. The solvent is approved by the Food and Drug Administration and the European Union, but not in New York's marijuana industry. Argie notes that a pharmaceutical version of the solvent is used in children's asthma inhalers. And more importantly, she says, it was listed on the packaging that inspectors had ample opportunity to review during the December recall.

Argie owns up to her company's lapses and says she worked to fix the problems as soon as they were discovered. She submitted a corrective action plan to OCM regarding the solvent, which the agency rejected earlier this month. What outrages her is that she knows there are plenty of New York marijuana businesses flouting the rules and operating in bad faith, yet they have been allowed to flourish while she is on the verge of bankruptcy. 

"It was a hammer instead of grace," Argie says. "They tried to destroy my company because I spoke out."

Argie filed a lawsuit against the OCM this month alleging selective and retaliatory enforcement against her company, which remains shut down. She is seeking an injunction to lift the stop-work order and quarantine and asking the court to approve the solvent for New York's marijuana industry.

The OCM did not immediately respond to a request for comment.