New York takes steps to keep cannabis from other states out of its legal market

More than a year after concerns first surfaced concerning the entry of cannabis from other states on the New York legal market, New York state legislators have approved new legislation designed to close one of the industry's biggest loopholes.

The State Legislature passed the’Anti-Inversion Act, A bill to combat what regulators and industry players call «cannabis inversion», the practice of introducing illicit cannabis into the legal supply chain by passing it off as a compliant product grown in New York.

Legislation now awaits the Governor's signature Kathy Hochul.

According to the MP Landon Dais, who sponsored the measure, the law aims to protect both consumers and legitimate operators.

«This is a supply chain integrity and product safety bill,» Dais told MJBizDaily. «Produce grown by New York farmers and growers undergoes rigorous testing and contains no heavy metals or harmful chemicals.»

The issue has become increasingly important in New York's legal market, where investigations and industry reports have repeatedly suggested that cannabis produced in states such as Oregon, Washington and Oklahoma was finding its way onto the shelves of licensed dispensaries.

The answer to a long-standing problem

The new law follows months of criticism of the’Office of Cannabis Management (OCM) of New York concerning what many operators considered insufficient enforcement of the law against detour and illegal imports.

In 2025, investigations revealed that several brands operating in New York had been accused of sourcing products from outside the state, even though regulations required all legal cannabis sold in New York to be grown and processed locally. Industry groups warned that this phenomenon, sometimes referred to as «reverse flow», harmed local growers and threatened the state's social equity goals.

At the time, one of the main concerns was the’lack of an effective traceability system from seed to sale. Although New York has chosen BioTrack in 2022 to monitor cannabis production and distribution, implementation has been delayed by several years.

The situation has since changed. New York's traceability system became operational earlier this year, giving regulators new tools to monitor the movement of cannabis products throughout the supply chain.

According to Mack Hueber, President of’Empire Cannabis Manufacturers Alliance (ECMA), The traceability system will play a central role in implementing the new legislation.

«Traceability is an essential element of the bill insofar as it can serve as additional evidence for regulators in their inversion findings,» he said.

Severe penalties for offenders

The anti-inversion law provides for some of the toughest penalties to date for operators caught bringing illicit cannabis onto the regulated market.

Offending companies face fines of up to $10,000 per day. Additional financial penalties may be applied based on the value of inventory or illicit sales, while products linked to inversion schemes could be seized and destroyed.

The legislation also formally defines cannabis inversion under New York law and strengthens documentation requirements throughout the supply chain. Operators will be required to keep records proving the full chain of custody of all cannabis products in their possession.

The regulatory authorities will also be given the power to suspend licenses for up to 30 days during investigations. In addition, the certificates of analysis (COA) fraudulent inversion activities could result in revocation of the license.

«This imposes severe penalties on bad operators and puts in place safeguards ensuring due process for good operators,» said Hueber. «This now encourages bad actors to consider inversion unprofitable.»

Industry-backed reform

The legislation has its origins in the recommendations published by the’Empire State Green Standard Alliance (ESGSA), a consumer advocacy organization that warned early on of the risks posed by illicit cannabis entering the legal market.

The proposal subsequently received the support of a broad coalition of industry organizations, including the New York Medical Cannabis Industry Association, the Association of New York Cannabis Processors, the Cannabis Farmers Alliance, the Cannabis Association of New York and the Black Cannabis Industry Association.

For many licensed growers and processors, this bill represents an important step toward restoring confidence in New York's legal cannabis market. While enforcement challenges remain, supporters believe that the combination of tougher penalties and an effective traceability system could finally solve a problem that threatens local growers since the launch of recreational cannabis sales.

If enacted, the Anti-Inversion Act would mark the most significant effort ever undertaken by New York State to ensure that cannabis sold through licensed channels is genuinely produced in the state and meets its regulatory standards.