Regulators have a choice to make: either confront the inversion through meaningful oversight or allow legalization to harden and become monopoly.
By Damian Fagon, Parabola Center for Law & Policy
New York faces a serious problem as it enters “Croptober,” the month of cannabis, with the knowledge that much of the marijuana marketed in New York as being homegrown is actually not.
This practice is known as “inversion” and involves bringing cheap cannabis, which has been oversupplied in other states, to New York where it’s sold under the false pretense of being locally-produced. Simple, profitable and more brazen. The harvest is underway, and with the lack of oversight in place the inversion could become the new norm for the fastest growing legal market in the country.
State regulators in spring 2025 quarantined approximately $10 million worth of products as part of an inversion investigation, which was followed by a larger recall in June. Metrc will be operational in New York until December 20, 2025. Croptober will cover tons of inverted supplies until then.
It is not just New York that has been affected by this issue.
California was the first to use this model. The early legalization of cannabis allowed for companies to stack up small cultivation licences. This led them to produce more than was needed locally. In 2023 when large licenses were opened, the production was consolidated. The top 10% of growers controlled about 60% of acres and millions of sq. feet.
Californian legal sales will fall 11 percent in 2025 as the state’s licensed surplus spills over into New York, both legal and illegal.
Michigan not only followed but also went beyond the original script. The state allowed the stacking together of Class C cultivator licenses in one place, which fueled industrial scale grows. In June 2025 the state had issued a total of 3.2 million licenses, which is more than 1.5 plants for each in-state resident. Flowers that used to sell for more than $500 per ounce are now on average $60. In the same month, regulators announced a fourth consecutive year-overyear decline in sales.
California’s and Michigan’s excesses are not contained. They’re absorbed by the New York market.
The mechanics are explained by licensed New York operators (including an interview conducted with a broker and cultivator who did not wish to be identified): growers inflate harvest reports through the recording of fake bulk purchases, or disposing of low-value plants. The out-of state cannabis is recorded under these inflated figures and shown as part of the grower’s local production. Sometimes, the cannabis is swapped with harvests grown in state. The scheme is repeated by processors, who report extraction yields that are far greater than inputs can ever achieve.
It is not a good thing that incentives are aligned so neatly. State oversupplies produce cannabis at the lowest prices. New York’s inspections are limited, the tracking delayed and penalties minimal compared with profits. While inversion is stocked on our shelves, licensed farmers are sitting on harvests that have not been sold. The consumers are losing trust in the claim “New York Grown” and there is a safety risk when it’s not clear where products come from. It is clear that our market can’t survive as long as fraud and non-compliance are easier to commit.
Cannabis firms are attracted to regulatory environments that allow for flexibility. This is why cannabis companies are clustered in Michigan, Oklahoma, and California regardless of their geographic location. The laxity of their systems affects not only the markets in which they operate, but also those that are adjacent.
New York can stop inversion
Metrc tracks paperwork but can’t stop fraudulent entries. Metrc can track paperwork, but not stop fraud from being entered as fact. For regulators to close this gap, they must use digital reporting in conjunction with surprise inspections, audits routines and checks done on a real-time basis that compare reported yields to actual production.
Reforming the structure is equally urgent. The accumulation of licenses led to surpluses which no market was able to absorb. Pennsylvania and Virginia, which will soon be legal markets, must avoid making the same mistakes. It is essential that canopy limits, ownership restrictions, and limitations on consolidating multiple crops at one location are in place to ensure realistic oversight and allow small compliant growers room.
Finally, regulators must create true accountability to consumers. The Office of Cannabis Management reports the sites of cultivation and processing, but the information is largely kept from the public. By making this information available on the labels of products, and verifying it through distributor-level audits and inspections, buyers would be able distinguish genuine New York harvests. Such reforms coupled with penalties that confiscate ill-gotten profit instead of fines would reverse incentives. Inversion no longer would be a rational business decision.
However, reforms on the national level cannot correct a country’s imbalance.
California created this unregulated supply model, and Michigan expanded on it. These officials have failed to match production with market demand and this has caused markets beyond the borders of those states to be unstable.
New York can’t continue to bear the cost of these failures. Regulators must choose: face inversion through meaningful oversight, OR let legalization become monopoly-like and fraudulent. The fate of the craft cannabis industry, as well as small farmers and equity licencees depends on whether or not officials enforce systems that they promised.
Damian Fagon, a former New York Cannabis regulator and executive leadership fellow with Parabola Center for Law and Policy is an expert in cannabis law and policy.
Side Pocket Images. Photo by Chris Wallis.
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