A New York State bill would give cities and towns new enforcement powers to target and shut down unlicensed cannabis dispensaries. It’s the latest salvo in authorities’ long struggle to uproot the illicit market since New York legalized adult-use cannabis in 2021.
Enforcement powers won’t change the fact that many unlicensed businesses are still incentivized to sell cannabis, with consumers clearly willing to buy it. But rapid expansion of the legal market in 2024, following numerous delays, might change the picture.
Assemblymember Jenifer Rajkumar (D) introduced the Stop Marijuana Over-proliferation and Keep Empty Operators of Unlicensed Transactions (SMOKEOUT) Act on December 29. It would empower municipalities not only to shut down any business believed to be selling illicit cannabis, but to seize their merchandise and even their property. Currently, only the state’s Cannabis Control Board has the authority to close unlicensed dispensaries.
Selling unregulated cannabis products would become a Class A misdemeanor under the bill, although it doesn’t specify any criminal penalties like fines or jail time. However, the campaign against unlicensed stores has already resulted in arrests in different jurisdictions—not something the architects of legalization wanted to see.
“The [bill] grants all municipalities across our Great State the authority to order the closure of unlicensed cannabis retailers and seize all merchandise, swiftly ending the blight of illegal smoke shops once and for all,” a description for the legislation reads.
The bill’s summary puts the number of unlicensed stores currently operating in New York City alone at 1,500.
As justification, the text claims these stores are undermining the legal market by selling product at lower prices than is possible for legal stores. It also claims that unlicensed shops hold large quantities of illicit products and loose cash, making them targets for robberies; it cites almost 600 reported robberies of smoke shops in 2022, more than four times the year prior, and five fatal shootings at the shops in 2023.
Small businesses in New York have sold cannabis products on the down-low since long before legalization. Bodegas, delis, grocery stores and smoke shops were all sometimes involved, as I can confirm from experience. But this activity seems to have increased significantly since legalization was enacted in April 2021, with fears of criminal penalties reduced and more businesses willing to risk operating without the license now required by state law. The bill’s summary puts the number of unlicensed stores currently operating in New York City alone at 1,500, based on an estimate by state officials.
To date, state agencies have taken the lead on trying to police these stores. Governor Kathy Hochul’s (D) 2024 fiscal year state budget gave expanded power to the Office of Cannabis Management and the state taxation department to go after stores, fine and close them, working with courts. Stores can now face up to $20,000 in daily fines for non-compliance, be fined for unpaid taxes, have their products seized, and be evicted from commercial property. The budget provides $5 million to hire 37 new cannabis officials to help with enforcement.
In addition, a new law took effect in 2023 that tries to shut down dispensaries by leaning on landlords. Police will send letter to a commercial landlord they believe is renting to an illicit dispensary; a landlord who fails to take action to evict such a tenant could face tens of thousands in fines.
Hu emphasized that the focus should be on making businesses comply with the law, but not criminalizing people.
Wei Hu, attorney founder and partner of MRTA Law, told Filter he sees the SMOKEOUT Act as a positive step, but hopes that cities, police departments and residents can work together to make sure they consider the specific impact of each store on its local area before taking any action. (Full disclosure: Hu holds a New York retail cannabis dispensary license.)
“Legacy shops affect different neighborhoods differently,” he said, referring to unlicensed vendors who have been operating since before legalization. “What is a public nuisance in certain areas might be the only means of access in other locations. [You should] give localities the option to prioritize and enforce [in a way that] reflects the needs of the community. If you’re in an area with no shops and your only access is a non-licensed operator, it should be less a pressing priority than in the Lower East Side where there is a legal option, and you have 25 unlicensed stores surrounding it.”
Amid what looks like an escalating crackdown, Hu emphasized that the focus should be on making businesses comply with the law, but not criminalizing people.
“It has to be civil enforcement only,” he said. “No one gets arrested for selling untaxed cigarettes, or spends jail time for bootlegging alcohol. These are civil penalties. I hope that enforcement will stay in civil forfeiture and civil penalties. No one should be in jail for cannabis. If they’re selling and not paying taxes, then that’s tax fraud.”
Unanticipated obstacles have contributed to this situation, such as multiple lawsuits.
All this is happening at a time when New York is steadily opening more legal dispensaries, although the process has been far slower than legalization proponents would have wished. It took about 18 months after legalization before the first store opened, in lower Manhattan at the end of 2022. Throughout 2023 dozens more legal stores opened statewide, and there are now 43 of them—still a very low number for a large, populous state with high demand.
Unanticipated obstacles have contributed to this situation. For many months, issuing of dispensary licenses has been slowed or halted because of multiple lawsuits alleging New York’s process is unfair or discriminatory. Most recently in December, the New York Supreme Court settled two of those cases, one brought by a group of military veterans seeking licensure, and another by medical marijuana companies which operated before full legalization. State cannabis officials are hoping to approve hundreds more dispensary licenses in 2024.
Of course, none of this is unique to New York. All states that have legalized cannabis still have some form of illicit or legacy market. The cannabis economy is old and established throughout the country; vendors aren’t willing to stop if they have difficulty obtaining a legal license, and when their prices are low enough to keep attracting business. Rules and regulations mean that legal, licensed cannabis businesses have to meet higher testing and purity standards, rent or acquire property, pay workers and security, and pay taxes and other fees—expenses that can make it prohibitively expensive for small businesses to enter the industry, and which are reflected in retail prices for those who do make it.
There’s a racial justice element to this too, when legacy vendors include many people of color and immigrants, and the legal industry in many places has become white-dominated. New York is among the states to have responded by incorporating significant social equity provisions into legalization models, prioritizing communities targeted by prohibition for dispensary licenses. But such measures can only do so much in the face of market forces and financial barriers to entry, and rollout takes time.
Politicians and news reports have focused heavily on the potential risks that unlicensed stores pose to the public—flagging, for example, a 2022 study that found 40 percent of samples from 20 unlicensed stores in New York City contained harmful compounds like E. coli, lead or salmonella. Elected officials have complained about incidents like fires, in addition to armed robberies and shootings.
Hu hopes the landscape will shift. He predicts that by the end of 2024, up to 400 legal dispensaries will be open.
Hu admitted there are valid reasons why people may choose to shop at these stores—like having no legal option close by. He hopes that licensed stores, including those owned by social equity applicants, will succeed in capturing the market. But to do this, he said, they have to realize they are appealing to a different segment of customers and work to convince other buyers to make the switch—by offering, for example, a wider range of products at different price points with guaranteed potency and quality.
“People who have bought legacy sources will still feel comfortable doing that,” he said. “For the licensed market, it will attract new customers who were never legacy. But also, we have many legacy consumers who now want lab-tested cannabis—whether to know the exact strain that they’re paying for, or for the purity of concentrates and extracts. You can always smell flower and differentiate quality by scent and feel; it’s harder to do so with concentrates.”
For now, the shortage of legal dispensaries in New York gives plenty of reason for unlicensed stores to keep selling, despite the threats, and for consumers to keep buying. But with more legal dispensaries expected to open up this year, consumers will have more options and Hu hopes the landscape will shift. He predicts that by the end of 2024, up to 400 legal dispensaries will be open statewide.
Image of cannabis dispensary in Union Square by Eden, Janine and Jim used via Flickr/Creative Commons 2.0
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