New York Regulators Again Promise to Crack Down on Unlicensed Smoke Shops

Agency wants to rein in the roughly 1,500 unlicensed shops in New York City.

This story was republished with permission from Crain’s New York and written by Aaron Elstein.

A top New York state cannabis official vowed to quickly bring the heat now that Albany has granted regulators the power to shut down hundreds of unlicensed smoke shops across New York City.

“We are pivoting so that we can begin as soon as possible,” said Tremaine Wright, chair of the New York Cannabis Control Board. “It is coming.”

Wright told Crain’s at an industry conference Thursday at the Javits Center that her agency would work with state tax agents, local police and consumer-protection officials to rein in the estimated 1,500 unlicensed retailers around the city that sell pre-rolled joints, edibles and other forms of marijuana. Authorities are also investigating landlords who rent them space.

In the last two years, unlicensed cannabis shops have spread across the city like a weed because profits, after rent and other expenses, range from $1,000 to $15,000 a day, according to Paula Collins, a Manhattan attorney who specializes in the business of cannabis.

Apart from sheer numbers, unlicensed operators enjoy key advantages over licensed rivals. For example, they can accept credit cards if they’re willing to deceive payment processors about the nature of their business, while the five licensed shops in Manhattan only accept cash or debit cards.

The Adams administration has mostly treated unlicensed weed shops gently. After the city sued a bodega at 736 Broadway earlier this year for selling bootleg cannabis close to a licensed dispensary, a settlement was quickly reached stipulating the shop owner would scale back so that cannabis products take up no more than 20% of the store’s space.

“Continuing to sell these products will give my [business] an edge over other, more traditional convenience stores, especially with the proximity of the retail cannabis dispensary down the block,” read a new business plan filed by the bodega owner in New York state Supreme Court.

Wright indicated the days of treating unlicensed operators with kid gloves ended in May when Gov. Kathy Hochul signed legislation granting the state Office of Cannabis Management enforcement powers. OCM can fine unlicensed operators up to $20,000 per day and seek court orders to close stores.

“I don’t want to pretend we’re going to wipe away the illicit market overnight,” Wright said. “This is going to be a process.”

Licensed retailers say something must be done if cannabis sales are going to produce the sort of tax revenue anticipated by the state.

“The unlicensed shops are undermining everything,” an industry executive told Crain’s at the industry conference.

“We know this isn’t what we signed up for,” said Dasheeda Dawson, founding director of Cannabis NYC, a division of the city’s Department of Small Business Services whose mission is to help licensed shops flourish.

More licensed dispensaries could help solve the problem.

After all, bootleg liquor is seldom sold in stores because licensed dealers have the clout to force state regulators to stop that activity, observed Artie Minson, chief executive of LeafLink, a Financial District-based firm that connects cannabis distributors with licensed retailers.

“Right now you have fewer than a dozen licensed shops trying to take on 1,500 unlicensed ones,” Minson said.

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