This story was republished with permission from Crain’s New York Business and written by Natalie Sachmechi.
Running a local smoke shop is a good business, said Adeeb Al-Saeidi, a partner at a family-run chain of about 25 in the city.
“If we buy a bong for $10, we sell it for $60 or $70. Some bongs can sell for as much as $200,” said Al-Saeidi, whose stores sell e-cigarettes, smoking accessories and convenience items. “We started seeing money in it. It’s really good.”
All around the city, smoke shops have been popping up like weeds, but not always just to sell tobacco, bongs and other paraphernalia. Some retailers, unlike Al-Saeidi, hope to procure a coveted retail license to sell cannabis legally once they become widely available. For now, the first round of licenses will be awarded only to those who were previously convicted of marijuana-related crimes. The application window for those licenses closed last month, but the broader applicant pool hasn’t opened yet.
Across the boroughs, there are 1,458 businesses registered as convenience stores that sell tobacco products or are tobacco retailers, according to data from the state’s Department of Health. Of those, 341 are located in Manhattan, Queens has 371, Brooklyn has 431, the Bronx has 216, and Staten Island has 99. These are separate from bodegas, which are registered as grocery stores.
And with the legalized recreational marijuana market expected to get off the ground in the state in the coming months, business is bound to start booming for those that choose to add the drug to their inventory.
Kassin-Sabbagh Realty broker Albert Manopla has a client on Third Avenue on the Upper East Side that is leasing space with a growth plan in mind.
“They are opening it as a smoke shop, and the idea is, if they get their [marijuana] license, then they’ll roll it into what they’re doing,” he said. “I’ve seen people take multiple stores and operate them as smoke shops for now.”
A budding business
Even before the Marijuana Regulation and Taxation Act was signed into law on March 31, 2021, legalizing adult recreational marijuana use, the number of smoke shops in the city was growing rapidly.
An application for a license to run a conditional adult-use retail dispensary for the formerly incarcerated, who get to apply first because of equity regulations overseen by the state’s Office of Cannabis Management, which the law created, is $2,000, according to the office. The yearly cost of maintaining the license has not been decided yet. The office says it received 903 applications for a social equity license.
The Office of Cannabis Management said it also hasn’t decided when to open the application process for others seeking to sell adult-use marijuana, but it will be sometime next year. It still has not decided how much those licenses and their maintenance fees will be.
These days a permit to operate a tobacco or cigarette dealership goes for $150 to $200, while a liquor store permit is $4,000. Those licenses are overseen by the city’s Department of Consumer and Worker Protection and the state Liquor Authority, respectively.
In 2016 there were 1,710 applications for cigarette dealer licenses in the city and 1,505 in 2017. By 2018, when the electronic cigarette craze was in full swing, businesses filed 3,357 applications to sell the devices alone, according to data from the city’s Department of Consumer and Worker Protection.
In response to the surge in interest and with the intention of curbing tobacco use, the City Council voted in 2018 to cap the number of licenses that would be available at 50% of the number already issued across all community districts.
Today the number of applications has dropped significantly. Since 2019 the city has reported an average of 351 applications per year for tobacco dealer licenses, 73% of which were for changes in ownership rather than for new smoke shop businesses.
Shops that sell only accessories and paraphernalia like bongs and not tobacco products, however, don’t need a license to do so, said Department of Consumer and Worker Protection spokesman Michael Lanza, so that data is not tracked. Those businesses can apply for a separate marijuana dealer license when they become available.
Before they can apply, though, they must show that they’ve either purchased or leased real estate that is eligible for use as a recreational-use dispensary. That means the financing on the property has no legal objections to marijuana sales in the building, because the drug is still banned federally, and that it’s at least 500 feet from a school or 200 feet from a house of worship.
During the pandemic, landlords started offering up their spaces at steep discounts. Al-Saeidi’s family began picking up cheap retail sites, mostly in Manhattan, to open new smoke shops. Between 2020 and 2021, the family expanded its portfolio by 12.
“Places you wished you could have rented before Covid-19 for $20,000 [per month], you got after Covid-19 for $10,000,” he said. “Before you had to beg the landlord. Today the landlord begs you.”
“A lot of them are really making money on the vapor [e-cigarette] products. It’s a very high-margin business that lets them take small spaces at high rents and outcompete traditional retailers,” Manopla said.
Some stores can be as small as 200 square feet, or the size of a college dorm room in Manhattan.
“That’s how they’re ending up in all these spots where you say, ‘How the hell did this even come here?’ ” he said.
Seeds of crime
According to Manopla, some smoke shops, tired of waiting for the cannabis market to officially roll out, have begun selling the product illegally.
In some cases, the stores can be hotspots for crime.
Last month a Lower East Side cashier was shot while defending a smoke shop from thieves. A similar incident occurred in a shop on the Upper West Side.
Since the pandemic began, crime has picked up in Al-Saeidi’s shops, he said, mostly with people running out with merchandise, but his employees also have been robbed at gunpoint.
As such, some commercial landlords are wary of the businesses—as are some neighbors. In September the co-op board at 200 Central Park South sued Ben Ashkenazy, who owns the retail berth at the base of the building, for allegedly allowing a smoke shop to sign a lease there. The case has since been discontinued, court records show.
At the moment, the state’s Dormitory Authority is scouting appropriate retail spaces to lease for the first round of weed dispensary licensees.
The state will lease up to 150 spaces, then sublease them to the dispensary owners, with the expectation of the first marijuana sales taking place by the end of the year, though real estate experts have been skeptical of that timeline.
No leases have been signed yet, but the state is working with a team at CBRE to get contracts out.
The Dormitory Authority is “currently in active discussions with well over 50 property owners,” said spokesman Jeffrey Gordon, and firms have been selected to perform the construction and build-outs.
Passing on puff
Al-Saeidi’s father and uncle, immigrants from Yemen, started the business after they grew tired of running delis. “It’s much easier to run a smoke shop than a deli,” Al-Saeidi said. “You just need one or two employees, and everything is on the shelf. You just have to sell.”
Depending on the store, each one makes between $100,000 and $400,000 per year, he added.
Although vapor products, bongs and instruments to grind up marijuana are the best-selling items in his stores, selling cannabis is off the table for him.
“Weed, at the end of the day, is a drug to us. We’re from the Middle East,” Al-Saeidi said. “The last thing I want my father to find out is that I’m selling weed.”