UPDATED: Enforcement Powers, Padlocks Part of New York Plan to Dismantle Unregulated Cannabis Sales

Updated at 10:47 a.m. April 26 with specific budget allocations for the new initiatives to tackle illicit operators.

Padlocking the doors of businesses selling unregulated cannabis products is one of the reforms that’s part of a new initiative New York lawmakers hope will help dismantle illicit cannabis operators in the state while bolstering the licensed, adult-use market.

Announced as one of 14 “historic investments” highlighted from the state’s $237 billion budget for fiscal year 2025, Gov. Kathy Hochul pledged to combat the rise of unlicensed companies selling cannabis products by giving the Office of Cannabis Management (OCM) and localities the authority to shut down operations.

$13.4 million will be allocated to these and other related initiatives, according to a spokesperson from the New York State Division of the Budget, who responded to Cannabis Business Times' requests for details about resources that would go toward the enhanced enforcement efforts.

During a press conference April 19, Hochul said that fines imposed previously to try and stop illegal activity have not been enough, and having doors shuttered “for up to a year” might be more effective to stop businesses from selling unlicensed products.

“Illegal shops will not disappear overnight, but New Yorkers will eventually see a change in their communities,” Hochul said during the press conference. “The insanity stops now.”

According to a press release about the state budget, which was approved by the state Legislature on April 20, the initiative includes five measures:

• Authorizing the OCM and localities to padlock illicit storefronts immediately following an inspection if they are selling illicit cannabis and pose an imminent threat to health and safety.
• Cracking down on landlords who turn a blind eye to the illegal activity under their purview.
• Launching a statewide task force to carry out civil enforcement to close illegal stores.
• Expanding local authority to allow cities and counties to adopt laws related to regulating unlicensed cannabis businesses.
• Granting New York City immediate enforcement powers to inspect, issue violations, and seize cannabis and padlock stores.

"Unlicensed dispensaries have littered New York neighborhoods, blatantly circumventing our laws and selling potentially dangerous products,” Hochul said. “Enough is enough. I promised to protect our communities and hard-working, legal cannabis licensees by expediting the closure of illicit storefronts. I’m proud to say we got it done.”

Specifically, the fiscal year 2025 budget will continue the $5 million in new funding provided in FY 2024 for 37 OCM enforcement staff; $5.6 million in additional funding to support 43 additional staff who will assist Department of Taxation and Finance in combatting the sale of unlicensed cannabis; and, continuing $2.8 million in funding for the Attorney General’s Office to support 15 staff for litigation and illicit cannabis activity investigations, according to the New York State Division of the Budget spokesperson.

In addition to trying to dampen the unregulated market, Hochul said that she is pushing to get more licensed operators open. There are more than 100 retailers operating in the state today, Hochul said, which is an improvement from the previous year, but is still a slow rollout when compared to other markets.

RELATED: New York Cannabis Regulators Approve 109 Adult-Use Licenses

New York’s licensed operators eclipsed $150 million in sales in 2023, and they collected roughly $33.5 million in excise taxes in 2023, according to previous reporting from Cannabis Business Times. Taxes from adult-use sales are estimated to bring in $70 million to state coffers in 2024 and projected to grow to $158 million in 2025, according to the state’s budget.

By comparison, Missouri, which launched its adult-use cannabis program in February 2023, had $1 billion in sales the very first year.

“There’s a lot of tension on this issue, believe it or not. I heard pundits weigh in about the enforcement. I would have to say they are misguided, that they think that this will somehow return us to the bad old days of mass incarceration of people of color, making cannabis illegal itself. Nothing can be further from the truth,” Hochul said, adding that the goal of New York’s program was to give business owners who had been most harmed by unfair enforcement of cannabis laws a jumpstart in the adult-use market, but it was delayed due to lawsuits.

“Two thirds of legal dispensaries are minority- and women-owned dispensaries thus far. … New York has more legal shops owned by people harmed by disproportionate drug enforcement than any other state combined,” she said. “These are the people we are fighting for because they are harmed the most by the illicit operators.”

Hochul said that more details will be available about the task force in the future. Unlike the other initiatives that were highlighted in the fiscal year 2025 budget, specific dollar figures and allocations from the $237 billion that would help finance these reforms were not listed.

“Frustrated local leaders have been powerless as these unlicensed shops operate right under their noses, sowing chaos, destabilizing neighborhoods and attracting other types of crime,” Hochul said during the press conference. “[Legal cannabis operators] stake their entire futures on New York’s legal cannabis industry. They did everything right. They pay their taxes, source their product from New York farms, and they don’t sell to minors, and yet they are forced to compete with rampant bad actors who play by an entirely different set of rules.”

Under the plan, the OCM and authorities from counties and cities would be authorized to padlock businesses immediately following an inspection for the following infractions:

• Sales to minors
• Unlicensed processing of cannabis
• Violent conduct
• Presence of unlawful firearms
• Proximity to schools, houses of worship or public youth facilities
• Products leading to illness or hospitalization
• Products not tested or labeled according to state law

Landlords who can prove that business tenants are “customarily or habitually” selling cannabis without a license can evict them. The previous standard required that the business “solely or primarily” be engaging in the illegal activity.

“In addition to expanding padlocking authority, the budget establishes a misdemeanor penalty for damaging or removing a padlock. This addresses previous limitations that beleaguered padlocking efforts statewide,” according to a press release detailing the plan. “If the store has approval from a state agency to sell alcoholic beverages, lottery tickets, or tobacco and vaping products, OCM will send a notice to the relevant state licensing agencies to inform of a violation under the cannabis law, and the business will be warned they are at risk of losing their licenses.”

There are also penalties for landlords who host businesses not complying with cannabis licensing laws, including a $50,000 fine for any landlord notified of the violation within New York City, and five times the rent from the time the landlord was notified of the violation for businesses outside of New York City.

“The New York City Administrative Code will be amended, allowing the city to act under the law immediately. This amendment will allow the city to inspect, issue violations, and seize cannabis and padlock stores. Additionally, the sheriff’s office will be designated as the lead under the law and can deputize other personnel to assist in enforcement,” according to the press release.

The city will conduct administrative hearings within five days of an emergency padlock, and there will be a decision within four days after the hearing.

“Thank you, Governor Hochul, on behalf of our licensed cannabis community and our advocacy groups for making it happen, we are sincerely grateful to you for your proactive leadership efforts in bringing together our state leaders to take common sense measures to address and eliminate the proliferation of unlicensed cannabis storefronts in our state,” The Cannabis Place CEO Osbert Orduna said. “Your dedication to finding inclusive solutions to this issue is commendable and greatly appreciated.”

The 2025 fiscal year executive budget also will repeal the potency-based cannabis tax and replace it with a wholesale excise tax to “promote and support the expansion of the legal adult-use cannabis market.” The wholesale excise tax will be set at 9% and a local retail excise tax at 4%.

“For vertically integrated entities such as the registered organizations and microbusinesses where an arm’s length transaction between the distributor and the retailer is nonexistent, the new wholesale excise tax will accrue on the final retail sale to consumers and be imposed on 75% of the final retail sales price,” according to the executive budget.