On June 8, 2023, Gov. Kathy Hochul (D) announced a crackdown on sales by unlicensed cannabis sellers, which could face fines of up to $20,000 a day under recent legislation allowing for enhanced enforcement. The legislation allows the Office of Cannabis Management to assess civil penalties against unlicensed cannabis businesses and makes it a crime to sell cannabis and cannabis products without a license. Under the new law, businesses that fail to pay cannabis taxes can also face both civil and criminal penalties for tax fraud.
Illegal cannabis storefronts and trucks that sell untested, unregulated cannabis products are a significant public safety issue, but consumers do not always realize these businesses are unlicensed, given their proliferation amidst the slow ramp-up of the legal, regulated adult-use market. As we have written about previously, the state of New York has attempted to curb these illegal sales by sending warning notices to landlords and establishing QR code verification for licensed businesses.
The latest effort to cease the sale of unregulated cannabis includes an interagency collaboration between the New York State Office of Cannabis Management and the Department of Taxation and Finance, who worked together to conduct inspections at unlicensed cannabis operations in New York City, issuing violation notices and orders to cease unlicensed activity. Additionally, authorities are now allowed to padlock noncompliant buildings. These efforts are expected to be replicated across the state.
Unlicensed sellers are not subject to strict public safety requirements (such as ID verification to confirm that consumers are 21 or older); they similarly avoid paying taxes that not only cover regulatory costs but also are reinvested into communities disproportionately targeted by drug enforcement. Licensed operators in New York must go through a competitive and expensive application and approval process before being authorized to sell lab-tested cannabis products, which must meet certain safety and labeling standards. This enforcement push is calculated to protect both public health and the viability of the regulated marketplace.
Note: Perkins Coie LLP only represents licensed cannabis businesses or those seeking licensure through lawful processes.