The state has levied more than $25 million in fines against unlicensed smoke shops for selling cannabis products since last year, but so far only a minuscule percent of those fines have been collected by both the state Tax Department and the Office of Cannabis Management, THE CITY has learned.
The two agencies were granted greater authority last year to enforce the 2021 cannabis law and began joint raids against smoke shops for selling cannabis products without a license last summer. They levy and collect fines separately, however. Fines may be levied against individuals who operate the smoke shops or the business itself when it’s difficult to track down an owner.
The Office of Cannabis Management (OCM) said it has collected $22,500 in fines from unlicensed shops. The Department of Taxation and Finance has collected $0 in fines so far, said sources familiar with the state’s enforcement progress.
Last October, THE CITY reported that the state cannabis agency, citing a lack of resources, had paused the enforcement hearings that follow state agency raids on unlicensed shops. Lawyers for unlicensed shops told THE CITY at the time that they had received notices on behalf of their clients that the cases were being withdrawn. Meanwhile, the raids have continued.
But while OCM has withdrawn many cases, some shops and their operators have separately received letters separately from the tax department warning them of fines more than $150,000, according to notices obtained by THE CITY.
“Currently, the State is prioritizing shutting down illegal shops and seizing unlawful products,” said Aaron Ghitelman, a spokesperson for OCM. “While we recognize entities being fined have a right to due process, we are committed to working within the confines of the law to collect the fines once the legal process is complete.”
Fines levied by the tax department may be appealed, for example. And shops fined by the Office of Cannabis Management may be challenged in the administrative hearings the agency paused back in October, which lengthens the state’s timeline to collect the fines.
Ghitelman added that the state has seized tens of millions of dollars in illicit products as part of its enforcement measures. Gov. Kathy Hochul has repeatedly emphasized the amount of product seized in press releases about the progress of the raids.
The governor’s office and the state tax department declined to answer questions and deferred to the statement provided by OCM.
The dearth of fines collected so far highlights the challenge of enforcing the cannabis law in a state with a booming gray market.
In New York City alone, unlicensed shops are rampant throughout some neighborhoods. Though there is no official count of the number of unlicensed smoke shops, it is estimated to be in the thousands. Last month, local news outlet CNY Central reported that OCM has only 14 investigators on staff.
The two state agencies are not the only ones involved in enforcement. The Sheriff’s Department is inspecting smoke shops in New York City as well, and the NYPD has done undercover inspections of shops suspected of selling cannabis to minors.
In Hochul’s annual state of the state address last month, the governor said that she would seek new enforcement powers this year as part of the annual budget.
“We know there’s more to be done and we need more tools to do it. We’re going to continue working with local leaders, including in New York City, to shut down illegal cannabis stores once and for all,” she said.
Sen. Jeremy Cooney, the chair of the Senate Cannabis Committee, agreed that more enforcement powers are needed, but added that the effort has to be in tandem with opening up new stores.
“The way forward is to make sure that we have more legal stores operating on our streets,” Cooney told THE CITY in an interview. “It’s a parallel track – one is to close down stores and make sure enforcement is happening, the other is to make sure that new ones are opening.”
“We’re not moving fast enough,” Cooney added.
At a Senate hearing in late October, executive director Chris Alexander testified that he did not think fines were enough to deter unlicensed shops. In response to questions, he said that he expected OCM’s administrative hearings to resume within weeks. But months later, the hearings have not resumed. OCM said it is seeking expanded enforcement powers to padlock stores instead of issuing fines.
Sen. Cooney told THE CITY he was unaware of this and found it “very concerning.”
The fines levied by the Tax Department are determined by a formula that assesses that unlicensed shops owe up to two times the amount of tax that would have been due on that illicit cannabis, the deficiency notices said.
Both letters reviewed by THE CITY say that more than 12 pounds of illicit cannabis had been seized but do not show specifically the details of the calculation. The law affords people the right to appeal the fines, which may be part of the reason why the agency has not collected any fines from unlicensed shops yet.
But in both instances, the shops had been raided by the OCM and the Tax Department and had product seized but the state cannabis agency had withdrawn their proceedings.
“Of course no one is paying them,” said Paula Collins, a lawyer who represents clients who operate unlicensed smoke shops. “They thought it was over.”