Governor Hochul's recent proposal to impose stricter fines on illegal marijuana shops may not have the intended impact due to legal loopholes exploited by store owners, according to several lawyers.
Hochul introduced legislation last month that would fine businesses $10,000 per day for selling marijuana without a license and impose fines up to $200,000 on stores selling black market weed from out of state.
However, many of these illegal smoke shops are owned through limited liability companies (LLCs) and some are corporations, said an attorney who has represented illicit store owners. Paula Collins, the attorney, explained that most of these stores operate as cash businesses without bank accounts, which makes collecting fines difficult.
"They say we are going to put this tax lien on you. How are you going to collect that?" she asked, adding that "There's nothing to seize."
Mayor Eric Adams estimated that around 1,500 illegal pot shops have opened in the city since the state legalized recreational marijuana use in 2021, while Hochul placed the number at 2,500.
Collins, however, believes the actual figure is closer to 5,000, and stated that the average illegal smoke shop earns a daily profit of $2,000 to $3,000.
According to Collins, many illegal smoke shop owners are increasingly converting their LLCs to corporations to avoid personal liability after dissolution. This move will likely render Hochul's proposed clampdown even less effective. "When Hochul says she wants a $10,000 fine, I giggle," Collins remarked.
Several sources have revealed that many of these unlicensed stores are owned by individuals from Yemen, while Collins added that her clients also include people from Caribbean countries like the Dominican Republic. The true identities of the owners are difficult to uncover since LLCs are used by a wide range of individuals and businesses, from celebrities to small-scale real estate investors.
Richard Weltman, a lawyer whose firm Falcon Rappaport and Berkman represents legal store owners, stated that the state could potentially "peel back the limited liability protection and pierce the corporate veil to see who owns the LLC" in some cases. Weltman also suggested that some operators might simply close their doors, but a few could become "poster child cases."
Hochul's crackdown proposal would also empower the state to physically padlock the doors of illegal storefronts, authorize warrantless searches of businesses and vehicles suspected of selling illegal weed, and seize unlawfully obtained cannabis products.
However, enforcement relies on the Office of Cannabis Management, which has only 150 workers, and the Department of Taxation and Finance, both of which are currently understaffed.
Jeff Schultz, a lawyer for Feuerstein Kulick with experience in the legal cannabis industry, supports Hochul's plan but believes it alone will not resolve the issue. "These are very steep fines. This should slow it down," Schultz said.
He and other critics argue that the state's delayed licensing rollout since the law's passage two years ago has contributed to the problem. Currently, there are only four legally licensed smoke shops in a city of nearly 9 million people, with 165 statewide.
"Until there are more legal shops that compete with [illegal stores], you won't shut them down," Schultz asserted. He also criticized the lengthy process, saying, "It's two years and while I completely appreciate that it takes time to get this program right and OCM is understaffed, it's an abomination how long this is taking."
The lax enforcement of illegal marijuana shops and the influx of weed from primarily California poses significant risks to consumers, according to a report co-authored by the New York Medical Cannabis Industry Association last November. The report revealed that 40% of illegal products purchased from 20 New York City stores
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