NY crackdown on illegal weed shops doomed to fail as owners hide in the shadows, lawyers say

Gov. Hochul’s plan to clamp down on illegal weed shops with stiffer fines is doomed to go up in smoke because the shadowy owners of the unlicensed stores hide behind legal loopholes, multiple lawyers told The Post.

Hochul pitched new legislation last month that would slap businesses $10,000 per day for selling pot without a license and fine stores peddling black market weed from out of state up to $200,000.

However, the majority of the illegal smoke shops are owned through limited liability companies (LLCs) and some are corporations, a lawyer who has represented illicit store owners told The Post.

“Most of these shops don’t have bank accounts,” said attorney Paula Collins. “These are cash businesses.”

“They say we are going to put this tax lien on you. How are you going to collect that?”

“There’s nothing to seize.”

Mayor Eric Adams has estimated that there are 1,500 illegal pot shops that have taken root in the city since the state legalized recreational marijuana use in 2021. Hochul put the number at 2,500. 

Collins claimed the total is closer to 5,000, adding that the average illegal smoke shop is making $2,000 to $3,000 profit a day.

Many of the illegal smoke shop owners are increasingly converting their LLCs to corporations since corporations do not carry any personal liability after they dissolve, Collins said, which will make Hochul’s clampdown even less effective.

“When Hochul says she wants a $10,000 fine, I giggle,” Collins said. 

Many of the unlicensed stores are owned by people from Yemen, several sources said.

Collins said she also has clients who hail from countries in the Caribbean, including the Dominican Republic.

Revealing the true identities of the owners is dicey, since  LLCs are commonly used by everyone from celebrities to mom-and-pop real estate investors.

“There are circumstances where the state could go in and peel back the limited liability protection and pierce the corporate veil to see who owns the LLC”, said Richard Weltman, whose firm Falcon Rappaport and Berkman represents legal shop owners.

“I think some operators will just close their doors and you’ll never hear from them again,” Weltman added, “But there could be a few poster child cases.”

Hochul’s proposed crackdown would also allow the state to physically padlock the doors of illegal storefronts, authorize warrantless searches of businesses and vehicles where it is suspected that illegal weed is being sold, and seize illegally obtained cannabis products.

But enforcement falls on the woefully understaffed Office of Cannabis Management, which currently has only 150 workers, and the Department of Taxation and Finance.

Jeff Schultz, a lawyer for Feuerstein Kulick who has experience investing in the legal cannabis industry, likes the Hochul plan but believes it alone will not solve the problem.

“These are very steep fines. This should slow it down,” he said.

Still, he and other critics blame the crisis on the state’s half-baked rollout for obtaining a license in the two years since the law was passed. There are currently just four legally licensed smoke shops in a city of nearly 9 million people – among 165 statewide.

“Until there are more legal shops that compete with [illegal stores] you won’t shut them down,” said Schultz.

“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,” Schultz said.

The toothless enforcement of the illegal marijuana shops and the bushels of weed coming in mainly from California poses great risks to pot smokers, according to a report co-authored by the New York Medical Cannabis Industry Association last November.

“Many of these locations falsely advertise the sale of THC products as legal or licensed, misleading consumers and selling products blatantly masquerading as popular name-brand chocolates, candies, gummies, and other well-known snacks,” the report said.

The agency bought products from 20 illegal New York City stores in August and sent them to a third-party laboratory.

“Results revealed the presence of several harmful contaminants, such as E. coli, pesticides, heavy metals, and salmonella in 40 percent of the illegal products purchased, including vapes,” the report said.

Law enforcement officials also blame feckless politicians for their lack of will to sweep out the drug dealers. 

The truth is “there’s no way [Manhattan DA] Alvin Bragg is going to use his resources to go after these smoke shops,” said a former DEA agent, who recently cracked down on illegal cannabis sales in other states. ”No one wants to spend resources on marijuana.”

“These illegal shops would not be hard to take out but it would take resources and time.”

Collins proposed a more practical solution to stopping some of her clients from skirting the law.

“Make them pay $200,000 for a license, and require them to have a bank account and pay payroll tax,” she said, adding that some owners would willingly come out of the shadows.

Meanwhile, Hochul’s proposed crackdown remains stalled as Albany dithers over passing a state budget that is already three weeks late.  

“Gov. Hochul will continue to work with the legislature and our partners in law enforcement to crack down on illegal operators, enforce the law, and explore every possible mechanism available to protect the health and safety of New Yorkers,” Hochul’s First Deputy Press Secretary Avi Small told The Post.