Legal hemp operators claim they’re victims in New York marijuana crackdown

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Image of New York Gov. Kathy Hochul making an announcement

Gov. Kathy Hochul makes an announcement about Operation Padlock to Protect in New York City. (Photo by Susan Watts/Office of Gov. Kathy Hochul)

New York law enforcement and marijuana regulators are raiding and closing licensed hemp shops under the guise of a statewide crackdown on illicit marijuana sales, according to claims made in court and interviews with MJBizDaily.

The hemp merchants’ allegations are the latest example of intensifying conflict between the $32 billion state-regulated marijuana industry and intoxicating hemp-product competitors who claim legal protection under the 2018 federal Farm Bill.

The situation is particularly fraught in New York, where state-regulated marijuana is still attempting to recover from a disastrous market rollout more than three years after legalization.

Critics contend that instead of speeding along the glacial pace of reviewing license applications, authorities are focusing instead on a headline-friendly crackdown.

“They’re shutting down unlicensed marijuana stores, but my hemp clients are collateral damage,” said Joshua Bauchner, a New York City-based attorney who claims to represent 12 hemp merchants that alleged they have been erroneously penalized by the state.

“The governor and the mayor, because it polls well … they don’t give a damn.”

‘Hundreds’ of hemp shops raided

The state Office of Cannabis Management (OCM) did not provide comment after multiple MJBizDaily inquiries.

In statements to other media, the OCM has declined to offer perspective, citing pending litigation.

The lack of official data makes the scope of the situation – and determining whether the affected merchants are abiding by state law that prohibits most intoxicating hemp products – difficult to quantify.

But according to claims from hemp businesses and attorneys, “hundreds” of hemp shops have been raided or closed since a statewide crackdown on unlicensed marijuana sellers launched this spring, the Albany Times Union recently reported.

New York legalized adult-use marijuana in March 2021, but the first regulated retail store did not open until December 2022.

The situation, which Gov. Kathy Hochul earlier this year called a “disaster,” allowed thousands of unlicensed retailers to flourish throughout the state and jeopardized the nascent marijuana market.

Earlier this spring, state lawmakers granted law enforcement and the OCM new powers to crack down on merchants suspected of selling marijuana without a license.

Hochul and other prominent elected officials such as New York City Mayor Eric Adams have credited the new powers, which allow local authorities to lock the doors of suspected illicit marijuana sellers – and keep them locked, pending administrative hearings – with helping to boost state-regulated sales.

Through the end of July, authorities have shuttered more than 1,000 stores statewide, Hochul said recently.

In New York City alone, authorities have seized $20 million of unlicensed marijuana and issued $51 million in fines, according to Adams, the New York City mayor.

However, the crackdown is threatened by an Aug. 14 judicial ruling in which a Queens County Supreme Court judge sided with a smoke shop’s argument that “summarily shuttering businesses prior to taking the necessary steps to determine whether a violation has occurred” violates basic due process rights.

On top of that, an increasing number of OCM-licensed hemp retailers say they’ve also been swept up in the dragnet despite abiding by state law.

Marijuana versus hemp – again

Separate from the state’s marijuana rules, the OCM also issues permits to retailers of hemp products.

In order to qualify for legal sales, a hemp product must abide by restrictions including having:

  • Less than 0.3% THC by dry weight. In New York, total THC is established by a formula that combines delta-9 THC and tetrahydacannabinolic acid, or THCA.
  • A CBD-to-THC ratio of 15-to-1.
  • A label that contains state-required product data, such as manufacturer’s name and a “scannable bar code” or website link that provides a certificate of analysis.

But, according to claims made in court, authorities are declaring hemp products “marijuana” without consulting lab results or conducting their own tests.

In one instance, New York authorities kept a midtown Manhattan hemp shop closed based on a “subjective determination that marijuana was present,” according to court records.

On July 18, the New York City Sheriff’s Office seized $130,000 worth of hemp products from Brecken Gold Athletics on West 31st St., where the company has both online and in-person retail operations, according to court records.

Despite “no evidence that marijuana was present and sold on the premises,” authorities ordered the store permanently closed two weeks later because of “sufficient evidence to establish that unlicensed cannabis was offered for sale at the premises,” according to an Aug. 20 petition to reopen the store.

“The products were not tested to determine whether they are actually non-compliant,” court records state, “and the Sheriff’s Officers did not review the third-party lab testing results contained in the Certificates of Analysis accompanying each and every product contained in the store.”

Retaliation claims

In a separate case, The OCM on Aug. 21 denied a cannabis microbusiness permit to Eric Sanchez, the owner of Papi’s Secret Stash, a CBD shop in Peekskill.

Sanchez’s denial notice, which he shared with MJBizDaily, alleges he “has a history of giving away or selling cannabis or cannabis products in an unlicensed and unauthorized manner … or otherwise poses as an authorized cannabis licensed business.”

Sanchez, who flatly denies selling marijuana at his business, said he hasn’t received an official citation or notice of violation for the alleged marijuana sales.

“Law enforcement has been in my place twice (looking for illicit sales) and came up empty-handed twice,” Sanchez told MJBizDaily via phone.

“They’ve never given a fine, they’ve not padlocked me, they’ve not stickered me,” he added, referring to the chains and notices that authorities affix to offending stores.

Sanchez said Papi’s Secret Stash sells only CBD products, not intoxicating hemp-derived products or THCA flower, which New York state law explicitly bans.

Sanchez believes the OCM might have denied him the license as retaliation for a court petition he filed June 5 asking a judge to compel the regulator to issue the permit he first applied for in November 2023.

Both a July visit from OCM inspectors and the August denial came after Sanchez’s June 5 court filing.

“They’re lumping us all into this category (of unlicensed sellers), trying to thin the herd” of pending applications, he said.

The state is due to file an answer to that filing on Aug. 30, according to the court docket.

Meanwhile, the OCM has yet to review hundreds of applications filed late last year, according to a recent update.

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Heavy-handed approach

Adult-use marijuana sales in New York totaled only $123 million in 2023, about one-quarter of projections.

The crackdown on illicit operators appears to be encouraging a recovery:

That’s all still well below what state officials and the cannabis industry expected out of New York, the fourth-most-populous state in the country and home to the most-visited city in the U.S.

Some hemp business owners told MJBizDaily they suspect that most of the raided operators were playing in the margins: selling intoxicating hemp-derived edibles with more THC than is allowed or intoxicating THCA flower, which is banned in New York.

“A couple bad apples may have ruined the bushel, but this is not the big issue in New York state,” said Joseph Rossi, the managing director at political consultancy firm Park Strategies.

But merchants including Sanchez and attorneys such as Bauchner deny they are trying to skirt the law.

Instead, they suspect the state is using the blunt tool of enforcement to tackle the illicit-market problem and not caring about collateral consequences such as snaring a legitimate hemp business.

Enforcement and boasting about seizures are easier than devoting resources to expedite permitting to solve the licensing backlog, they allege.

“If the whole point behind MRTA (the Marihuana Regulation and Taxation Act) is to create a safe, regulated market, fine, let’s do that,” Bauchner said.

“But licensing has been decimated.

“All the emphasis is on enforcement – and because of their incompetence, they’re hurting innocent people.”

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.