NYC Pushes Unlicensed Hashish Enforcement to Landlords


In April 2023, New York Metropolis Councilmember Lynn C. Schulman launched a invoice to the Metropolis Council which might prohibit landlords from leasing to a industrial tenant engaged within the unlicensed sale of hashish. After being permitted by the Committee on Public Security, the invoice was despatched to, and likewise permitted by, the total Council on Thursday, June 22nd. It’s going to now be despatched to the desk of Mayor Eric Adams, who has 30 days to both signal the invoice and enact it into legislation, or veto it.

If enacted, the invoice would ship metropolis inspectors to suspected unlicensed hashish shops, which at present quantity within the hundreds. If the inspector finds that unlawful hashish is being bought on premises, the owner would face a high quality between $5,000 and $10,000. A second inspection would later happen, and if the owner can present proof that eviction proceedings have begun because the first inspection, the fines could also be averted. Together with the state businesses at present approved to examine for related violations, the invoice would enable the mayor to designate any state company to examine for such. Whereas the levying of fines in opposition to landlords might considerably cut back unlicensed hashish shops, a sure provision of the invoice could enable for a loophole to be exploited by these unlicensed shops, as additional mentioned beneath.

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Actions in opposition to the illicit companies themselves have already begun in earnest, as Governor Kathy Hochul granted the Workplace of Hashish Administration (OCM) with enforcement powers newly backed by the state’s FY 2024 Funds. The timing of the invoice’s approval coincides with the Governor’s report that just about $11 million price of illicit hashish merchandise have been seized all through the state up to now. The extra step of fining landlords who knowingly hire to unlicensed operators has lengthy been proposed as a deterrent in opposition to the illicit market.

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The Current Markets

New York successfully has two hashish industries: the authorized one, born of the Marihuana Regulation and Taxation Act (MRTA) in March 2021, and sure by the OCM’s inflexible regulatory framework, and the unlawful one, which is vastly bigger, older, and unfettered by the restrictions positioned on authentic licensees, together with the fee of taxes, and public security prohibitions on working in delicate places or promoting to minors.

Lengthy earlier than the primary state-licensed dispensaries opened their doorways, it was clear that the 2 industries couldn’t really coexist. The unlicensed market (AKA the legacy market, the grey/black market) has opportunistically exploded because the MRTA legalized hashish all through the state, and has continued to proliferate at mild pace when in comparison with the authorized market, the rollout for which has crawled sluggishly ahead below the burden of forms. Even one of many states with the longest operating authorized adult-use (leisure) hashish program, California, sees as much as $8 billion in unlawful gross sales yearly, producing considerably extra income than the authorized market.

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In response, politicians at each degree of state authorities have proposed some type of landlord accountability. The thought is that if landlords are discouraged from getting into leases with these companies or punished for having performed so, operators can be unable to safe the mandatory area or, within the occasion that they already signed a lease, will face eviction. In both occasion, these illicit operators can be compelled to contemplate going solely underground, closing their doorways or, maybe, will contemplate getting into the authorized market and acquiring a dispensary license. For a lot of legacy operators, the latter is probably not sensible. New York was the primary state within the nation to prioritize justice-involved license candidates by its Conditional Grownup-Use Retail Dispensary (CAURD) program. However almost two and a half years after MRTA handed, and with hundreds of adult-use hashish purposes submitted, there are solely a handful of legally compliant dispensaries open for enterprise in New York.

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Landlords who lease area to unlicensed operators can’t plead ignorance to keep away from fines. It was initially believed {that a} landlord couldn’t lease on to a CAURD license holder, however moderately would enter right into a lease with the Dormitory Authority of the State New York (DASNY), which might then sublease the area to the license holder. The issue in finding and securing compliant premises has led to the OCM approving places for non-DASNY managed premises. Each DASNY leases and these stand-alone leases, which Falcon Rappaport & Berkman has intensive expertise with, are specific of their construction and objective. For these unlicensed shops, landlords throughout the town enter into non-DASNY leases with tenants who conspicuously promote THC merchandise on the market. Below the proposed invoice, these landlords can be at excessive threat of enforcement motion, notably after a metropolis company warning letter which might disallow any landlords’ claims of ignorance.  Falcon Rappaport & Berkman can help Landlords in drafting leases with extra strong use restrictions to discourage unlicensed hashish gross sales and ease eviction actions within the occasion such unlawful use has occurred.

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Unexpected Penalties

Fining industrial landlords and/or encouraging them to evict illicit hashish tenants is a predictable step within the implementation of New York’s authorized hashish market. With out it, authentic license holders will proceed to be at a drawback within the trade, and neither shoppers nor most people will reap the advantages of a well-regulated market.

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Nevertheless, the best way through which we high quality these industrial landlords, or enact different enforcement motion, should be rigorously examined. A provision of the proposed invoice, part C.1., specifies that written discover following an inspection (and presumably any future fines) are just for a property that’s used to promote illicit hashish merchandise and “is just not occupied for another licensed or lawful objective.” Whereas the invoice should lead to fines in opposition to landlords of unlicensed hashish shops, this provision signifies that if the premises is used for one more lawful objective, these fines in opposition to the landlords could not apply. The present unlicensed market consists of not solely stand-alone hashish shops, however of bodegas and comfort shops promoting hashish merchandise, the landlords of which is able to seemingly keep away from penalties below this proposed invoice.

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The complexity and flexibility of the unregulated market shouldn’t be underestimated. If enacted, this invoice will hinder some vital rivals to adult-use dispensary licensees, however can be removed from addressing all the unregulated market in NY. Frequent reassessment of enforcement motion and well-crafted insurance policies can be essential to make sure a flourishing New York adult-use hashish trade.

Michael A. Curatola, Esq. helped co-author this text together with contributions from Andrew P. Cooper, Esq., LL.M., and Ariel S. Holzer, Esq. 


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