The “gray” marijuana market of pop-up storefronts, smoke shops, bodegas, and mobile stores throughout the New York state have been illegally selling marijuana while the Office of Cannabis Management (“OCM”) finalizes regulations governing the legal market.

Although OCM and the Cannabis Control Board (“CCB”) established emergency enforcement regulations, those regulations have had little to no effect in curbing the illicit cannabis market. That could soon change after Governor Kathy Hochul signed new legislation on May 3 that increases civil and tax penalties for the unlicensed and illegal sale of cannabis.

The legislation provides OCM and the Department of Taxation and Finance the power to enforce the new regulatory requirements and close stores engaged in the illegal sale of cannabis. Specifically, this change to state law will allow OCM to assess civil penalties against unlicensed cannabis businesses, with fines of up to $20,000 a day for the most egregious conduct. This legislation also establishes a new tax fraud crime for businesses willfully failing to collect or remit required cannabis taxes or that knowingly possess any taxable recreational for which taxes are delinquent.

In addition, this new legislation will allow OCM to seize untested cannabis and cannabis products from unlicensed businesses and seek court orders, closing orders, and orders to remove commercial tenants selling cannabis and cannabis products without the appropriate license.

The Department of Taxation and Finance can now conduct regulatory inspections of businesses selling cannabis to determine if appropriate taxes have been paid and can levy civil penalties in cases where applicable taxes have not been paid.

OCM Executive Director Chris Alexander said, “Today's legislation will further those goals by giving the Office of Cannabis Management real power to shut down businesses trying to flout our laws and ensure that communities who were promised reinvestment dollars are not shortchanged."

New York State Acting Commissioner of Taxation and Finance Amanda Hiller said, “Strengthening tax laws as they pertain to the cannabis industry and providing for robust and fair enforcement will help the industry to be successful over the long term.”

To date, 165 retail dispensary licenses have been granted, but only eight dispensaries are open for business and only one delivery option exists in the State.