The Smokeout Act is nothing new (Guest Column)

This post was originally published on this site.

This guest column is from Paula Collins, EA, Esq., a tax attorney dedicated to the cannabis industry, a co-founder of the NY Consortium of Cannabis Accountants, and an adjunct professor at Pace University’s Elisabeth Haub School of Law, where she teaches Cannabis Law and Policy. The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views or positions of NY Cannabis Insider.

The Smokeout Act was introduced in the NY Assembly on Dec. 29, 2023, exactly one year after Housing Works Cannabis Co. opened as the state’s first licensed adult-use dispensary. The very title, “The Smokeout Act,” conjures images of yore and the jingle for a television commercial for the Campfire Girls.

The Smokeout Act is nothing new. This is not a turning point; it is a regurgitation of other enforcement measures that have been tried before and have not worked. It is not a “crackdown,” as alleged in the press. Somehow, the journalists love that term: crackdown. I think it’s the crackle part that feels so satisfying to say. One of those silly things that make people laugh hysterically when they have been “smoking out.”

The smoke and mirrors effect of the Smokeout Act is that municipal authorities are given the ability to seize property immediately if there is reason to believe unlicensed sales have occurred. “A municipality shall have the authority to order the immediate closure of any business which is found to have violated the provisions of this section.”

Cue: God Bless America – I thought we were entitled to due process.

I can hear the hardliners already: “This puts real TEETH into enforcement by putting it all in one bill.” (Such an image; I’ll spare you the GIPHY.) Basically, they can seize real property, turn it over to the district attorney, and sell it.

I’m unclear on the timeline. And did I mention due process? Paragraph 3 talks about a proceeding conducted within 30 days of the seizure. Paragraph 5 gives folks a chance to say, “Hey wait – I didn’t know about the weed.” Paragraph 6 talks about a five day notice for a sale, with proceeds paid into the general fund of the county. Paragraph 7 gives an opportunity to recover the property and Paragraph 8 says you have to speak up within two years. If they mistakenly sold your stuff before you got around to filing documents to recover your property, you can get the money minus the legal fees. Sorry about the stuff. It will be long gone.

The hardliners I mentioned above take great glee in saying, “But now they can ‘go after’ the landlords!”

Again – the imagery is almost better than the actual text. I suppose they are chasing the landlords around the smoked-out crackling campfire? But again – this is nothing new. Calm down. In many municipalities, including NYC, they have had the ability for years to “go after” landlords, pursuant to the city’s nuisance laws.

Honestly, you had all of this in Part UU of the ELFA Bill, passed in May of 2023. That was the thing that they apparently could not pass as a standalone bill, so they had to include enforcement provisions with the omnibus budget bill – not as Part A, not as Part Z, but almost a second cycle through the alphabet at Part UU.

In Part UU, or really in the Consolidated Laws of New York, Cannabis, Article VI, Section 132, you had the ability to seize product, slap defendants with a Class A misdemeanor, and charge fines that have totalled in real life into the low millions. Nobody has paid fines in the millions. Fines in the millions have been recommended, but to my knowledge, have not yet been collected. I picture some combination of Gov. Kathy Hochul, Attorney General Tish James, or Cannabis Control Board Chairwoman Tremaine Wright as Lucy, from Peanuts, rattling the can with nickels in it. But I digress.

Meanwhile, I have to check the potency of the products I’m ingesting. When I look for the part in the posted law that allows for a business owner to refuse an inspection, I see it in N.Y. Cannabis Law § 132. Paragraph 1 (b), clearly states that a business owner may refuse an inspection; a refusal of inspection will result in a $4,000 penalty on the first refusal, and $8,000 on the second refusal.

All of that got left out of the regulations posted on the OCM site. You can refuse a field sobriety test when you crash a car, possibly causing bodily injury or death to another human being. My practical experience is that currently in New York it is not possible to invoke the right to refuse an “inspection,” aka “raid,” of a suspected unlicensed cannabis shop even though that right was signed into law. The enforcement agents simply barrel on through and say that there is no right of refusal. N.Y. Cannabis Law § 132 Paragraph 1 (b) does not align with the regs.

As for that bit about “going after” the landlords, I can attest that this “going after” is already going down in each of the five boroughs. NYPD is now the agency that usually enters the business, seizes product, and eventually posts a civil suit on the docket that names the landlord as defendant/respondent. Sometimes there is a parallel OCM seizure and Notice of Violation, but not always. Understand that the suit that pits the City versus the landlord is currently not an immediate slam-bam-thank-you-ma’am closure. The cases move slowly but steadily along on the docket, with opportunity for dialogue, defenses, stipulation and settlement, and representation from counsel. It is a fair and transparent process. Judges, NYPD attorneys, counsel for landlords, counsel for the business owner are all involved.

And that’s not all. Other things are happening in the city that support closure of the unlicensed cannabis shops. For example, I’m noticing an acceleration in cigarette and vape violations. Some shops that have carried penalties and fines on the books since 2019 have suddenly had the city demand payment, thus forcing the business to close within a few weeks of getting notice.

Another example I’ve seen are agency actions having to do with labor issues resulting in immediate closure orders. When I say immediate, I mean the employees and customers have about 10 minutes to exit the premises. In those cases, the business owner can get the closure order lifted with a few phone calls and payment of nominal sums of money (less that $5,000, usually).

I’m still seeing press putting the estimated number of shops as 1,500 for New York City. Are they high? Take the 2,300 blocks in Manhattan, then multiply that times five, and you have an approximation of how many shops are in the city. And really, most of the cities and towns now have little clusters of unlicensed shops. I see almost as many shops in some of the smaller cities and rural areas as I see in Manhattan.

The newcomers to the scene are the mushroom shops. (Didn’t I tell you to be careful what you wish for when you say we need to close the unlicensed cannabis shops?) One business owner told me he was “done’ with weed. He’s going all-in on mushrooms. Candy bars, gummies, teas, mushrooms, tablets. “Office of Cannabis Management can’t touch me then.” I explained the seriousness of this and withdrew my representation when he could not be dissuaded.

But enforcement is by no means consistent. The high-end shops that look more like Apple stores get passed by while other shops get hit. There is most definitely an ethnic component, with roughly 95% of all enforcement measures being taken against Yemeni-owned shops. I’m not wishing to share the burden with shop owners from other cultures, but I do wonder how the list for selective enforcement is selected. The representation of Yemeni-owned businesses on the docket is disproportionate to the total number of shops in the city. I’d call it 99.420%, based on statistics I just made up while typing this. You get the picture.

This year’s budget added $5 million and funds to hire 37 new cannabis officials to help deal with enforcement. Let’s see – that will last us from now until around the end of February, with a reminder that February is a short month. In other words, the $5 million for enforcement won’t last for long.

OCM tried enforcement, but they are no longer in that line of work. Basically, it didn’t fit their brand. On Oct. 27, 2023, in a report in the media, OCM Executive Director Chris Alexander confirmed that OCM hearings had been suspended. “It was never OCM’s mission to do this type of enforcement … I want to be very clear that the strategy has not worked.”

Let me clarify: they still do the OCM raids, but they don’t do the OCM hearings. Did I mention due process? True, they are withdrawing violations, so there is no monetary penalty. But the shop owners report that the authorities come in, disable the security cameras (like – what exactly are they doing that they don’t want anyone to see?) and take all of the product. No violation. Thanks for the product. Where exactly is that product going? We really don’t know, do we? Wait. Did they get raided, or did they get robbed? Some business owners are not 100% sure at the end of the hours-long ordeal.

But, as Chris Alexander said, “the strategy has not worked.”

In the past 12-14 months, NYC Councilwoman Gale Brewer has seen the number of shops in her district increase during the time period she has been tracking this phenomenon. I guess the strategy hasn’t worked for Gale Brewer, either.

And for all of the Attorney General’s efforts since early 2022, a grand total of (drumroll please) nine (9) shops have been closed statewide. Bear in mind, this is after several months of litigation, discovery, motion practice, not to mention the boots-on-the-ground SWAT teams that have fanned out across the state.

Let’s see: $5 million divided by 9 is $555,555.56 per shop. I can provide you with a list of CAURD licensees for whom that $555,555.56 that the state spent on enforcement would be literally life-changing if applied to their business development. Seriously. Wouldn’t the enforcement budget be better spent on grants to the soon-to-be-announced Social and Economic Equity licensees?

The only real result of the Smokeout Act will be that a few more politicians will get headlines to show their constituents that they are doing something, while a few more reporters get the fulfillment of saying a few of their favorite things like “crackdown” and “go after landlords.”

Despite the reports that the unlicensed shops are wreaking havoc on the licensed shops, I would point out that not a single unlicensed shop has caused the slow rollout of licensed dispensaries. The slow roll out is entirely due to OCM policies, regulations, and litigation.

I remain committed to a regulated New York cannabis market. However, the Smokeout Act, or any other form of enforcement, is not going to get us there. Not in 2024. Not ever. The government lost the War on Drugs. Let’s find a different way.