NYC’s cannabis crackdown sparks class-action over enforcement tactics

New York’s aggressive efforts to shut down unlicensed cannabis retailers may have hit a legal snag, with a class-action lawsuit filed last week in federal court alleging that the tactics violate the constitutional rights of shop owners.

The lawsuit, brought on behalf of 27 businesses caught up in the city’s “Operation Padlock to Protect” enforcement blitz, seeks an injunction to halt the practice of padlocking shops without judicial oversight and compensation for lost revenue and other damages, according to the complaint.

Since launching the operation on May 7, the city closed 311 stores suspected of selling cannabis without a license, seized $10.4 million worth of products, and issued $23.4 million in fines through June 3, the mayor’s office said.

The crackdown was enabled by changes to state cannabis laws passed in April, which granted the New York Police Department and the local sheriff’s office permission to immediately lock up a store suspected of unlicensed cannabis sales without first obtaining a court order. City officials argue this power is necessary to combat the estimated 2,900 unlicensed cannabis shops operating in the city, compared to just 62 licensed retailers.

However, the lawsuit contends that this practice is unconstitutional because it lacks judicial oversight.

“The SMOKEOUT Act further violates the Due Process Clause of the Fourteenth Amendment because even with no judicial process afforded before the Sheriff seals a business, the Sheriff is then authorized to, after merely considering a recommendation from an OATH hearing officer, seal a business for one full year, all without any Court review or determination of wrongdoing by the business,” the complaint argues.

“The Sheriff chooses to close a business based upon its own unilateral decision that a business was selling or offering to sell cannabis without a license and poses an imminent threat to the public’s health, safety, or welfare,” the complaint states.

Under the current system, store owners can have a hearing with OATH within five days of a raid, but the administrative officer can only recommend overturning a closure; the final decision rests with the sheriff’s office. If the closure is upheld, it remains in place for a year, according to the complaint.

“These widespread constitutional violations must stop, and Plaintiffs and the class members must be compensated for the significant monetary harm Defendants’ unconstitutional actions and practices have caused Plaintiffs and the class members to incur,” the complaint said.

The crackdown has been welcomed by some licensed dispensary owners, who have struggled to compete with unlicensed shops that sell cheaper products without collecting taxes.

“I have noticed a huge increase in numbers over the last few weeks,” Jennifer Tzar, CEO of licensed retailer Dagmar Cannabis in Soho, told Green Market Report last month.

The task force also busted a Brooklyn warehouse filled with millions of dollars worth of illegal cannabis products, including oddly colored flower, edibles, and pre-rolls, the Green Market Report noted.

Cat-and-mouse game

While the crackdown has forced many unlicensed shops to close, others are adapting to avoid detection. Some unlicensed sellers have pivoted to mobile delivery services, with Green Market Report observing one minivan openly selling cannabis on the street across from a padlocked store.

That cat-and-mouse dynamic could suggest that fully eliminating the illicit market will remain a challenge, even as the crackdown intensifies. But for now, the early results are promising, offering a glimpse of what a more level playing field could look like for New York’s adult-use program.

Still, advocates for the unlicensed shop owners argue that their livelihoods are being jeopardized.

“A closure order can mean the death of a small business,” Charles McMellon, an attorney representing shops that have been shut down but aren’t part of the lawsuit, told The Gothamist.

This comes as Gov. Hochul tries to overhaul the state regulator’s office and clear its backlog of licensing applications.