NYC Crackdown on Illegal Cannabis Shops Shutters 3,000, Creating Opportunities for Legal Retailers

LOS ANGELES- New York City has intensified its efforts to close nearly 3,000 unlicensed cannabis dispensaries, a move that could provide a boost for legal retailers struggling with high rents and intense competition. Since the state authorized the crackdown last month, hundreds of illegal shops have been shut down, with many more voluntarily closing to avoid enforcement actions.

Real Estate Impact

The closure of these illegal dispensaries is leaving a significant number of vacant retail properties across the city. Real estate brokerage Meridian reports daily inquiries from landlords who previously leased space to these cannabis stores. Jordan Langer, an associate at Meridian, noted, “There had been this demand across every sort of neighborhood. It’s not specifically one neighborhood in Manhattan. Every single neighborhood has multiple shops on every block.”

An example is the property at 738 Broadway, near New York University and Washington Square Park, previously home to Roll Up Nation. The smoke shop was paying $50,000 a month in rent, $15,000 more than the current asking price. “They were willing to pay anything,” Langer said of the now-shuttered shops. These businesses were able to thrive by selling high-margin products without paying sales tax, even convincing landlords they were just smoke shops and not selling cannabis.

Legal and Enforcement Developments & Public Health and Safety

New York legalized recreational cannabis in 2021, but struggled with the rollout of licensed businesses. This allowed unlicensed shops to flourish, leading to what was described as a “Wild West” market. In 2023, state legislation gave the Office of Cannabis Management more authority to inspect and fine illegal sellers, but it was not until April of this year that regulations were passed enabling local officials to padlock unlicensed stores.

Mayor Eric Adams’ administration launched “Operation Padlock to Protect” in May, resulting in the closure of over 3,000 shops. According to Reuters, 640 illicit sellers have been shut down since May. A federal judge recently upheld the city’s enforcement efforts, citing a “low risk” of error in seizing marijuana and a “substantial government interest in protecting public safety.”

Authorities argue that the unregulated products from these illegal shops pose significant public health risks. The lack of proper manufacturing and labeling controls, along with the risk to minors, were key factors in the judge’s ruling against the unlicensed retailers. The city has seized $20 million in illegal cannabis and imposed $51 million in fines.

Boost for Legal Retailers

For licensed cannabis businesses, the crackdown provides a much-needed relief. Legal retailers have struggled against unlicensed competitors who do not pay taxes or adhere to state regulations. Sasha Nutgent, retail director of Manhattan’s Housing Works Cannabis Co., noted that enforcement used to be “kind of a joke, and now it’s not.” Legal shops like The Cannabis Place in Queens have reported increased business since the crackdown, with manager Tamer Eltabib noting a 35% rise in sales.

Despite the crackdown, some unlicensed retailers are fighting back. Twenty-seven unlicensed stores sued New York City, claiming the enforcement violated their constitutional rights to due process. However, U.S. District Judge Paul Oetken denied their request for an injunction, allowing the crackdown to continue.

New York City’s intensified efforts to shut down illegal cannabis shops are reshaping the retail landscape. While the crackdown creates challenges for landlords and former shop operators, it presents new opportunities for licensed cannabis businesses to thrive. The city’s actions underscore a commitment to regulating the cannabis market, ensuring public safety, and supporting legal enterprises. As enforcement continues, the legal cannabis market in New York is expected to stabilize, providing a model for other states grappling with similar issues.