Licensed NYS pot dealers are seeking right to sue illegal operations

ALBANY — Frustrated by what they see as the state’s insufficient efforts to shut down illegal pot shops, licensed marijuana dealers are looking to go another route:

They want the right to sue illegal dealers themselves.

A coalition of retailers, middlemen and growers is pushing hard to get the State Legislature to enact a law giving them a “private right of action” to go after and shutter illegal competitors.

With thousands of illegal shops proliferating and lawmakers reluctant to stiffen any criminal penalties related to marijuana, the coalition is essentially saying: If you won’t do it, empower us.

Coalition members believe a bill will be proposed in Albany soon and they will push to get it approved by Gov. Kathy Hochul during the 2024 legislative session.

“This is an all-hands-on-deck moment,” said Britni Tantalo, president of the New York Cannabis Retail Association, in a statement.

“While we appreciate and support the efforts of state regulators, we need to empower the private bar to help shut down the thousands of illegal businesses that are putting public health at risk and damaging legal businesses that play by the rules.”

The association represents nearly 300 cannabis businesses

The reason businesses need a right to sue, industry and insiders say, is that state efforts to fine, shutter and otherwise slow the spread of illegal shops aren’t sufficient.

The estimated number of illegal shops is “deep into the thousands,” state senators said at a hearing last fall. The number of legal shops is deep into the dozens, because of lawsuits, bureaucratic red tape and other legal issues.

Further, illegal shops can undercut the prices of licensed dealers, because they aren’t paying taxes on cannabis sales.

Efforts to slow the spread, fine and shutter illegal shops largely have been ineffective. Fines are too low, court orders too slow to execute and no single state agency has enough staff focused on the issue, advocates and lawmakers have said.

Further, a progressive leaning State Legislature has been reluctant to enact stiff penalties for selling marijuana, even illegally, since New York has decriminalized cannabis.

That’s why the industry is saying give us the right to sue illegal shops.

“The state doesn’t have an army to do enforcement. So let us protect ourselves,” a lobbyist working on the issue at the State Capitol told Newsday.

They want state lawmakers to give them a “private right of action” to target illegal competitors. In short, a private right action allows a private plaintiff, as opposed to a public agency or government, to commence a lawsuit to seek relief from injuries caused by another’s violation of a legal requirement — such as obtaining a license to sell cannabis.

Sen. Brad Hoylman (D-Manhattan), who has railed at the proliferation of illegal shops in his borough, met with advocates recently and said he plans to formally propose legislation.

“I think everyone admits more needs to be done … and it’s time we look at as many options as possible — a civil mechanism such as a private right to action is one such tool that should be on the table,” Hoylman said in an interview.

“Allowing individuals, who have skin in the game, to go after illegal operators seems like a no-brainer,” the Democrat added.

The state Tax Department has been conducting raids, which typically result in fines — but those haven’t slowed illegal operations.

As for actually collecting the fines? The state has levied more than $25 million in fines against illegal smoke shops — but collected just $22,500 of that, as first reported by The City, a nonprofit news organization.

Vows to padlock stores have been ineffective. The state Office of Cannabis Management — which has just 14 investigators, Syracuse.com reported — doesn’t have a robust enough staff. And the fines — even at $20,000 a day — are too low to have impact, lawmakers said.

“You’ll spend time and resources closing stores,” said Sen. Liz Krueger (D-Manhattan) at the Senate hearing. “And two days later, they’ll reopen.”

Hochul toured Manhattan last month to tout proposals she said put “some teeth” into enforcement. Among the ideas: Authorizing local governments to execute “padlock” orders issued by the Office of Cannabis Management.

OCM could obtain shutdown orders from a court, then delegate the duty to local governments which, in theory, have more staff and just as great incentive to shutter illegal shops.

The governor said the state needs to act to protect the fledging cannabis market — and the retailers, distributors and growers doing business legally:

“Their businesses, their very existence, is under attack by illegal pot shops that seem to line every block, sometimes every other building, in neighborhoods in this City and across the State of New York. These illicit vendors flagrantly violate our laws by selling to kids, evading our taxes, and engaging in fraudulent advertising about their products … [it] is an unfair competition that has gone on far too long.”