With more than 1,000 businesses shut down in New York City for allegedly selling cannabis without a license, a joint committee report on Operation Padlock to Protect noted due process concerns after a recent ruling by a state court judge “has thrown into question how many of these stores will be allowed to reopen.”
Already, one convenience store in Queens County was allowed to reopen after a state Supreme Court judge lifted the New York City sheriff’s sealing order. Now, a newer lawsuit filed by five licensed hemp companies also alleges Sheriff Anthony Miranda has refused to lift a sealing order after the regulating body, the Office of Administrative Trials and Hearings (OATH), found the city government, “failed to establish that the store posed an imminent threat.”
Meanwhile, the city’s Department of Investigations is looking into whether the sheriff’s department has improperly seized money from stores, The New York Times reported on Sept. 26. An attorney representing padlocked store owners had raised allegations of improperly seized cash during a city council committee hearing the previous week.
The Marijuana Regulation and Taxation Act that legalized adult-use cannabis in New York in 2021 also authorized the Office of Cannabis Management (OCM) to regulate hemp product manufacturers and retailers. Beginning in 2021, hemp retailers had to obtain a license and follow separate rules regarding the sale of legal hemp products.
As the OMC struggled to issue cannabis business licenses, illegal cannabis stores popped up around the state. In New York City alone, an estimated 3,600 illegal cannabis businesses were operating, according to the sheriff. But after efforts to close these businesses through the court system in 2023 failed, the SMOKEOUT Act was included in the state’s Fiscal Year 2024-25 budget, which created a task force and allowed the OCM to padlock illegal stores. In New York City, the sheriff was given authority to lead the effort and issue sealing orders under Operation Padlock to Protect in May.
On Sept. 17, a 44-page staff report was presented to the New York City Council’s Committee on Oversight & Investigations and Committee on Finance. The report provided an overview of the laws and a performance update on enforcement and penalties collected for violations under Operation Padlock, which has been only $210,000 out of more than $8 million assessed.
Enforcement teams averaging five to seven officers, including New York city police officers, have inspected more than 5,000 stores since May and confiscated items without warrants. And despite the fact that some of the stores are then forced to display signs saying they violated the law, Sheriff Miranda has refused to publicly disclose the names of the shuttered shops claiming that could improperly malign businesses found to be innocent.
“Key stakeholders focused on due process concerns hope the mayoral administration will avoid harsher tactics while continuing to shutter shops selling unlicensed cannabis products,” city committee staff said in the report.
Lawsuits challenge due process
Under city Department of Finance rules, retailers accused of violating the licensed cannabis laws will receive a summons. The sheriff’s department may also immediately issue a sealing order to padlock the shop if the business has engaged in conduct that “poses an imminent threat to public health, safety, and welfare.”
The business is entitled to have an OATH hearing within five days from receiving the summons. If they do not respond to the summons, they are found to be in violation by default and a $10,000 fine is issued for each summons.
If the OATH hearing officer dismisses the summons, it can recommend the sheriff lift the sealing order, but the sheriff is not obligated to.
However, New York Superior Court Judge Kevin J. Kerrigan on Aug. 14 ordered a sealing order against 3512 Bell Corp., a convenience store in Flushing, N.Y., to be vacated after OATH dismissed the original summons because it wasn’t properly served. The judge also found that the evidence presented at the OATH hearing failed to establish that the unlicensed activity represented an imminent threat to public safety and that the conduct was more than a de minimus part of the business.
“If the Sheriff elects to continue the sealing order absent a finding of any unlicensed activity, the individual is deprived of due process under the law,” the judge said in his order. “If the sealing order can survive after the summons is dismissed, as Respondents aver, there is essentially no point in issuing the summons or conducting an OATH hearing in the first instance.”
In New York City, more than 1,000 out of an estimated 3,600 businesses suspected of selling cannabis illicitly have been shut down since May, averaging 90 sealing orders a week, according to the committee report. Out of 1,178 violations issued, 188 have been dismissed, as of Sept. 9. Another 187 violations await a hearing.
“Many OATH cases have been dismissed because of improper service,” said the report, noting that Judge Kerrigan’s ruling meant a violation cannot stand without a valid summons. “In other words, no violation, no sealing order. If other judges and ALJs [administrative law judges] begin to adopt that interpretation, more sealing orders may be vacated.”
Prior to the 3215 Bell Corp. ruling, a state judge in July upheld the city’s enforcement process and denied a temporary restraining order requested by 27 retailers subject to sealing orders in Moon Rocket Inc., et. al, vs. the City of New York.
“The Court finds, that given the low risk of erroneous deprivation and the substantial government interest in protecting public safety,” the city code provides “adequate procedural protections to guarantee the Plaintiffs’ due process rights under the Fourteenth Amendment,” U.S. District Court Judge J. Paul Oetken said in his July 18 decision.
Hemp retailers say hemp rules should apply
The hemp retailers’ suit is one of the latest filed against the state and New York City challenging the enforcement operations over due process violations.
Brecken Gold Athletics NYC of New York City, along with Super Smoke N Save in Sarasota, Two Strains Cannabis Co. in Queensbury, Breckenridge Café NYC in Brooklyn and 100 North 3rd Ltd., doing business as 7 Leaf Clover in Brooklyn, claim they are all “caught up in the State’s disorganized dragnet against retailers illegally selling marijuana.”
They seek an injunction to prevent state and city authorities from applying cannabis laws to hemp businesses and stop the warrantless searches and seizures. Witness testimony was wrapping up in the case on Sept. 19, said the plaintiffs’ attorney Josh Bauchner of Mandelbaum Barrett PC.
Not all of the stores have been shut down. However, authorities have placed signs in the windows stating “illicit cannabis has been seized and this location must immediately cease the sale of unapproved and unauthorized cannabis products.”
Months later, four still await hearings before regulators to clear their names, according the petition filed Aug. 26 in the Supreme Court of New York, County of Albany.
One store that was shut down in New York City, Brecken Gold, had its charges dismissed following an OATH hearing, but Sheriff Miranda refused to allow the store to re-open.
“In an act of sheer arrogance, the Sheriff rebuked the findings of the judicial hearing officer, and citing no evidence whatsoever unilaterally determined that ‘Respondent engaged in unlawful activity which posed an imminent threat to public health, safety, and welfare,’” the petition says.
New York Attorney General Letitia James seeks to dismiss the petition claiming the case is not ripe because the retailers have not exhausted administrative remedies and that due process rights were not violated. In the state’s opposition to the temporary injunction and cross-motion to dismiss, filed Sept. 7, they say the products confiscated were illegal hemp products and, “Any alleged violation of Petitioners’ constitutional rights already occurred, and are not ongoing.”
The state says an injunction now, a year after the hemp regulations took effect, would undo all the work OCM has undertaken to protect the public.
“The majority of the cannabinoid hemp products currently manufactured and sold in New York comply with the Cannabinoid Hemp Regulations,” the filing said. “As such, enjoining enforcement of the Cannabinoid Hemp Regulations would at most benefit a minority of market participants (Petitioners), rather than the industry as a whole, which has proved entirely capable of complying with the Cannabinoid Hemp Regulations.”
Super Smoke N Save and Two Strains were raided in June, during which between $5,000 and $7,000 worth of product were taken from each store, they say. While both stores claim in the lawsuit to have had a hemp license since 2021, neither one appears on OCM’s list of licensed hemp retailers or list of temporary hemp retail permits.
Two Strains does have a pending application for a cannabis retail license, according to the CRB Monitor licensing database. Bauchner said Super Smoke N Save’s hemp license renewal is pending.
7 Leaf was raided in July, but authorities did not take any cannabis product. They instead seized approximately $35,000 of Amanita mushrooms, despite testing negative for psilocybin at the store, the complaint says. The manager was also arrested and jailed. 7 Leaf is also applying for a cannabis retail license.
The state says the OCM wasn’t present when New York State Police, which are not named in the lawsuit, inspected 7 Leaf and Two Strains. It says police were executing a search warrant at Two Strains, however the retailer claims in its complaint that police refused to show it to the owner who was present during the raid.
Breckenridge Café was first inspected by OCM in January, before the SMOKEOUT Act was enacted. After confiscating three products, inspectors affixed the sign saying illegal cannabis was sold. OCM returned in February and confiscated more products that the store claims were legal hemp products.
Brecken Gold was raided in July by “approximately fifteen to twenty heavily armed individuals wearing police jackets and bulletproof vests,” the petition said. It said an OCM inspector seized approximately $130,000 worth of products, including products intended for internet sales and marked “not for New York sale.” Brecken Gold claims their permit allows them to sell products not legal in New York to customers outside of the state over the internet.
The sheriff issued a sealing order, which Brecken Gold appealed. The OATH hearing officer dismissed the summons and recommended that the sealing order be lifted.
“I credit Respondent’s hemp retail license and the COAs reflecting that the products were hemp containing less than .3% THC,” the hearing officer said in the July 25 decision. However, the sheriff left the sealing order in place.
The other four stores remain open, “but they have a big sign on their door saying they are illegal,” Bauchner said.
“They are doing everything right, they are just being caught up in the dragnet,” he said.
He said investigators and law enforcement are focused on the word “cannabis” on the packaging and not applying hemp regulations. “I think the enforcement is predicated on ignorance.”
None of the hemp products have been tested to determine if they are illegal, the stores claim. Bauchner said if a hemp store is found to be violating hemp rules, then hemp penalties should apply, which start at a $1,000 fine.
Both the 3512 Bell Corp. case and the Moon Rocket case were represented by attorney Lance Lazzaro. Lazzaro has told city officials he has other clients in the same situation. He did not return requests for comment.
Bauchner also represents other hemp clients that have been sealed by either OCM or the sheriff. He said some clients were afraid to join the Super Smoke N Save lawsuit because they didn’t want to jeopardize getting their sealing order lifted by an OCM administrative law judge. Others that have applied for a cannabis retail license don’t want to jeopardize getting that license.
He said OCM has said they’ll allow the stores to reopen if they drop the procedural challenges. He questioned that because the reason to shut down stores is they’re supposedly a threat to public safety.
“If we drop the challenge from a policy perspective, drop the challenge from a constitutional perspective, they’ll allow the store to reopen, because they don’t want a court to find, for the second time, that what they’re doing is unlawful,” Bauchner said.
OCM did not respond to an email asking for comment on this allegation and other questions.
