Lockdown On Pot Shops: Over 400 Unlicensed Cannabis Retailers Shuttered, Leaving Landlords In A Bind

Hundreds of smoke shops across New York City have been closed by city and state officials since May after they were found to be operating without the proper cannabis retail licenses.

The crackdown comes after an initial attempt to enforce $10,000 fines proved unsuccessful. The Real Deal reported that landlords largely ignored the fines, allowing the shops to stay open.

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Now, property owners face the challenge of evicting the unlicensed retailers. Some shop owners have abandoned their leases, leaving vacant and inaccessible storefronts behind.

Most landlords who rented to unlicensed cannabis businesses were unaware or didn't care whether their tenants broke the rules and the fines didn't seem to faze them, said attorney Jeffrey Hoffman, who works with licensed cannabis companies.

"I don't know what planet we live on when landlords just take no responsibility for whoever they lease their property to or what happens after they lease it," Hoffman told The Real Deal. "That is where we are."

The widespread COVID-19 lockdowns in 2020 caused a surge in retail vacancies across the state. But the following year, New York legalized recreational cannabis use, creating a new potential tenant pool. Smoke shops, seeing an opportunity, filled many vacant storefronts.

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While the state aimed to establish a regulated cannabis industry, the licensing process was slow, leaving legitimate businesses waiting for approval. The delay allowed unlicensed shops to open quickly, capitalizing on the newly legal market.

Brandon Singer, Founder and CEO of retail leasing and advisory firm Retail by MONA, said many unlicensed cannabis businesses lied to landlords to secure their leases.

"They'll send a term sheet and say that they're a deli or bodega, and then all of a sudden they're opening, and they're selling weed," Singer told The Real Deal.

In early 2024, about 2,900 unlicensed cannabis stores were operating in New York City. City officials felt powerless to take action because of concerns about reigniting the war on drugs and limitations imposed by state regulations.

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As a result, the City Council passed a bill that imposed a $10,000 fine on landlords who rented to unlicensed cannabis stores, but the measure proved to be largely ineffective. The high cost of renting commercial space in the city was a major contributing factor. According to CBRE, the average asking rent along retail corridors in Manhattan was $688 per square foot or monthly rent of $43,000 for a 750-square-foot store.

In April, the situation shifted. Gov. Kathy Hochul and the state legislature added language to the state budget that empowered local authorities to shutdown unlicensed stores permanently. This was followed by a crackdown in May, with a joint city task force raiding unlicensed cannabis retailers. The raids involved padlocking stores and leaving court summonses on their doors.

To strengthen enforcement, the state also made it easier for landlords to evict tenants selling cannabis illegally. Landlords now only need to demonstrate that cannabis sales are a recurring issue rather than the sole purpose of the lease. The legislation also imposes a $50,000 fine on landlords who fail to initiate eviction proceedings after their tenants notify them of illegal activity.

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