Less than two months after the state unveiled several initiatives to crack down on illegal cannabis sellers, a group of New York City shop owners has filed a class-action lawsuit, claiming the heavy-handed tactics violate their constitutional right to due process.

The lawsuit, filed in United States District Court Southern District of New York, seeks an injunction against New York City’s “Operation Padlock to Protect,” an enforcement effort by New York City and the New York Sheriff’s Office to padlocks shops of accused illegal cannabis sellers. The 27 businesses that filed the lawsuit say closing shops without judicial oversight violates the Due Process Clause of the Constitution’s Fourteenth Amendment and they are seeking compensation for revenue lost because of the closings.

“The Due Process Clause does not permit the Sheriff to seal a business, without first seeking judicial review, based upon the Sheriff’s own unilateral finding that the business poses an imminent threat to the public’s health, safety, or welfare,” the complaint reads.

New York City Mayor Eric Adams’ administration claims more than 300 stores suspected of selling cannabis without a license have been padlocked. Operation Padlock has also seized more than $10 million worth of cannabis and issued more than $23 million in fines in the first month of its launch.

The operation launched soon after Gov. Kathy Hochul unveiled several initiatives to crack down on the illegal cannabis market, which, along with numerous lawsuits, has threatened the success of the state’s legal cannabis program. Hochul faces intense pressure from legal marijuana retailers to shut down unlicensed marijuana shops that have thrived while the legal market — approved by voters in 2021 with the passage of the Marijuana Regulation and Tax Act (MRTA) — has faced delay after delay and is still not fully operational.

Past attempts to curb the market have failed, as closing the businesses required multiple inspections and lengthy court battles. It is estimated New York City has nearly 3,000 illegal cannabis stores. They sell their product cheaper than legal marketers because they don’t pay taxes, employees don’t receive the same state mandated benefits and can ignore the myriad regulations that have been imposed by the Office of Cannabis Management.

“Unlicensed dispensaries have littered New York neighborhoods, blatantly circumventing our laws and selling potentially dangerous products,” Hochul said. “Enough is enough. I promised to protect our communities and hard-working, legal cannabis licensees by expediting the closure of illicit storefronts. I’m proud to stand up and say we got it done.”

Those shop owners who have their businesses padlocked are entitled to a state hearing within five days. The hearing officer can recommend overturning the closure, but the final decision rests with the sheriff’s office. Some shop owners have told the media their administrative officers recommended reversing the closures, but the sheriff’s office stood firm.

Harris Beach’s New York Cannabis lawyers will continue monitoring this lawsuit and others and report out on new developments. If you have questions for our Cannabis Industry Team or need help on cannabis-related matters, please reach out to attorney Meaghan T. Feenan at (518) 701-2742 and mfeenan@harrisbeach.com; attorney Heidi Schult Gregory at (585) 419-8720 and hgregory@harrisbeach.com; attorney Francis L. Gorman, III at (585) 419-8628 and flgorman@harrisbeach.com; or the Harris Beach attorney with whom you most frequently work.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.