As a follow-up to the firm’s May 1, 2024 announcement regarding recent changes to the New York State Cannabis Law and related amendments to curb unlicensed cannabis sales in New York State, Rosenberg & Estis, P.C. has been advised from industry trade groups that the Office of Cannabis Management (OCM) is gearing up to enforce the newly enacted cannabis laws. Of specific interest to the firm’s owner/landlord/managing agent clients is the content and timing of notices to be issued by OCM (see form pasted below) notifying landlords of unlicensed cannabis activity at their properties. These updates are important for two reasons:
1. We now know the form that a notice will take notifying a landlord of ongoing unlicensed cannabis sales at its property
2. Upon receipt of such a notice, a landlord should contact its counsel to promptly (and certainly in advance of the 14 days offered by OCM) to (A) enforce its rights under the lease; and (B) notify the Office of Cannabis Management of the corrective actions already undertaken to avoid the possible imposition of fines and penalties of up to $50,000 in accordance with the recent amendments to the Cannabis Law and/or notification of the unlicensed activity to the mortgagee of the property.
If you have any questions, please feel free to contact your trusted R&E attorney or Adam Lindenbaum, Member of the firm’s Litigation Department, who authored the above industry update.
FORM NOTICE FROM OFFICE OF CANNABIS MANAGEMENT
This notice serves as an advisory from the New York State Office of Cannabis Management (“OCM” or the “Office”). Pursuant to an enforcement investigation, the Office has determined that unlicensed, illicit cannabis is being sold and/or offered for sale at your commercial property located at [Property Address]. As outlined herein, these activities are in violation of federal and New York State law.
With this advisory letter, OCM is providing formal notice of the illicit and illegal activities occurring at your property. Further, the transfer of the proceeds originating from these illicit and illegal sales to your financial institution constitutes money laundering. Failure to take immediate steps to remove the tenant engaging in these activities will result in OCM’s notification to the mortgage holder on your property. The Office also reserves the right to notify any and all financial institutions with which you are affiliated.
Under federal law, all financial institutions, including banks and mortgage holders, must report any transaction that involves “funds derived from illegal activity, or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity” through the FinCEN Suspicious Activity Reporting process, as required by the Federal Bank Secrecy Act. Notification by OCM to your mortgage holder and other financial institutions with which you are affiliated will trigger these reporting requirements. Furthermore, the Office will share with the following entities the notification sent to any mortgage holders and other financial institutions:
• The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”)
• The New York State Office of the Attorney General
• The U.S. Department of Justice
• The Internal Revenue Service (“IRS”)
Each of these entities has their own protocols for investigating and prosecuting individuals and businesses engaged in illicit cannabis trafficking, illicit cannabis sales, tax evasion, and other financial crimes.
The illegal sale of cannabis violates provisions of New York State law including but not limited to:
1. Selling Cannabis Without a License: Pursuant to § 125(1) of New York Cannabis law, it is unlawful to sell cannabis without a valid license issued by the State. The business operating at your property lacks the necessary authorization to engage in such activities.
2. Trafficking Illicit Cannabis: The cannabis sold in the store is suspected to be sourced from sources outside of New York state. Engaging in the interstate trafficking of illicit cannabis violates both federal and state law, including but not limited to § 125(10) of New York Cannabis law.
3. Selling Cannabis to Minors: The retailer in the property is suspected of selling cannabis to minors, which violates both federal and state law, including but not limited to a class E felony offense under New York Penal Law § 222.55.
4. Failure to Collect Taxes on Cannabis Sales: All cannabis sales are taxed under New York law and the retailer has failed to collect and remit the appropriate taxes on cannabis sales. The remittance of taxes is required by state law, including but not limited to the requirements under NY Tax Law § 1105.
This advisory constitutes formal notice of the illegal and illicit activity at your commercial property. The Office will issue notifications to your mortgage holder and other institutions referenced here of any and all evidence in support of money laundering unless you take immediate action to remove the commercial tenant for unlicensed cannabis sales. Namely, the steps you are required to take to remove your commercial tenant should include any legal remedies at your disposal including but at not limited to terminating the lease and commencing eviction proceedings. The Office must have a reply from you within fourteen (14) days from the date of this notice. If you have any questions or require further clarification, please do not hesitate to contact our office at [email protected] .
Sincerely,
Chris Alexander
Executive Director
Office of Cannabis Management
State of New York