Joshua S. Bauchner is Chair of the Cannabis, Hemp, and Psychedelics Practice Group at
Mandelbaum Barrett PC in New York. Courtesy photo.
Licensed hemp retailers across New York are confronting a regulatory and financial assault that threatens the survival of the hemp industry and the livelihoods of thousands of business owners.
Over the past several years, the New York State Department of Taxation and Finance (DTF) issued substantial penalties, often in the hundreds of thousands of dollars, to hemp retail owners whose businesses were raided by both regulators, such as the New York Office of Cannabis Management (OCM), and armed law enforcement.
These penalties, imposed after seizures of millions of dollars in lawful cannabinoid products, are devastating small operators who believed they were operating legally under state and federal hemp laws.
For many, the combination of aggressive enforcement by OCM and crippling tax assessments by the DTF left them with no choice but to close their doors, while others teeter on the brink of financial ruin. These are not isolated incidents. They represent a systematic crackdown on an entire sector of the legal cannabis-adjacent economy.
Many business owners faithfully followed licensing, labeling, and tax obligations for years, only to face six-figure penalties and public tax warrants months or even years after regulatory inspections. The human cost of this regulatory climate is evident in the experience of one retailer who opened a CBD shop in 2019, and after years of multiple raids, received tax notices totaling hundreds of thousands of dollars in 2025, prompting the owner to begin the process of closing the business.
Much of the scrutiny focused on products, such as cannabis-infused chocolate bars, that were legal to sell to out-of-state customers but prohibited in New York retail stores. Even though these items were clearly segregated from local inventory, they were seized during raids and used to justify substantial tax assessments. The owner remains responsible for the full penalties and is actively appealing the assessments but says that living under the constant threat of further inspections has made it nearly impossible to continue operating. This experience reflects a broader crisis, with licensed hemp retailers facing repeated raids, massive financial penalties, and ongoing uncertainty about what is legally permissible under state law.
The basis for these penalties is unsupported by evidence and devoid of due process. The DTF issues large tax assessments on the mere assumption that hemp products are illicit cannabis without conducting chemical tests or relying on determinations from the OCM. The tax law requires proof that a retailer knowingly possessed illegal cannabis with the intent to sell, yet the DTF treats mere possession of hemp-derived products as evidence of illegal activity. These assessments are frequently issued against both the business and individual owners, multiplying the financial burden and pushing family-run operations toward insolvency. Procedural missteps exacerbate the problem. Notices are often sent to outdated addresses, deadlines to challenge or appeal expire without warning, and businesses lose the opportunity to dispute penalties, resulting in tax warrants and asset seizures. Small retailers who complied with all legal requirements suddenly find themselves on the receiving end of life-altering penalties without due process.
The broader implications for the hemp industry are profound. New York’s legal hemp market, which emerged after the federal legalization of hemp in 2018 and expanded following the State’s legalization of recreational marijuana in 2021, is at risk of collapse. Hemp retailers provide legal alternatives to recreational marijuana, employ local workers, and contribute to the economy through sales taxes. Yet the current inspections approach, including retrospective penalties, ambiguous regulations, and aggressive inspections, creates a chilling effect. This discourages new entrants and destabilizes existing operators. If compliant businesses cannot rely on regulatory clarity or fair enforcement, the State risks driving legitimate operators out of business, leaving consumers with fewer legal options and increasing the likelihood that unregulated markets will flourish.
Reform is urgently needed. New York must clarify the legal parameters for hemp products and establish transparent, science-based protocols for determining compliance. Regulatory enforcement must be proportionate and limited to agencies with clear jurisdiction. Warrantless inspections and punitive tax assessments must be replaced with fair and predictable processes that include timely notice, the right to a hearing, and meaningful opportunities for businesses to contest findings. Agencies must distinguish between legitimate hemp operators and unlicensed, illegal cannabis operators, rather than treating every retailer as guilty until proven innocent.
Without changes, the consequences for New York’s licensed hemp businesses are heartbreakingly clear. Families are losing the livelihoods they built over years of hard work, employees are suddenly left unemployed, and entrepreneurs who followed the rules face the impossible choice of closing the doors on businesses they poured their lives into. Every raid, every notice of deficiency, and every tax warrant carries with it not just financial loss, but anxiety, fear, and the eroding sense that the state is working against those who acted in good faith. These are not faceless corporations or abstract violations of law; these are real people, with children, mortgages, and dreams tied to the success of their businesses. Overly aggressive enforcement is unfolding in communities across the state, leaving a trail of stress, uncertainty, and shattered hopes.
Joshua S. Bauchner is chair of the cannabis, hemp, and psychedelics practice group at Mandelbaum Barrett PC in New York.