New York Vowed to Crack Down on Illegal Weed Shops. One Just Got a License.

A year after New York legalized marijuana for recreational use, a bright-green sign shaped like the plant’s leaf signaled the arrival of a dispensary called Budega on an industrial corner in Queens.

The sleek shop, where customers purchase memberships for points that can be redeemed for weed, is one of thousands of illegal dispensaries that the state vowed to shut down. Their owners would be banned from the legal cannabis market, officials said.

But instead, Budega was awarded a retail license last month — the first confirmed instance of an illicit shop receiving one of the permits. The situation exposes lapses in the vetting process, undercutting New York officials’ assurances that those who jumped the line to cash in on cannabis would not be rewarded over those who played by the rules.

“They said this would not happen,” said Alex Norman, a licensee involved in a trademark dispute over the use of the name Budega. He owns Budega NYC, a clothing and lifestyle brand whose name he intended to use for his own dispensary.

The Budega situation has surfaced as the state Office of Cannabis Management is under immense pressure from the governor and the industry to ramp up the pace of licensing and expand the legal market. It suggests that the agency, which is understaffed and has about 30 people assigned to review 7,000 applications, lacks the bandwidth to stop some bad actors from gaming the system.

Budega received a license, but it has not been granted official clearance to open. When reached by phone last Wednesday, Haydee Velez Keeby, a Long Island woman who identified herself in city paperwork as the social club’s owner, said she felt “good” about receiving a license and insisted that she and her co-owners had been “following all the rules and regulations.”

But there is abundant evidence suggesting the contrary, and it is unclear if regulators missed or ignored it. The store has a robust presence on social media as well as a near perfect score on Google, where reviews posted as recently as February gush about its selection of California weed, which is illegal to sell in New York.

Chris Alexander, the executive director of the state Office of Cannabis Management, said in a statement that his agency was investigating whether the owners, who applied as HVK Management LLC, misled the agency to obtain a license. If so, he said, “we will exhaust all available options including consequences of suspension, cancellation, revocation, debarment of a license and denial of renewal, change or amendment of a license.”

The governor, who has ordered a review of the Office of Cannabis Management, wants officials to approve hundreds, if not thousands of eligible applicants imminently, according to two people who have had confidential discussions with the executive chamber. They asked for their names to be withheld to discuss the talks.

However, the cannabis agency publicly signaled its opposition to a drastic expansion earlier this month at a meeting of its control board. John Kagia, the policy director, said that issuing too many licenses at once without significantly restraining the illicit market could be catastrophic, pointing to the shrinking legal markets in California and Colorado.

Miguel Arreola, a spokesman for Gov. Kathy Hochul, declined to comment on the licensing debate. But he said the governor “has repeatedly said that the status quo with cannabis in New York is unacceptable, that licenses should be issued as quickly as possible and that unlicensed businesses should be shut down and held accountable.”

A sweeping approval of licenses could open the door for several unlicensed shops to also be permitted. As reported by New York Cannabis Insider, regulators have preapproved some applicants for locations where they are already operating illicit shops, hindering other stores from opening nearby.

It is no secret to regulators that illicit shops are seeking licenses, and some applications that were slated to be approved have been disqualified over illegal activity. Still, there is a widely held belief in the industry that some of the shops have successfully obtained licenses.

Budega sits on a busy stretch of Atlantic Avenue in South Richmond Hill, across from a train yard for the Long Island Rail Road. Packages of products from popular California brands like Sherbinski, Alien Labs and Zheetos were displayed behind locked glass among a collection of rare sneakers and alien-like dolls.

Memberships cost between $100 and $1,000, according to Budega’s website. Franki Rosado, 26, who identified himself as a manager, said last week that the store had 4,000 members — a significant head start for a new licensee.

“And now, crossing over to the licensed side, it just gets even better,” he said.

Mr. Norman warned regulators last year about the Budega in Queens and its location in Manhattan. He said he had been worried that officials would think the shops were his and disqualify him. (He was ultimately granted a license.)

However, the Office of Cannabis Management seemed unaware that it had given Budega a license.

After The New York Times reached out to Community Board 9 in Queens, where Budega is located, James McClelland, the board’s district manager, asked the Office of Cannabis Management if it had indeed issued the license. Pascale Bernard, the agency’s deputy director for intergovernmental affairs, responded in an email stating that the agency granted a dispensary license to HVK, “not the Budega” club.

The Office of Cannabis Management did not answer questions about how HVK’s application was vetted and whether regulators knew there was an illicit dispensary at the location before approving a license.

Mr. McClelland said he was disappointed to learn that the agency had overruled the community board, which has refused to support the opening of new dispensaries until the unlicensed shops are cleared out. He said there are 32 illicit shops in the district, including one just around the corner from an elementary school, and 17 are under nuisance abatement orders.

“It just seems like fait accompli,” he said.

It was unclear if Budega was on the radar of any of the authorities targeting illicit dispensaries. The manager said the shop had never been raided. It did not appear on a list of illicit operators that New York City was investigating. The Queens district attorney’s office declined to say whether it was aware of Budega’s presence. Even Mr. McClelland said it was the shop the community board was least worried about.

Mr. Norman said Budega might not have received a license if the state had taken a more aggressive approach to getting legal stores open and shutting the rogue competitors. Now, he said, they’re out of control.

“Allowing these illicit shops basically stole New York’s opening act because the average consumer has no idea of the difference,” he said.

Alain Delaquérière contributed research to this article.

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