"with only 19 licensed dispensaries for 19 million residents, legal sales—and the paltry taxes that come from the struggling legal market—are not bringing in the taxes that were promised. At the same time, the state is desperately trying to foster an industry composed of “justice-involved” entrepreneurs, meaning people who have been arrested for marijuana crimes, with a specific social equity goal of helping Black and brown entrepreneurs."
Yes, Virginia...government can be depended upon to fuck things up this badly....with great consistency.
Jonathan Elfand built a $25 million-dollar kingdom with Empire Cannabis Club. Then state tax officials raided his dispensaries. And he’s ready for battle.
On a hot Tuesday morning in July, a phalanx of New York State Department of Taxation and Finance agents, with bulletproof vests and handguns on their hips, descended on two unlicensed cannabis dispensaries in Manhattan. But the employees of Empire Cannabis Club, which has six locations in the city and is one of the largest unlicensed marijuana retail operators in the state, were prepared and would not let them in without a warrant.
So began the mellowest standoff.
Hours later, Jonathan Elfand, co-founder of Empire, lumbered up to the door of his Chelsea location. He told the agents, who had been standing in the sun, that he was going to open the door and they can push through behind him but are not welcome inside. An agent told Elfand he was under arrest for obstruction of governmental inquiry and slapped cuffs around his wrists. “My attorneys will love this—let’s go,” the 54-year-old Elfand told the officer. (He was later released and not charged.) A few miles south, at Empire’s Lower East Side location, Elfand’s younger sister and business partner, Lenore, was arrested and charged with obstruction of justice and brought to a police precinct. (The state has not filed any charges against the business.)
Tax agents seized several pounds of cannabis flower, THC-infused edibles and vaporizers from an open safe inside one of Empire’s establishments, according to official evidence documents reviewed by
Forbes. The products, which filled a few trash bags, are worth between $50,000 to $60,000, according to Elfand. For some businesses, this raid would be devastating. But it was only a small inconvenience for Empire, which Elfand claims distributed $20 million worth of product last year. He hopes to hit $35 million in 2023. Launched in September 2021, Empire has 120,000 paying members—some of whom spend $35 per month, while others shell out $15 for a single visit—and these fees bring in another $5 million a year, Elfand claims. The authorities did not shutter the stores and the following day all Empire locations were still operating.
Inside his club’s Chelsea location hours after the raid, Elfand, who was with his sister, brother, Blake, and father, Ralph, was unperturbed by the day’s festivities. “I’m the fucking king of New York,” he says. “I own the cannabis trade.”
Lenore, who had just been released from the NYPD’s 7th Precinct, says the Elfand family is ready to go to war to protect its cannabis kingdom. “We are going to court—it’s time to prove our legality, what we believed all along and how we're operating under the law New York wrote,” she says. “We have to fight, and now is our chance—they came at us.”
The raid of Empire marks a major turning point in the years-long battle between New York lawmakers, regulators and the state’s vibrant and robust marijuana gray market. Since legalizing cannabis in March 2021, New York has been slow issuing licenses—there are currently only 19 licensed stores throughout the state—and the authorities have been light on enforcement. This environment has led to the proliferation of an estimated 3,500 unlicensed pot shops across the state. But New York Governor Kathy Hochul and New York City Mayor Eric Adams have remained adamant that unlicensed operators are going to be snuffed out.
Last summer, the New York State Office of Cannabis Management sent Empire, and a slew of other unlicensed operators, a cease-and-desist letter warning that crackdowns were coming. While some operators closed their dispensaries and others got raided, the Elfands claim they are operating legally without a license because of a legal loophole—or what they call a “safe harbor”—in the state law. Technically speaking, Empire is a private club and does not
sell cannabis—members pay that small fee to enter the store and any money exchanged for cannabis products is
consideration not
financial compensation.
Cannabis Laws by state
New York regulators don’t see it that way and have stepped up enforcement efforts in hopes to weed out the unlicensed dispensaries. In June, Governor Hochul signed new legislation that increases civil and tax penalties for unlicensed and illicit sale of cannabis. The new law also provides enforcement power to the Office of Cannabis Management and the Department of Taxation and Finance to levy penalties—up to $20,000 a day for violations—and shutter stores selling cannabis illegally. "Unlicensed dispensaries violate our laws, put public health at risk, and undermine the legal cannabis market,” Governor Hochul said in a statement at the time.
If New York can successfully scale its recreational marijuana market, it would become the nation’s second-largest regulated cannabis economy, after California, with $4.2 billion in annual sales. But with only 19 licensed dispensaries for 19 million residents, legal sales—and the paltry taxes that come from the struggling legal market—are not bringing in the taxes that were promised. At the same time, the state is desperately trying to foster an industry composed of “justice-involved” entrepreneurs, meaning people who have been arrested for marijuana crimes, with a specific social equity goal of helping Black and brown entrepreneurs.
Bud Tending: Unlike traditional dispensaries that sell cannabis, Empire operates with a membership fee, which Elfand believes complies with New York law.
While the Elfands are white, the family has a long history of selling cannabis—and many members of the family have the criminal records to prove it.
Jonathan Elfand has been put in handcuffs many times. Born on April Fool’s Day 1969, he grew up between Brooklyn and the Bronx and got into the weed game in junior high after moving to Florida. He grew his first crop in a house in West Melbourne and soon expanded to a 12-stall horse ranch his dad owned in Palm Bay. At 17, he successfully pulled off his first international weed smuggling operation when he sailed a 32-foot Columbia to Jamaica, loaded it up with 680 pounds of pot and brought it back to Florida. Elfand would repeat that trip half a dozen times but stopped using the route after an associate was caught by the National Guard with a shipment off the Florida Keys.
Elfand moved back to New York in 1990, rented a basement in a high-rise in Manhattan’s Garment District, and converted it into a 200-light grow operation. By the mid-1990s, he had mastered the art of growing high-end indoor designer weed with clandestine grows in Brooklyn and became a prolific smuggler who the government alleged worked with the Arellano-Felix drug cartel in Tijuana. Elfand would pack trucks with 1,000-pound loads of salsa cans filled with pot and bring them across the Mexico border to San Diego, where he had a phony marine engine business that worked as a cover to traffic tens of thousands of pounds of cannabis to Chicago, Florida and New York via rental trucks, commercial airlines and the U.S. Mail.
Eventually, America’s war on drugs caught up with him. In 1998, the U.S. Drug Enforcement Administration and the NYPD busted a sophisticated indoor grow that Elfand ran with his father and brother inside a four-story Williamsburg warehouse—the feds alleged there were 2,000 cannabis plants but the exact scale was never proved in court. "This is the largest seizure of an indoor marijuana growing operation, within the five boroughs, in recent history for the New York Division," New York DEA Special Agent Lewis Rice said at the time. The government alleged that the Elfands’ U.S. Mail scheme alone generated $2 million a year and the family brought in millions more thanks to their grow operations and other smuggling routes.
Elfand, who was 30 at the time of his arrest, pleaded guilty to conspiracy to manufacture and distribute marijuana and was sentenced to 10 years in prison while his father, then 59, was sentenced to three. “We were bunkies,” says Ralph, now 83, explaining how father and son shared the same cell in Otisville, a federal prison in New York’s Hudson Valley. “People would think we were crazy, but we had a good time in prison.”
Throughout most of his legal issues, Jonathan Elfand has often represented himself in court and has put forth multiple arguments claiming his arrests, asset forfeitures and detentions were unconstitutional. He won some, but Clarence Darrow he is not—having lost many of those arguments in court. Now, after decades of finding himself standing before judges and sitting in prison cells, he says he has refined his legal argument and believes even if he gets indicted on federal marijuana crimes, he could ultimately beat it. His first step is to go to state court and get his seized product back, which he believes was taken illegally since he is operating legally under New York’s law.
If the court rules in his favor, Elfand will continue to expand his business. If it doesn’t go his way, then he will appeal and put forth an argument that he believes will prevail. “The 14th Amendment is one of the biggest treasures that we have in the Constitution,” says Elfand.
His argument, which he explains with the conviction of someone without a law degree, relies on the amendment created after the Civil War that gives equal protection under the law to all Americans. Elfand believes it will help him prove that he can legally operate his business, state license or not. He says the government cannot charge him with marijuana-related crimes without taking down multibillion-dollar businesses like Curaleaf, Trulieve and Green Thumb Industries, all of which grow, distribute and sell cannabis legally in multiple states.
“How are you not charging Curaleaf?” he asks. “It is totally unconstitutional. Everyone has to be treated the same way.”
Not everyone believes Elfand’s defense is airtight. Paul Armentano, the deputy director of the non-profit organization NORML (National Organization for the Reform of Marijuana Laws), dismisses much of Elfand’s legal posturing. “It’s exasperating,” says Armentano. “I've been doing this for 30 years and I've heard them all. Just because a law is a bad law doesn’t make it unconstitutional.”
But Sam Kamin, a professor at the University of Denver Sturm College of Law who has expertise in marijuana laws, gives Elfand some credit for creativity. “The legal theory, to a layperson, sounds persuasive,” says Kamin. “But I don’t think a court is likely to buy that argument.”
Kamin, who helped Colorado implement its recreational marijuana program, says unlicensed businesses try to operate in every new state that launches cannabis sales, but they eventually get licensed or go out of business. “People think legalization will be the end of enforcement, but that’s not true,” he says. “Cannabis legalization isn’t the end of enforcement, it’s regulation and anything outside of that conduct is criminal.”
But there are some local attorneys who agree with Elfand. Paula Collins, a New York lawyer who represents many unlicensed cannabis entrepreneurs but is not involved with the Elfands, says New York “goofed” while writing its law and club memberships can legally operate under the guidelines.
“We are going to see more activity—a big legal fight,” says Collins. “This is not illicit cannabis. What they are calling illicit cannabis they have improperly defined in the law.”
While sitting in Empire Cannabis Club after the raid, and with a new baby at home, Elfand says he has learned from all the mistakes he’s made that got him locked up and studied the law so intently that he knows how to operate in a federally illegal industry without going to prison again. And now he’s ready to test out his refined legal argument and put his future on the line.
“My kid is always going to be able to look up and know that their dad had the balls to walk through everything he walked into,” he says. “I do everything because I know I'm right. If I am wrong somehow, and I lose, I'll take 30 years—let’s get on with it.”
