Federal Judge Halts Issuance of Cannabis Dispensary Licenses in Five New York Regions

Nov 11, 2022

Yesterday, a federal judge entered an order barring the New York Office of Cannabis Management (“OCM”) from issuing any Conditional Adult-Use Retail Dispensary (“CAURD”) licenses to pending applicants in the Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn regions. Judge Gary L. Sharpe issued the order in a case brought by CAURD applicant Variscite NY One, a New York corporation majority owned by a Michigan man, arguing that the Marihuana Regulation & Taxation Act (“MRTA”) unlawfully discriminates against citizens of other states.

As we’ve written about previously, cannabis laws that favor a state’s own citizens have been successfully challenged in several jurisdictions. These challenges are generally based on alleged violations of the dormant Commerce Clause, which prohibits state laws that substantially burden interstate commerce. That was the case in New York, as Variscite claimed that the dormant Commerce Clause renders unconstitutional the MRTA’s requirements that an applicant (1) demonstrate “a significant presence in New York State,” and (2) be at least 51% owned by “justice involved individuals,” which required a conviction in connection with a marijuana-related offense in New York. Variscite filed its complaint and a motion for preliminary injunction after the OCM deemed it ineligible to receive a license because it did not meet the foregoing requirements. Judge Sharpe granted the motion for injunction after finding that Variscite had established a likelihood of success on the merits, irreparable harm, the balance of hardships favored Variscite, and the public interest was served by granting the injunction. The opinion found support in recent federal court decisions striking or enjoining provisions of state cannabis laws under the dormant Commerce Clause, including Ne. Patients Grp. v. United Cannabis Patients & Caregivers of Maine, 45 F.4th 542 (1st Cir. 2022) and Toigo v. Dep’t of Health & Senior Servs., 549 F. Supp. 3d 985 (W.D. Mo. 2021).

There will always be some bumps on the road when creating a legal cannabis market, but this injunction could deal a serious blow to New York’s nascent cannabis market. We already had concerns about the state’s ability to deliver on its goal of having CAURD locations open before 2023 and the injunction order makes that even less likely. The injunction will remain in place until the lawsuit is resolved or the court orders otherwise, which will likely take at least several months. And while the order only prevents licenses from being issued in five of the 13 geographical regions, it would not be surprising to see other plaintiffs file similar claims, which could implicate other regions. If dispensaries do not open in the near term, marijuana growers and processors could be stuck with product they are unable to sell. Further, the injunction comes on the heels of a report that Chris Webber and Lavetta Willis—two of the individuals selected to manage the state’s $200 million cannabis fund—“may hold significant conflicts of interest that could place New York’s social equity-focused rollout in precarious ethical waters.”

We will be keeping close tabs on developments in New York and reporting on them on our blog. Please feel free to contact the author with any questions or legal needs related to the New York cannabis industry.

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Federal Judge Halts Issuance of Cannabis Dispensary Licenses in Five New York Regions

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