Delays and uncertainty around New York’s legal cannabis market continue after a federal judge denied the state’s motion to dismiss or otherwise limit his Nov. 10 decision to block retail licenses in five regions of the state.
U.S. District Court Judge Gary Sharpe denied the Office of Cannabis Management’s arguments that his preliminary injunction caused irreparable harm to the state and that “public interest favors a stay.” He called the arguments “unpersuasive.”
Sharpe had granted a preliminary injunction– only weeks from New York issuing the first licenses to sell cannabis – ruling retail licenses could not be issued in five regions of the state pending the outcome of a lawsuit filed by Michigan-based Variscite NY One. Variscite is challenging the state’s Conditional Adult-Use Retail Dispensary (CAURD) license requirement that CAURD licenses be issued to only “justice involved” individuals with New York connections. Variscite’s owner lives out of state and has a marijuana-related conviction in Michigan.
Variscite argued the requirements discriminate against out-of-state cannabis operators in violation of the Dormant Commerce Clause, which prohibits states from passing legislation discriminating against, or burdening, interstate commerce.
Judge Sharpe felt Variscite’s argument had merit, granting a preliminary injunction barring the Office of Cannabis Management from issuing any conditional adult-use retail dispensary licenses in the Finger Lakes, Central New York, Western New York, Mid-Hudson and Brooklyn regions during the pendency of the lawsuit.
In the newest motion, the state asked the judge to limit his decision to the Finger Lakes region, arguing that, based on licensure requirements and the number of applicants, Variscite would have been only eligible for a license to sell in the Finger Lakes region. Sharpe declined.
Decisions in New York and Other States Could Lead to Interstate Commerce of Marijuana
This decision perpetuates the uncertainty surrounding the state’s cannabis retail program. New York legalized cannabis for recreational use in March 2021, with an eye toward prioritizing licensure for those convicted of the state’s strict cannabis-related laws. The New York Office of Cannabis Management accepted applications for “justice involved” applicants through late September and the state established a $200 million state fund for the first round of retailers to secure and renovate retail locations.
So far, only two licensed retailers have opened, both located in Manhattan. According to the Cannabis Control Board, additional openings are scheduled in the coming weeks for dispensaries located in Queens, Albany and another in Manhattan. Meanwhile, a “gray” marijuana market thrives.
If Variscite’s quest is successful, the current legislation may be appealed to remove the residency requirement and allow out-of-state entities to set up shop in New York state. This change in policy could open up a whole new wave of applicants from in and outside New York alike.
And, if the state’s licensing requirements are found to violate the Dormant Commerce Clause, it is possible similar restrictions imposed in other states will be declared unconstitutional, too. Many states that legalized marijuana established residency requirements to ensure state residents receive the financial benefits of legalization in their own state and to curtail outside entities from coming into a newly legalized state and dominating the market from afar. Variscite, and others, are challenging requirements in states beyond New York.
Like with Sharpe, they’re finding success in some instances. And, while not settled, a licensed Oregon cannabis distribution company filed suit against the state to overturn a section of Oregon law prohibiting state-licensed operators from shipping marijuana across state lines. A favorable ruling could bring interstate commerce to the industry.
Harris Beach’s Cannabis Industry Team continues to monitor developments in the fast-moving New York cannabis industry. For more information, please contact Meaghan T. Feenan, who advises organizations of all structures on developments within the Marijuana Regulation and Taxation Act (MRTA), including cultivators and processors, retailers, and distributors. She’s a frequent speaker on Cannabis topics and regularly publishes articles about the licensing process and legislative updates. She can be reached at (518) 701-2742 and mfeenan@harrisbeachmurtha.com.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.
