New York’s nascent legal cannabis industry woke up to a big jolt Friday as word filtered out of an injunction issued late Thursday against issuing new justice-involved dispensary licenses. The decision, handed down by a federal judge in the District of Northern New York bars state regulators from awarding Conditional Adult Use Retail Dispensary (CAURD) licenses in five districts of the state, a bit more than a third of New York’s geography.
“It was all fun and games until yesterday. Nothing really challenging had happened yet. This is the first real freak out,” said New York cannabis attorney Jeremy Hoffman.
The federal suit, filed by a Michigan resident, Kenneth Gay, applying through his company Veriscite NY One, Inc., came through his attempts to obtain a New York CAURD license, challenges the state’s license eligibility rules through the U.S. Constitution’s so-called Dormant Commerce Clause, which governs rules for interstate commerce. Other federal suits referencing the Dormant Commerce Clause, in Maine, Michigan, and Missouri, have zeroed in on specific residency requirements for state cannabis licenses.
Veriscite’s complaint, however, hinges on New York’s requirement to be arrested for cannabis laws in the state of New York. Mr. Gay, Veriscite’s owner, has a cannabis conviction in Michigan. Veriscite argued before District Judge Gary Sharpe that they satisfied “all application requirements except the unconstitutional New York preferences.”
“If you look at the other cases along these lines, Missouri, Maine, Portland, Oregon, and Detroit, those were all cases where on the face of the statue, it was clearly discriminatory,” said Jeremy Unruh, an attorney and Senior Vice President for Regulatory Affairs for PharmaCann, a Registered Organization in New York. “Here it is a closer question, because the state of New York is arguing they aren’t discriminating against non-New York residents, they are only trying to address harms New York’s code caused.”
Nonetheless, Judge Sharpe found in favor of Veriscite, writing that, attorneys for the state “did not even attempt to make the requisite ‘showing that [the challenged laws and regulations are] narrowly tailored to advanc[e] a legitimate local purpose.’”
As a result, Sharpe’s injunction has banned New York regulators from awarding CAURD licenses from the five regions Veriscite applied: Brooklyn, Central New York, Finger Lakes, Mid-Hudson, and Western New York. Eight regions remain unaffected, including Capital Region, Long Island, Manhattan, Mohawk Valley, North Country, Queens, Southern Tier, Staten Island, and the Bronx.
“The injunction is the injunction. Until the Circuit overturns it or it’s overruled, that’s the law. If you chose one of those five and now you want to choose another region, that’s certainly a business concern. That’s the concern for my clients around Ithaca,” said cannabis attorney Wei Hu, who has half a dozen CAURD applicant clients.
“This is the first volley here, and the fact that the judge ruled adversely is interesting. I think you’ll see other unsuccessful CAURD applicants raise the same issues, said PharmaCann’s Unruh, who warned that other applicants may file copycat suits in other parts of the state before regulators can issue licenses.
Contacted for comment, Freeman Klopott, Director of Communications at the Office of Cannabis Management (OCM) indicated that the state intends to move forward with awarding licenses in other parts of the state.
“The Office of Cannabis Management is committed to the Marijuana Regulation and Taxation Act’s goals of including those impacted by the state’s enforcement of cannabis prohibition in the market that we are building and we are additionally committed to getting New York’s cannabis supply chain fully operational. The Cannabis Control Board will soon have before it applications for the Conditional Adult Use Retail Dispensary license which will start closing that supply chain.”
Numerous sources tell Grown In that OCM Chief of Staff has said in public venues that the Cannabis Control Board intends to meet on November 21 to issue CAURD licenses, among other business. As of publication however, the CCB website does not show any planned, upcoming meetings.
Multiple industry insiders say they expect more lawsuits to come, but they expect the state to immediately appeal the injunction to the Circuit Court.
“There’s going to be a lot of lawsuits, in my conversations with attorneys, there might be others. If the appeal doesn’t work, then I get concerned. Then I think the whole CAURD program is in jeopardy,” said cannabis consultant Kaelan Castetter. “If the program is stalled here, not including those regions, that’s a lot of retail they can hold off. The question is what are the growers and processors going to do.”
Conditional cannabis cultivator and upstate farmer Seth Jacobs says he’s planning to forge on.
“In the five gallon bucket of uncertainties, they just added a few more cups to the mix. New York is stumbling in a lot of ways,” said Jacobs, who is just now starting to sell crop he harvested last summer and this fall.
“We’re checking our bank account this morning to see if a wire cleared. We sold biomass to a processor,” said Jacobs. “I think everybody plans to grow next year…Dispensaries may open in December. I think that’s highly unlikely, or next year. But it’s moving.”
Numerous attorneys pointed out that OCM has been operating without a general counsel since July, shortly after the CAURD license program was rolled out.
“This is why you need a GC. They would have put you ahead of this,” said attorney Hoffman.