Only weeks away from issuing the first licenses to legally sell cannabis, a federal judge temporarily blocked New York state from awarding licenses in five areas of the state pending resolution of a lawsuit from an out-of-state retailer who was denied a license under the state’s initial rules.

U.S. District Court Judge Gary Sharpe issued an injunction barring the issuance of licenses in five regions of the state — Finger Lakes, Central New York, western New York, the Mid Hudson and Brooklyn.

The judge is presiding over a legal challenge by Michigan-based Variscite NY One to New York’s requirement that initial licenses be provided to those with New York connections and those harmed by New York cannabis laws. Varascite’s primary owner has a conviction on a marijuana-related offense, but in the state of Michigan.

The regions cited in the injunction are areas where Variscite sought a license to operate. Other regions (Capital Region, Long Island, Manhattan, Mohawk Valley, North Country, Queens, Southern Tier, Staten Island, The Bronx) were not affected.

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, referred to as “justice involved” applicants. The New York Office of Cannabis Management accepted applications through late September and hoped to issue the first round of conditional adult-use retail dispensary licenses to “justice involved” applicants before the beginning of the new year. The first licensees are eligible for funds from a $200 million state fund established to secure and renovate retail locations.

Variscite argued that requiring licensees to have a cannabis-related conviction and significant ties to New York violated constitutional protections of interstate commerce. Judge Sharpe felt the argument had merit, and granted 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 during the pendency of the lawsuit. The Court will next consider whether a permanent ban on the conditional adult-use retail dispensary program is warranted. Applicants should expect this decision to significantly delay the licensure process, and potentially prompt amendments to the program requirements.

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.

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, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.