In a sharp rebuke to New York’s Cannabis Control Board, state Supreme Court judge Kevin R. Bryant dealt a blow to the adult-use cannabis industry when he issued a decision in Leafly Holdings, Inc. et al. v. NYS Office of Cannabis Management, et al., striking down nearly the entirety of the Office of Cannabis Management regulations governing recreational cannabis as “unlawful and void as arbitrary and capricious.” Shortly after the ruling was filed to the public docket and met with public alarm, the judge amended the decision to invalidate only the state’s rules regarding third-party marketing.

The lawsuit was filed by Leafly Holdings, a Seattle third-party marketing company, who accused the state of operating secretly and not considering its public comments on the marketing rules developed after state residents passed the Marijuana Regulation and Tax Act (MRTA) in 2021. The company claimed there is no evidence of how regulators drafted their marketing regulations and whether they considered Leafly’s (and other commentators) input. It called the rules vague and alleged the strict regulations barring third-party marketing platforms from operating in the adult-use cannabis space violated the company’s free-speech rights.

Leafly operates a marketing platform that exposes customers in the United States to more than 7,800 brands and 4,600 marijuana retailers. It claims to process more than 4 million orders annually. New York’s regulations would ban businesses located in the state from advertising on the platform.

In his ruling, Bryant criticized state regulators for not providing evidence documenting the development or crafting of the harsh regulations.

“They have also failed to submit any transcripts or meaningful minutes of meetings that would enable this court to determine the factual basis or the reasoning supporting their decision to adopt the regulations,” Bryant opined.

“In point-of-fact, there is nothing in the record to establish precisely how OCM developed the regulations, which staff members participated in the process or how they addressed the litany of issues that were raised not only by Petitioners but by the other individuals who submitted comments. For these reasons, there is no legal basis for this Court to consider the staff’s purported “expertise”…when determining whether the challenged regulations as approved by the Board were consistent with the policy goals of the MRTA.”  Bryant added, “…it is the finding of this Court that the aforementioned regulations constitute impermissible restrictions on Petitioners right to free speech and that they are unconstitutionally vague.”

New York Continues to Lose in Cases Challenging Cannabis Rules

Bryant’s original ruling contained this passage: “Moreover, for the reasons set forth by Petitioners, based on the record before this Court, particularly the complete lack of justification and/or support in the administrative record, it is the finding of this Court that the regulations constitute impermissible restrictions on Petitioners right to free speech and that they are unconstitutionally vague.”

After public outcry that he had declared all of the state’s rules unlawful and thrown the state’s program into chaos, Bryant removed the passage and amended his ruling to specify it pertained to the marketing rules.

Still, his initial assessment seems to align with the state’s insurmountable challenges to the cannabis industry rollout. Numerous lawsuits, some already garnering unfavorable rulings for the state, have been filed challenging the adult-use regulations. Justice Bryant himself previously issued a critical ruling in August 2023 in another case that temporarily prohibited the state from issuing retail cannabis licenses, finding a group of veteran plaintiffs were likely to be successful in their lawsuit alleging regulators acted unconstitutionally by prioritizing cannabis retail licenses for those with past cannabis convictions.

The state is now three years from the MRTA’s passage and still does not have a fully operating licensing system to capitalize on a market projected to generate billions of dollars. Meanwhile, an illicit cannabis market flourishes in New York.

Harris Beach’s Cannabis lawyers will continue monitoring this lawsuit and others and report out on new developments. If you have questions for our Cannabis Industry Team or need help on cannabis-related matters, please reach out to attorney Meaghan T. Feenan at (518) 701-2742 and mfeenan@harrisbeach.com; attorney Heidi Schult Gregory at (585) 419-8720 and hgregory@harrisbeach.com; attorney Francis L. Gorman, III at (585) 419-8628 and flgorman@harrisbeach.com; or the Harris Beach attorney with whom you most frequently work.

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.