A group of women-owned businesses hoping to obtain a retail or microbusiness permit to sell cannabis has asked a court to immediately stop New York state’s current licensing program for retail dispensaries and microbusinesses claiming the lottery-based system used to determine the order in which applications would be reviewed is unfair.
The suit, filed this week in the New York State Supreme Court in Albany County, follows a lawsuit filed last week that claims the state’s licensing provisions violate the U.S. Constitution’s equal protection clause because they give preference to women and people of color.
Both lawsuits follow numerous others filed to halt a rollout that began after the March 2021 passage of the Marijuana Regulation and Tax Act (MRTA) that legalized the sale of marijuana in the state. The state is now nearly three years from that pivotal point and still does not have a fully operating licensing system to capitalize on a market projected to generate billions of dollars.
The Albany lawsuit, filed by seven women-owned cannabis companies, contends the licensing process instituted by the Office of Cannabis Management last fall is “arbitrary and capricious.” The lawsuit is an Article 78 action, meaning it attacks the procedure by which regulators created the queue. A hearing on the lawsuit is scheduled for Feb. 2.
More than 2,000 businesses applied for dispensary applications during the October-November application period. The state notified applicants in January it would only give out 250 retail permits and 110 permits for microbusinesses. OCM also released its “randomized queue” determining the order in which license applications will be reviewed.
The seven business owners who filed the lawsuit claim the state did not notify applicants until the queue was released in January that social equity retail applicants who qualified were given three chances to obtain a place in the random queue for every one chance others received. Social and economic equity (SEE) applicants are defined as those from communities disproportionately affected by the enforcement of cannabis law, with a prior cannabis conviction or one in their family, an income lower than 80% of the median income of their resident county, service-disabled veterans, minority-owned businesses and women-owned businesses.
The business owners believed they were applying under a merit-based system, their attorney said publicly. They are seeking to immediately stop the process, to require the state to reissue a new queue for those who applied and to force the state to make public all policies and procedures related to the licensing process.
In the other lawsuit, filed by microbusiness applicant Valencia Ag from near Syracuse, the plaintiff is also seeking an injunction preventing licenses from being awarded. That case argues the state’s goal of awarding half of its retail licenses to SEE applicants is unfair, and that those applicants encountered lower licensing fees and unfairly discriminates against white males.
Variscite Alleges New York Cannabis Regulators Hinder Interstate Commerce
Legal challenges have continuously stalled the legal cannabis program’s roll out. In addition to these two new lawsuits, a lawsuit filed in December by a cannabis company has a hearing also scheduled for Feb. 2.
That lawsuit, filed by Variscite NY Four, LLC and Variscite NY Five, LLC (collectively, “Variscite”), alleges the state’s licensing scheme is unconstitutional because it favors New York residents and discriminates against interstate commerce.
Variscite claims the state’s cannabis regulators give priority status to New York residents, violating the U.S. Constitution’s Dormant Commerce Clause. The suit also contends Variscite should receive “extra priority” status because its owner has an out-of-state marijuana conviction.
The owners of Variscite previously filed a lawsuit in 2022, which settled in May. In the original lawsuit, Variscite claimed its ineligibility for a Conditional Adult-Use Retail Dispensary (CAURD) as a Michigan resident was unconstitutional. At that time, the state’s rules gave licensing preference to those convicted of cannabis-related crimes in New York with a “significant presence” in the state. Variscite argued this violated the Dormant Commerce Clause, which prohibits states from passing legislation that excessively burdens interstate commerce.
That suit resulted in a court injunction halting the licensing process. The injunction was lifted in March, around the same time New York’s Office of Cannabis Management announced an ambitious plan to double the number of retail licenses.
Trade Association Alleged New York Cannabis Regulators Acted Unconstitutionally
In addition to Variscite’s original lawsuit, a similar lawsuit was filed in March 2023 by the Coalition for Access to Regulated & Safe Cannabis, described as “an unincorporated trade association” composed of registered organizations, several of which planned to apply for a dispensary license to sell cannabis legally. Then, in 2022, a veterans’ group filed a similar suit, prompting a state Supreme Court Justice to issue a stern ruling criticizing the state’s legal cannabis program and stopping it from issuing new Conditional Adult-Use Retail licenses.
State Supreme Court Justice Kevin R. Bryant ruled a veterans’ group was likely to be successful in its lawsuit alleging regulators acted unconstitutionally by prioritizing cannabis retail licenses for those with past cannabis convictions or family members with past cannabis convictions. While the MRTA prioritizes “social and economic equity applicants” that would include service-distressed veterans, the veterans’ group claims regulators are prioritizing a narrower pool of applicants.
That lawsuit settled in December, with the veterans’ group receiving a provisional license, paving the way for more than 400 provisional licensees to open marijuana dispensaries. The settlement also blocked the issuance of new CAURD licenses until April 2024 so the state could focus on processing the backlog of provisional license applications.
CBD and Hemp Retailers Lawsuit Against City of Syracuse
Earlier in December, a CBD and hemp retailer in Syracuse filed a lawsuit against the city of Syracuse for shutting down its retail shop in September during a crackdown on illicit marijuana sales.
Smoke City claims it does not illegally sell cannabis and it has a valid state permit to sell CBD and hemp products.
‘Smoke City was one of five businesses shut down by the city in September. The city shut the businesses down following inspection by agents of the state’s Office of Cannabis Management and Department of Taxation and Finance. The state agencies cited the shops for possessing illicit marijuana and/or selling it without proper licenses. The city then used new city codes to declare the businesses unfit operations.
One of the other businesses, T’s Wireless, filed an earlier suit that resulted in a judge issuing an order allowing T’s to stay open. The case was transferred to federal court.
Third-Party Cannabis Companies Lawsuit Against New York
In September, e-commerce company Leafly Holdings filed a lawsuit against the state’s Office of Cannabis Management in Albany County state Supreme Court challenging a rule banning third-party advertising and marketing services in the adult-use marijuana market.
The suit claims the OCM unfairly targeted “third-party platforms” such as Leafly with rules that hinder the companies from marketing and promoting their products. Leafly 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.
The state has asked the court to dismiss the case, saying the regulation is not unconstitutional and would not hurt business.
Harris Beach’s Cannabis lawyers will continue monitoring these lawsuits 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 email@example.com; attorney Heidi Schult Gregory at (585) 419-8720 and firstname.lastname@example.org; attorney Francis L. Gorman, III at (585) 419-8628 and email@example.com; or the Harris Beach attorney with whom you most frequently work.