On December 18, 2023, the day New York’s cannabis regulators wrapped up their initial cannabis licensing application period, the state was hit with yet another lawsuit seeking to halt the licensing of adult-use retail dispensary programs.

The businesses filing suit, Variscite NY Four, LLC and Variscite NY Five, LLC (collectively, “Variscite”), allege the state’s licensing scheme is unconstitutional because it favors New York residents and discriminates against interstate commerce.

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.

The new Variscite lawsuit, filed by separate entities owned by the same members of Variscite One, makes similar points. Variscite claims the state’s Office of Cannabis Management (OCM) and Cannabis Control Board (CCB) are giving priority status to New York residents, violating the Dorman Commerce Clause. The suit also contends Variscite should receive “extra priority” status because its owner has an out-of-state marijuana conviction.

To qualify for retail licenses under the CAURD license program, applicants must be “justice-involved”— having a past cannabis-related conviction or having a family member with a past cannabis-related conviction. The state’s Adult Use Application Program is divided into three pools: general, social, and economic equity (SEE) “priority[1]” and SEE “extra priority[2].”

It might be more difficult this time for Variscite to convince a judge to halt licensing because the state has amended guidelines to indicate out-of-state applicants can receive priority if they were arrested or negatively affected by cannabis enforcement. 

Long Road to Cannabis Legalization Slowed by Lawsuits

New York opened up its cannabis market to cultivator, processor, distributor, microbusiness and retail dispensary applicants beginning Oct. 4.

But it had been a long haul to get to that point and applicants have been stalled for more than two years in their bid to capitalize on a cannabis market projected to generate billions of dollars. Legal challenges continuously stalled the program’s roll out.

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 veteran’s 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 Marijuana Regulation and Tax Act (MRTA), passed in 2021, 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 veteran’s 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.

Whether the latest lawsuit will continue to slow the program will rest on the United States District Court for the Northern District of New York’s decision as to whether the state has done enough to open its licensing program to comport with the legislative structure.

Harris Beach’s Cannabis Industry Team will continue to monitor this situation and report out on new developments. If you have questions or need help on cannabis-related matters, please reach out to attorney William M.X. Wolfe at (315) 214-2059 and wwolfe@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; and attorney Meaghan T. Feenan at (518) 701-2742 and mfeenan@harrisbeach.com; or the Harris Beach attorney with whom you most frequently work.

[1] OCM gives “priority” to applicants who are in one of the following SEE groups:

  • Individuals from a Community Disproportionately Impacted (as determined by the OCM);
  • Distressed Farmers;
  • Service-disabled veteran-owned businesses;
  • Minority-owned businesses; and,
  • Women-owned businesses.

[2] OCM gives “extra priority” to applicants that meet all of the following:

  • Is a member of a community disproportionately impacted by the enforcement of cannabis prohibition; 
  • Has an income lower than eighty percent (80%) of the median income of the county in which the applicant resides; and 
  • Was convicted of a cannabis-related offense prior to the effective date of the MRTA, or had a parent, guardian, child, spouse, or dependent, or was a dependent of an individual who, prior to March 31, 2021, was convicted of a cannabis-related offense.