NY’s Legal Marijuana Industry Shaken by Court Injunction

Marijuana industry stakeholders are worried New York’s legal cannabis market – which was supposed to launch in the next seven weeks – could get held up in litigation, after a federal judge placed an injunction on the state’s conditional dispensary program.

U.S. District Judge Gary Sharpe on Thursday blocked New York’s Office of Cannabis Management from issuing any cannabis licenses under the Conditional Adult-Use Retail Dispensary application program in five of the 14 regions in which the agency is licensing CAURD dispensaries. The injunction applies to CAURD applicants in the Finger Lakes, Central New York, Western New York, Mid-Hudson and Brooklyn.

The program was designed to allocate New York’s first marijuana retail licenses to people who have been convicted of a cannabis-related crime – or have a family member who was – and have also run a profitable business for at least two years. As part of the program, the Dormitory Authority of the State of New York (DASNY) will secure up to 150 properties across the state, which the agency – through contractors – will renovate into dispensaries where CAURD licensees will locate their businesses.

“I think it was a blow for everyone -- everyone who applied, especially the individuals who applied in these areas that are under injunction,” said Jason Coleman, a CAURD applicant who wants to open a dispensary in Albany. “For individuals and groups that aren’t in these areas, it’s still a blow, because now you’re afraid that someone might bring a suit against the state for your area.”

Sharpe’s decision came as part of a lawsuit filed against the state by Variscite NY One, a Michigan company. Variscite sued after the state found it was ineligible for CAURD because the company is 51% owned by an individual who has no significant connection to New York and who has a cannabis conviction in Michigan. CAURD rules requires an applicant must have been convicted of a cannabis crime in New York and have a “significant presence” in New York.

Variscite’s suit argues that the CAURD requirements discriminate against out-of-state cannabis operators in violation of the federal legal theory called the Dormant Commerce Clause. The clause prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce, according to Cornell University.

OCM declined to comment on the lawsuit, but said in a statement that the Cannabis Control Board still plans to consider CAURD applications.

“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,” OCM’s statement said.

NY Cannabis Insider reported in August about a ruling out of a federal Court of Appeals in Maine, in which two of three judges on a panel struck down the state’s requirement for medical marijuana company owners to be state residents, citing the Dormant Commerce Clause.

Back then Robert Mikos, a law professor at Vanderbilt University and expert in federalism and drug law, said he thought “the writing’s on the wall” for a successful challenge to the CAURD program. He argued New York’s requirement of a New York marijuana conviction and residency is in conflict with the federal commerce doctrine.

The injunction applies to fewer than half the CAURD program’s available regions, which means OCM can still issue the licenses for all other regions. But attorney Matt Leonardo said he’s pretty sure the ruling will lead to other lawsuits, which will eventually lead to injunctions for the entire program.

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