A temporary injunction issued by a federal judge may bar New York cannabis regulators from issuing conditional retail licenses in five regions, jeopardizing the start of the legal market.
New York cannabis regulators are to finalize regulations that will shape the legal market in the state and issue the first batch of conditional retail licenses to open dispensaries within the 2022 calendar year.
Over 900 individuals and non-profit organizations have applied for the Conditional Adult-Use Retail Dispensary (CAURD) program.
This type of license is reserved for people directly or indirectly affected by the war on drugs who have successfully had a business for at least two years with a significant presence in New York.
However, a company that applied for the CAURD program filed a lawsuit in September against New York State after its application was rejected.
Variscite NY One Inc. claims that the CAURD regulations discriminate against out-of-state residents and block interstate commerce.
New York regulators have rejected the company's application because it is owned by a Michigan man named Kenneth Gay, who has a cannabis conviction under Michigan law. According to the regulator, he"has no significant connection to New York," and was therefore ineligible to be selected.
However, U.S. Judge Gary Sharpe granted the plaintiff's preliminary injunction request.
According to the judge, the Office of Cannabis Management (OCM)'s argument is unpersuasive, as they have not justified their position.
In the memorandum of the order, the court stated that New York State's attorneys didn't attempt to clarify how the cannabis law and the regulations don't directly discriminate against interstate commerce claimed by Variscite after it found itself barred from accessing the CAURD program.
According to the judge's ruling, Variscite argues that the exclusion from the CAURD program will cause harm to the company because it will "be excluded from the New York storefront retail cannabis market."
Furthermore, even if the company could join the cannabis market later, "all advantages to early entrants in the market, such as access to customers who have not developed loyalty to other business, will have been claimed," the memorandum reads.
As a result, the ruling prevents OCM from issuing CAURD licenses in the Finger Lakes, Central New York, Western New York, mid-Hudson, and Brooklyn, while licensing is still allowed in other regions of the state.
Variscite claims that New York's OCM's CAURD program discriminates against out-of-state operators and blocks interstate commerce, a direct violation of the Dormant Commerce Clause.
David Pejovic, a New York cannabis lawyer, told NYSCC the Dormant Commerce Clause refers to the prohibition against states passing legislation or law that discriminate against or excessively burdens interstate commerce.
"The idea here is that they're discriminating against interstate commerce or discriminating against out-of-state actors and coming into the space," he said.
According to Pejovic, the lawsuit filed by Variscite in September may create a precedent that will delay the work of New York regulators from starting the legal market.
"It will be an important case because it stops the industry from starting. I think it's going to set a precedent. Some people are going to be copycat lawsuits based on this. That there's going to be even more, and it might continue to increase more zones that are restricted from opening up a dispensary for the CAURD program," he said.
It's not the first time Gay has filed a lawsuit for the same reasons, as reported by several media outlets.
Using a business entity called Peridot Tree, Gay and his attorney Christian Kernkamp filed another lawsuit in February 2022 against the City of Sacramento, California, and its cannabis office.
However, the cannabis operations of Variscite and Peridot Tree seem inactive in California, Michigan, and New York.
Variscite was registered in New York on August 31, roughly one month before the deadline to apply for the CAURD program on September 26.
While the OCM declined to comment on the litigation, the move will affect 63 of the 150 licenses the state planned to issue.