Exclusive: NY’s cannabis regulators sued again, this time by the big players

It’s the lawsuit many saw coming.

A coalition that includes some of New York’s medical cannabis companies is asking a judge to compel state regulators to open up licensing for all retail dispensary applicants immediately.

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The complaint, provided yesterday to NY Cannabis Insider and filed today in Albany County Supreme Court, alleges unconstitutional overreach and policymaking, egregious abdication of duties, and actions that put New Yorkers’ health and safety at risk.

The OCM declined to comment on the litigation, which is common for defendants in a lawsuit.

The Coalition for Access to Regulated & Safe Cannabis describes itself as “an unincorporated trade association” composed of registered organizations, parties that planned to pursue a dispensary license when the application window first opened, and physicians whose practices have suffered due to the state’s “neglect” of its medical cannabis program.

As of publication, here’s what we know about the group:

It’s made up of at least four registered organizations, Acreage Holdings, PharmaCann, Green Thumb Industries, and Curaleaf, a company whose chairman recently warned of litigation over New York’s approach to social justice.

It also includes two hopeful dispensary owners, one in Brooklyn and another in California, as well as a medical cannabis practitioner in Westchester.

The group is represented by NYC law firm Feuerstein Kulick.

At its core, the coalition’s complaint argues that:

“Rather than perform the tasks required by the MRTA – which would promote a safe and regulated cannabis industry for medical patients and adult-use consumers alike – CCB and OCM have improperly assumed the role of the Legislature to impose their own policies over those of New York’s elected officials and, by extension, their constituents,” the suit alleges.

NY Cannabis Insider had asked OCM Executive Director Chris Alexander about the possibility of this type of lawsuit in July. At the time, Alexander replied:

“I don’t have a concern about the challenge towards the retail opportunity, because the board has the power to create additional licenses. … We think about legal challenges that may come to the program, but that’s why we stay as close to the law and the powers that law has given us as possible.”

A second lawsuit

The CAURD program sprang out of Gov. Kathy Hochul’s Seeding Opportunity Initiative, which was announced last March and sought to “position individuals with prior cannabis-related criminal offenses” to make the first recreational sales in the state. The program allotted 150 licenses to “justice-involved individuals” and another 25 to nonprofits.

For those justice-involved individuals to get a license, they had to demonstrate that they or someone close to them had been arrested in New York State for a marijuana-related offense, had a history of running a successful small business, and had a “significant presence” in NY.

It wasn’t long before legal experts began to question the legality of the endeavor.

Vanderbilt University law professor Robert Mikos told NY Cannabis Insider in August that he thought “the writing’s on the wall” for a successful challenge to CAURD due to the program’s residency-related requirements. Those requirements, Mikos said, are in conflict with the US Dormant Commerce Clause, which prevents states from passing legislation that discriminates against, or excessively burdens, interstate commerce.

In October, less than a month after the CAURD application window closed, the predicted lawsuit was filed, and a judge blocked OCM from issuing any licenses in five regions. The agency is expected to file a brief in the case next week.

To date, the CCB has issued 66 CAURD licenses. In early March, the board announced plans to double the number of licenses available to justice-involved individuals, increasing the total to 300.

But residency was only one of the problems experts identified with the CAURD program. The other involved CAURD’s conflict with language in the MRTA, which said that “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.”

That is what the coalition’s lawsuit takes aim at, alleging the “OCM is effectively compounding its violation of the separation of powers doctrine by selecting its own category of potential applicants (the CAURD candidates) in defiance of MRTA.”

As a result, the complaint states, the agency has “postponed indefinitely the licensing of hundreds of additional dispensaries necessary to satisfy consumer demand.”

Sen. Jeremy Cooney, an MRTA co-sponsor and leader in the state’s cannabis rollout, provided a statement to NY Cannabis Insider about the litigation on Wednesday:

“When we passed the MRTA, there was an understanding that the rollout of adult-use recreational cannabis and expansion of New York’s medical cannabis program would be complex, and encounter obstacles.

“While a potential lawsuit is undoubtedly a new challenge, we must not allow it to become a roadblock to progress. We must continue our efforts to deliver for operators, patients, and consumers as the legal process unfolds. We are committed to increasing patient access for the medical program and creating equity in the recreational market.”

A rundown of the key points

The coalition’s 38-page lawsuit is a compendium of the flaws and missteps in New York’s rollout of its recreational cannabis marketplace.

It lists as evidence that the OCM and CCB have:

  • Taken 20 months to propose regulations governing the marketplace, which have yet to be finalized.
  • Routinely violated state law through “ever-changing” guidance related to growers and processors.
  • Over-promised state-subsidized real estate and loans.
  • Induced cultivators to grow hundreds of thousands of pounds of weed without providing the retail infrastructure necessary to sell it.
  • Failed to publish a MRTA-required social and economic equity plan.
  • “Waged a thinly veiled attack” against the state’s registered organizations that continues to harm the existing medical market.

The coalition is requesting that a judge declare OCM’s CAURD license unconstitutional and beyond the agency’s legal authority.

Additionally, they are seeking to compel regulators to pursue civil injunctions against all unauthorized cannabis stores and to immediately open the adult-use retail dispensary licensing window for all applicants, including registered organizations and those specified under the MRTA’s social and economic equity provisions.

Let’s be honest

While the lawsuit aims to benefit all social equity applicants as described in the MRTA – including minority-owned businesses, women-owned businesses, distressed farmers and service-disabled veterans – it is brought by large, multistate medical operators that are fed up with the way New York has limited their ability to enter the market.

“We’re all for social justice, and Curaleaf probably does more than most companies in this area,” said Boris Jordan, founder and executive chairman of Curaleaf, one of the state’s registered organizations, during a January Twitter chat with more than 11,000 listeners.

“But I do think that some of the social justice warriors have taken this too far in places like California and New York,” Jordan said. “Literally, the NY authorities are almost promoting illegal cannabis and lowering testing standards over adult-use over medical, and allowing products that should never be sold in stores to be sold just so they can keep MSOs out of the market.”

“If they don’t play ball,” Jordan said about NY regulators, “we’re going to sue them, and I’m very confident in winning that lawsuit.”

Jordan’s argument is represented in part in the Thursday filing, which says the state’s registered organizations “have anchored New York’s medical cannabis program for the better part of a decade” and have “invested tens of millions of dollars over the past eight years in order to produce a sufficient supply of pharmaceutical-grade cannabis to serve New Yorkers who need cannabis to treat debilitating diseases, conditions and illnesses.”

“Arresting their entry into the adult-use market inflicts ongoing injury to their business and imperils their bottom line,” the lawsuit says.

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