63 New York dispensary licenses are on hold in federal court

Dispensaries in Brooklyn and other regions won’t get licensed until a federal court resolves a Michigan man’s claim that the licensing process discriminates against out-of-state operators, blocks interstate commerce, and is unconstitutional. The legal hold up could call the entire adult-use market into question.

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A new federal lawsuit will delay the issuance of dispensary licenses in Brooklyn, Finger Lakes, Central NY, Western NY, and Mid-Hudson. This signals a hold on at least 63 of the 150 new dispensaries planned, according to the geographic limits set forth by the state earlier this year.

An LLC called Variscite NY One, Inc. filed for the injunction, claiming the Office of Cannabis Management’s dispensary licensing process discriminates against out-of-state operators and blocks interstate commerce.

Last month, the OCM released guidelines advising CAURD license applicants on how to prepare for the fast-approaching opening day. The guidelines are meant to be taken as temporary guidance, not as the official regulations that will define the adult-use market.

Read the full court documents here and see what the OCM, plaintiff, and judge had to say below.

Why are some NY dispensary licenses delayed?

The plaintiff, Variscite, meets many of the criteria for Conditional Adult-use Recreational Dispensary (CAURD) applicants, including having a non-violent cannabis conviction. The problem is, the conviction occurred in Michigan, not New York. So the majority owner, a Michigan resident named Kenneth Gay, is ultimately disqualified from the first round of CAURD licenses.

A court filing obtained by Leafly reads: “Variscite applied for a CAURD license; however, because it is [fifty-one percent] owned by an individual who has a cannabis conviction under Michigan law and ‘has no significant connection to New York,’ Variscite is ineligible to be selected.â€

But the court found that “Variscite satisfies all [other] requirements of the Cannabis Law and Cannabis Regulations to apply in the CAURD Application Program,†including being registered in the state of New York since August 31, 2022.

A footnote on page 9 of the court documents sums things up like this:

“Because Variscite ‘is a corporation organized under the laws of the State of New York,’ it appears that it would qualify as having a significant New York State presence under Section 116.4(a)(1)(ii) of the Cannabis Regulations; however, the CAURD application website requires ‘[t]he business principal with sole control over the CAURD applicant [to] have [a] significant presence in New York State to be eligible for a CAURD license,’ and in order to proceed with the application process, a requirement that Variscite’s business principal does not meet.â€

Northern District of New York (Case 1:22-cv-01013-GLS-DJS, Document 28, page 9, Filed 11/10/22)

Why will this case only delay some licenses?

As part of its application, Variscite selected the Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn as the regions where the application would be considered.

The injunction means the OCM will not be able to grant any licenses in those areas until the case is resolved.

Variscite claims the state breached an old interstate commerce clause that blocks states from discriminating against out-of-state residents, in favor of locals. The lawsuit lists OCM’s Executive Officer Chris Alexander as the defendant, along with the OCM, and state of New York.

Variscite’s lawyers argued that the state’s social equity goals could be cultivated through non-discriminatory means, like business incubators or job training programs. They added that broadly excluding operators will cause irreparable harm to Variscite’s existing business, since the company will have to wait for the next application window to start playing catch-up with the first wave of CAURD recipients. In October, a judge rejected Variscite’s request to halt the retail license awarding process, but things have apparently changed.

Hon. Judge Gary Sharpe ruled in Variscite’s favor, granting an injunction that will halt licensing in some areas of New York, and potentially expose the entire CAURD process to scrutiny and setbacks.

How will this impact rec day 1 in New York next month?

It’s not clear yet. But a large chunk of the dispensaries we expected to see open by the end of December, likely won’t make it to the New Year’s Eve party on time.

The lack of licensed dispensaries will go unnoticed for many New Yorkers, who will simply continue buying from the state’s robust gray market. Gray market sellers operate in the legal void between March 2021’s legalization bill, and the OCM’s upcoming rollout of licensed retailers, long-promised to arrive by the end of 2022.

Previously, the OCM and NYC Mayor Adams told gray market retailers that they wouldn’t be arrested, and may not even be ticketed for selling cannabis without a license, for now. But they did warn that rogue sellers would ultimately be blocked from ever receiving their own licenses if caught. And that stricter enforcement will come after licensed dispensaries open up.

The entire CAURD program is now vulnerable to similar legal actions in other regions, since a federal judge has legitimized Variscite’s claims of interstate discrimination, citing the dormant commerce clause, which forbids states from issuing laws that favor in-state businesses over out-of-state businesses.

The Office of Cannabis Management sent Leafly this statement Thursday, November 10, after the judge’s ruling:

“We don’t comment on pending litigation. The Office of Cannabis Management is committed to the Marijuana Regulation and Taxation Act’s goals of including those impacted by the state’s enforcement of cannabis prohibition in the market that we are building and we are additionally committed to getting New York’s cannabis supply chain fully operational.â€

Freeman Klopott, director of communications at OCM

The OCM added that it will continue forward as planned, reviewing CAURD applications and successfully “closing that supply chain†with licensed retail stores.

No dispensaries in Brooklyn, for now

For now, the lawsuit could extend the status quo of gift shops, weed trucks, and the booming gray market. But the state could also find a way to settle quickly, preventing further delays.

So keep calm, New York, and continue supporting your local weed suppliers in the mean time. Alternatively, consider applying for a medical card if you want regulated products. Just don’t count on New York having enough licensed retailers to meet the state’s massive appetite for cannabis on day one of its new legal market in December.