Battle Over Cannabis Licenses in New York Intensifies; MSOs Seek to Join Veterans Lawsuit

This story has been updated on Friday, August 11, 2023.

The landscape of New York's cannabis industry has been further convoluted by the entrance of powerful Multi-State Operators (MSOs) into the legal fray. The Coalition for Access to Regulated & Safe Cannabis (CARSC), a trade organization backed by prominent MSOs including Acreage Holdings, Curaleaf, Green Thumb Industries, and PharmaCann, has inserted itself into the recently filed lawsuit against the Office of Cannabis Management (OCM) and the Cannabis Control Board (CCB) from four veterans who are claiming the CAURD program is unconstitutional. 

This move, aimed at freezing the Conditional Adult-Use Retail Dispensary (CAURD) program, holds profound implications for the cannabis market's future in the Empire State.

MSOs Seeking a Stake in the Fight

The 11th hour emergence of CARSC as a player in the lawsuit marks a significant turning point in the battle over the CAURD program. These MSOs have already demonstrated their substantial stakes in New York's cannabis market. They are gearing up to enter the adult-use cannabis arena in the state by year's end, positioning themselves to be major players before the market has a chance to fully mature.

The CARSC's Letter and Strategic Maneuver

CARSC's legal representatives have communicated their intention to participate in the oral arguments scheduled for Friday. Their strategy involves leveraging the existing lawsuit to bolster their own claims against the OCM and CCB. Lawyers for CARSC assert that both lawsuits share a common thread, specifically concerning potential conflicts with the New York state constitution, particularly the separation of powers rule.

The request for a joint hearing is a calculated move by CARSC to align both the preliminary injunction motion in the Fiore veteran lawsuit and the motions for summary judgment in the CARSC case. 

This approach, if successful, would consolidate the legal proceedings, offering a comprehensive perspective on the complex issues at hand. By intertwining these cases, a decision reached on Friday could potentially echo through the legal landscape, resulting in a freeze on the entire CAURD program until at least mid-September or early October. 

Implications for the CAURD Program

As the legal battle intensifies, the fate of New York's cannabis industry hangs in the balance. The intervention of MSOs like those affiliated with CARSC adds another layer of complexity to an already intricate and fraught situation. While the legal merits of the claims put forth by CARSC are yet to be determined, it's clear that these industry giants perceive a significant benefit in halting the CAURD program.

The request for a joint hearing serves as a strategic chess move, one that could potentially secure their foothold in the rapidly evolving New York cannabis market. By asserting that their interests align with the central issue of the CAURD program's legality, these MSOs aim to wield their influence over the outcome, whether through direct participation or indirect consequences of the joint hearing.

Unfortunately, with this move, these MSO’s and the Fiore veterans are demonstrating their lack of concern or regard for those conditional licensees who are now caught in the middle of this legal battle and are in a perpetual state of chaos and uncertainty with no clear end in sight. Which is no way to launch and operate a business. 

"They're going crazy — they're very concerned," Jeffrey Hoffman told Law360. Hoffman represents dozens of provisional licensees granted preliminary approval to begin building their stores under the conditional adult-use retail dispensary, or CAURD, program that is being challenged in the lawsuit.

"Clearly, anyone not open yet is at risk of being significantly delayed," he added.

OCM's Countdown and Ongoing Dynamics

The impending legal showdown has cast a spotlight on the Office of Cannabis Management. With a deadline looming for OCM to submit oppositions, the agency faces the pressure of crafting a robust defense against these multifaceted challenges. The evolving dynamics between the plaintiffs, the regulatory authorities, and the emerging MSOs paint a complex picture of New York's cannabis landscape which has been fraught with issues since its inception. 

It should come as no surprise that all of this legal posturing and its implications have become a source of immense frustration for licensees, applicants and those licensees who are at the precipice of commencing operations in New York. 

While industry giants and influential organizations maneuver their legal strategies, it's the grassroots entrepreneurs who are left grappling with the uncertainty and potential setbacks caused by this legal battle. These small operators, who have invested their time, (limited) resources, and dreams into establishing legal cannabis businesses, now find themselves in a perpetual state of limbo, unable to make critical decisions or advance their plans due to the cloud of legal uncertainty. Let’s also not overlook the tremendous financial impact all of this has on these entrepreneurs. 

As the legal proceedings unfold and powerful entities jockey for position, the voices of these small business operators often get drowned out unfortunately. The very individuals who were meant to benefit from the regulated cannabis market are now bearing the brunt of the delays and ambiguities introduced by the lawsuit and by how the OCM and its counterparts are handling the rollout. For them, every passing day without clarity represents missed opportunities, wasted efforts, and mounting financial strain or outright losses. 

"These individual's frustration over not being awarded a license right away resembles a participation trophy mentality. Other veterans who met the criteria were rightfully granted CAURD licenses. Instead of patiently building a brand that has the potential to become a household name, these guys chose to hastily enter the same arena as established players like Variscite,” said a recently-granted CAURD licensee who asked to remain anonymous.

“Meanwhile, those of us who followed the rules and earned our licenses, but have yet to open, are now left to shoulder the burden, wasting precious and limited resources and opportunities. It's disheartening to be caught in the middle of this situation, unsure of the path forward. All the while, MSOs hold out with their established advantages and logistical operations, the rest of us are left grappling with uncertainty,” they continued. 

This frustration is a testament to the broader challenges faced by the small business owners in a nascent industry up and down the cannabis supply chain. While larger corporations have the means to navigate legal complexities like this, these small operators are left vulnerable, struggling to adapt their plans and struggling to keep their dreams afloat. The impact reaches beyond individual entrepreneurs – it ripples through local communities, stifling economic growth and depriving consumers of safe and regulated products.

In a late development on Thursday, the OCM has filed its opposition to the injunction application in Fiore and below are some of the more important points according to Fatima Afia, Associate, Rudick Law Group:

Updates from Friday, August 11, 2023:

✨️Judge wants the parties to come to a creative solution amongst themselves so that everyone benefits.

✨️The state said they anticipate granting a total of 500-550 CAURDs when all is said and done (note that about 900 applications were submitted).

✨️Final papers on the motions for a preliminary injunction and intervention by CAURD licensees due at 5pm on Tuesday, August 15, 2023.

✨️Next oral argument set for 2 weeks from today at 10am.

✨️Appears that Temporary Restraining Order (TRO) will stay in place for next two weeks.

✨️Don't be surprised to see a settlement between the parties before the next oral argument!

* As expected, we have CAURDs intervening in the lawsuit. Late last night (Wednesday), a motion for intervention was filed by a number of CAURD licensees arguing that they should be heard at tomorrow's hearing because of the irreparable harm they would suffer if an injunction is granted.

* The Order to Show Cause asking for intervention was signed by the judge so the intervening CAURD licensees will be heard tomorrow.

* OCM demonstrates its authority to create CAURD by pointing to Article 2 of the MRTA which allows them to create new license types, the intent of the MRTA which is restorative justice, state legislation regarding the creation of the social equity fund, and commentary by legislators and the Governor.

* Of the 453 CAURD licenses issued to justice involved individuals (not including non-profits), at least 15 were issued to those who are also service-disabled veterans and over 50% were issued those who would also qualify as one of the other social and economic equity applicant categories under the MRTA.

* Final Adult-Use regulations are expected to be introduced to the CCB for adoption on September 12, 2023.

* The general adult use licensing application period is expected to open on October 4, 2023.

* If the injunction is granted on Friday, the general adult-use program will be significantly delayed because the revised regulations will have to be revised yet again to account for justice-involved individuals harmed by the injunction and a new 45-day public comment period will follow, delaying publication of final AU regulations by about 2.5 months.

* If regulations have to be revised again to account for justice-involved individuals, the application period for general licensing could be delayed well into the winter of 2024!

"This lawsuit will end up causing more harm than good to the broader adult-use market, including the very social and economic equity applicants who plaintiffs here claim they are trying to protect. Everything hangs in the balance until Friday's hearing, which will be interesting to say the least," added Afia.

"If this TRO holds up after Friday, it will be utterly devastating up and down the supply chain," according to Budega NYC's Alex Norman, who was recently issued a conditional CAURD license after many months of waiting and uncertainty, only to face even more uncertainty with this lawsuit. 

As the legal battle continues, it's essential for the courts and regulatory bodies to recognize the tangible consequences faced by small cannabis business operators. Clear communication, swift resolution, and a genuine consideration of their struggles must guide the decision-making process. Only by addressing the frustrations of these entrepreneurs can New York's cannabis market truly thrive and provide the intended benefits to all its participants.

As the court prepares to weigh the arguments on Friday, and as stakeholders anxiously await the court's decision, the fate of the CAURD program and, by extension, the larger cannabis market in New York remains uncertain. The intertwined narratives of regulatory mandates, legal challenges, and corporate ambitions create a mosaic that will significantly impact the future of cannabis commerce in the Empire State. 

"The NY adult use industry's imminent future is all on the line tomorrow. Stay tuned!," Afia said.