Not Again: New York's Already Beleaguered Cannabis Industry Faces Another Legal Challenge Amid License Dispute

New York's budding cannabis industry is no stranger to legal disputes, and it appears to be entering another chapter in its rocky journey. Two companies, Variscite New York Four LLC and Variscite New York Five LLC, have filed a federal lawsuit against the state Office of Cannabis Management (OCM) and its Cannabis Control Board, alleging that the state's adult-use retail dispensary license program is unconstitutional.

The core argument put forth by Variscite Four and Variscite Five is that the board's system of approving licenses gives preferential treatment to New York residents, which they believe violates the federal Dormant Commerce Clause. This clause prohibits states from discriminating against interstate commerce. The companies claim that this preference for in-state residency unfairly deprives them of the opportunity to compete for a license to operate a storefront retail cannabis dispensary.

The plaintiffs are seeking a federal injunction to block the issuance of additional cannabis licenses in New York until their application is considered in the "extra priority" pool. They argue that their applications meet all requirements except the New York residency preference, and thus should be given extra priority due to their secured retail location.

This latest lawsuit follows closely on the heels of another legal challenge that recently held up the issuance of licenses in October, indicating the ongoing legal hurdles facing the industry.

According to Lauren Rudick, of Rudick Law Group PLLC: "Litigating this case could take longer than the roll out of new licenses.  Perhaps this (apparently professional) plaintiff is endeavoring to maximize whatever early market advantage he received with the license he won in the recent settlement."

"Sadly, DCC (dormant commerce clause) challenges across the nation have been (relatively) successful, and our courts have (so far) been hostile to our cannabis business, prompting settlement," added Rudick. "That said, I’m optimistic that OCM will be able to successfully defend this case, based upon some obvious differences between this and some of the other DCC cases that have been raised in other states, and preserve our prioritized licensing scheme."

These legal battles have caused significant delays in the rollout of New York's cannabis industry. The state has had to find alternative ways to accommodate its cannabis growers, who are sitting on hundreds of thousands of pounds of flower waiting to be sold. One such solution has been the Cannabis Grower Showcases, which allowed farmers to partner with licensed adult-use retailers at public events. However, this program is set to expire at the end of the year.

Although according to NY Cannabis Insider, after speaking with the Office of Cannabis Management this week, NYS Assemblywoman Donna Lupardo (D-Binghamton) has been told that the showcases will be allowed to continue as special events under new rules and regulations.

“My understanding is that the OCM wants to transform the Growers Showcases into something that would require a special event permit,” Lupardo said.

“Even though new stores are opening, there remain cannabis deserts in parts of the state,” she noted. “We are urging the OCM to expedite the rules needed to allow these new permits to be issued soon.”

Aaron Ghitelman, an OCM spokesperson, confirmed in a statement to NY Cannabis Insider late Monday that the agency was working to create a permanent event permit for the events. But the agency did not spell out the details of such a system or when it might be rolled out.

Jeremy Cooney, chair of the Senate Cannabis Subcommittee, expressed support for making the showcases a permanent solution, emphasizing the importance of ensuring consumers have access to safe, tested cannabis products. While the industry continues to navigate legal challenges, creating uncertainty for businesses and consumers alike Cannabis Growers Showcases are a life raft for many of the state's cultivators, farmers and licensees. The next court hearing for this latest case is scheduled for March 18, 2024.