A group of New York’s powerful and well-capitalized medical cannabis operators are suing the state’s cannabis regulators for leaving them out in the cold as the Big Apple’s adult use cannabis industry rolls out.
A newly-formed Coalition for Access to Regulated & Safe Cannabis announced on Thursday that it is suing the state Office of Cannabis Management and its Cannabis Control Board to “compel” them to “fulfill their responsibilities to create a safe, equitable, and well-regulated adult-use and medical market.”
The Coalition, a “registered trade association that represents licensed registered medical cannabis operators and applicants excluded from New York’s nascent adult-use market,” has filed its lawsuit in the State Supreme Court in Albany.
At issue is how regulators have interpreted and implemented the Marihuana Taxation & Regulation Act, passed in March 2021. While most states have allowed existing medical cannabis operators to immediately enter the adult use market, New York regulators decided in early 2022 to create a set of priority licenses for “justice-involved” individuals and related non-profits as part of their equity efforts. Regulators initially made available 150 of these licenses, called Conditional Adult Use Retail Dispensary (CAURD) licenses. This month, they doubled it to 300. So far, 66 CAURD licenses have been awarded, and five shops are open.
However, these legal operators are up against rampant unlicensed cannabis sales across the state, with an estimated 1,400 shops in New York City alone.
There is one line from MRTA that is repeatedly bolded and italicized throughout the Coalition’s lawsuit: “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.”
The lawsuit seeks several outcomes, including: that the CAURD license be declared an “unconstitutional licensing category that violates the MRTA and contravenes New York’s separation of powers doctrine,” that the “qualifying criteria for the CAURD license category” be declared “arbitrary and capricious,” that regulators be compelled to “pursue civil injunctions against all illicit cannabis stores,” and that, in order to stamp out these unregulated stores, regulators “open the adult-use retail dispensary licensing window for all applicants immediately, including for all the social and economic equity applicants specified in the MRTA and for R.O.s.” (The state has licensed ten medical cannabis operators, called registered organizations, since lawmakers passed a medical cannabis bill in 2014.)
The Coalition’s members include several of these ROs — Acreage, Curaleaf, Green Thumb Industries, and PharmaCann — as well as three people who intended to seek a license to operate in the adult use industry, but have so far been unable to do so.
Under the adult use rules that regulators proposed in November, which are currently being revised according to public comment, ROs will have to pay $5 million to enter the adult use industry. From there, the ROs that want to sell adult use cannabis will have to wait until three years after the first CAURD sale took place, which was in December 2022.
The ROs that do join, however, will have a significant advantage as the only vertically integrated adult use businesses in the state. While the state’s medical cannabis operators are all vertically integrated, and will be able to remain so, the adult use regulations will not allow anyone licensed to grow cannabis to also sell it.
The Coalition’s lawsuit is the latest in a broader and mounting effort by ROs to call attention to the threats posed by illegal operators and to push back against the approach taken by the state’s cannabis regulators.
One big push came in November, when a group of industry groups, which included the New York Medical Cannabis Industry Association, published a report about contaminants in cannabis products sold by unlicensed operators, as Cannabis Wire reported at the time.
Another push came this week with the release of a new report commissioned by Acreage, which is an RO and operates The Botanist medical cannabis shops in New York, that concludes that the state’s approach allows illegal operators to thrive and will lead to the loss of jobs and tax revenue.
“The state tried to initiate an inclusive cannabis market based on restorative justice for those historically impacted by the War on Drugs; unfortunately, the delayed licensing rollout put the state’s legal industry in a precarious position as illicit actors fill the vacuum and serve consumers,” said Bryan Murray, EVP of Government Relations for Acreage, in the report announcement. “New York is expected to be one of the largest cannabis markets in the U.S. There is room for all players, and New York has a full bench of players ready to play the game. Why won’t they let us help them win?”
The Coalition’s lawsuit isn’t the first against the state’s cannabis regulators, but it’s the first from the existing industry.
A lawsuit challenging the CAURD application process (Variscite NY One, Inc. v State of New York; New York State Office of Cannabis Management; and Chris Alexander) has prevented regulators from awarding CAURD licenses in five regions: Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn.
In February, the U.S. District Court for the Northern District of New York judge upheld the preliminary injunction that he granted to Variscite in November.
New York State Assembly Majority Leader (and Marihuana Taxation and Regulation Act co-sponsor) Crystal Peoples-Stokes called out the lawsuit in November.
Peoples-Stokes said that while she was “proud” that the first wave of CAURD licenses had been issued, it was “disappointing” that the region of Buffalo, which she represents, has been left out.
“I know we’ll get through whatever these people want to do or try to do to us in the court system,” Peoples-Stokes said, adding that it’s “sad” that “equity is being tried in court.”
Editor’s note: This story was updated with details about the companies involved in the lawsuit.
