New Lawsuits Threaten to Delay OCM’s Issuance of Adult Use Cannabis Licenses
New York’s adult use cannabis law (MRTA) is premised upon a legislative goal of promoting social equity objectives by granting licensing priorities to certain groups. The state’s goals may have been based in good intentions – removing barriers for minorities, women, distressed farmers and war disabled veterans to start small businesses and reversing the disproportionate impact of cannabis law enforcement on certain communities – but these goals are being challenged under various state and federal laws. Challenges include favoring state residents over out of state residents, favoring some priority groups over others and the general scheme to give priorities to any group over the general population.
On the heels of settling a challenge to the CAURD program’s first round that only accepted applications from justice involved applicants rather than all priority groups, a new lawsuit was filed seeking an injunction against OCM issuing licenses from the most recent October-December application round because some groups were permitted/given three spots in the lottery system rather than just one and the state’s failure to make this public caused applicants to apply who would not have done so if they knew their chances for success were dramatically lower. Another pending suit challenges the 50% fee reduction given to priority/social equity groups and the general priority being given to those groups in the licensing process.
There is also a pending lawsuit challenging the state’s roll-out of adult use cannabis as a violation of federal drug laws and one challenging the state’s investment in cannabis under the CAURD and social equity provisions of the state’s cannabis laws.
Some lawsuits have received interim rulings from the courts during the pendency of the case, but the final outcomes remain unknown. One such pending lawsuit was filed by a marketing platform challenging the state’s regulations for non-plant-touching third-party software platforms arguing the state’s regulations essentially bar third party marketing platform services from doing business in New York. There is also a pending challenge to state laws concerning hemp derived THC beverages. There is an injunction preventing the state from enforcing its regulations during the pendency of the case but the future of the law is uncertain. It may have to be revised to address some of the concerns raised by the objectors.
Our team actively monitors the legal landscape for cannabis business owners and helps them navigate the licensing process. If you are interested in a business strategy session to evaluate the impact of the lawsuits on your business goals, we’d be happy to explore your options for opening and operating a business in the exciting new recreational adult use cannabis industry. We can also help you understand the ever-changing regulations and how to stay compliant with your business operations.
The state’s continued support for this industry and its assistance to minority and justice involved business owners is commendable but the state’s social equity initiatives will likely experience constitutionality challenges for the next several years given suits are also being filed in several other states with similar challenges to social equity programs. Reports show that the most money is made by early entrants in each state that has opened an adult use market as profit margins decrease as the market matures and consolidates. There is no better time to get into this industry and our licensing team can help you navigate the process to acquire licenses and operate in compliance with the ever-changing regulations.
The forgoing is not intended to be and should not be construed as legal advice. Only after an attorney client relationship is established in writing may legal advice be given.
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Tracy Jong is a Senior attorney at Evans Fox LLP with 30 years of experience focusing her practice in business law, intellectual property and licensing for alcohol and cannabis. Tracy Jong is a member of the New York Bar and is a registered attorney at the United States Patent and Trademark Office. She can be reached at [email protected].