Federal Injunction Halts New York’s Retail Dispensary Application Process

November 10, 2022
seanmack
New York
2 Comments

By Sean Mack

On November 10, 2022, a New York federal judge entered an order enjoining New York’s retail cannabis dispensary application process in five regions of the state. This decision follows similar decisions from federal courts in Maine and Michigan that have found provisions in cannabis licensing rules that unfairly favor in-state residents over out-of-state residents violate the “dormant commerce clause” of the U.S. Constitution.

The plaintiff in this case, Variscite, submitted a complete application under New York’s CAURD program for a retail dispensary license. One of the requirements of the application was to demonstrate that the applicant has a “significant presence” in New York. The relevant regulations provided that could be satisfied in several ways, including by having a principal corporate location in New York; being incorporated or otherwise organized under the laws of New York; or a majority of the ownership are residents of New York. Because Variscite was incorporated in New York it appeared that it could satisfy the New York presence requirements.

However, the application form added an additional requirement that the controlling owner of the applicant must be a New York resident. Because Variscite is not majority owned by a New Yorker it cannot obtain a license.

New York’s licensing process asked applicants to select up to five regions in the state in which they wanted to operate. As a result, Variscite asked the court to enjoin the application process in the five regions it had selected in its application.

The federal judge agreed with Variscite that the New York residency requirement discriminated against out of state applicants, was not narrowly tailored to serve a compelling state policy, and therefore violated the Constitution.

The rationale underlying the decision could apply across the state, but because the plaintiff sought to stay the application process only in the five regions it applied for, New York can proceed with processing applications in all other areas of the state. The five geographic regions affected by the decision are Brooklyn, Finger Lakes, Central New York, Western New York, and Mid-Hudson.

It remains to be seen how New York will respond to the decision and whether it will continue to enforce the residency requirement in other regions despite its unconstitutionality. New York also is expected to release regulations soon for other types of cannabis licenses and non-New York industry participants will undoubtedly be looking closely to see if similar unconstitutional provisions are included in those rules.

Variscite_NY_One_Decision_1668122054 2022-11-10 23_14_50

Sean Mack

Sean Mack is the co-chair of Pashman Stein Walder Hayden’s Litigation practice and chair of the Cannabis and Hemp practice.

With significant experience counseling business owners in complex disputes, and recognition on the InsideNJ “Insider 100 Cannabis Power List” in 2019, Mack brings a unique set of skills to businesses interested in cannabis and hemp. Beginning in 2015, Mack led a team of the Firm’s attorneys to analyze existing cannabis laws and regulations to prepare proposed legislation for New Jersey United for Marijuana Reform (NJUMR). NJUMR then presented the Firm’s proposal to a state senator for incorporation into an early draft of the bill to legalize adult use marijuana in New Jersey. Building on that experience, Mack advises businesses interested in applying for medical cannabis or hemp licenses in New Jersey, and has represented other clients in appeals of the 2018 and 2019 rounds of medical marijuana license applications. He also advises companies and individuals on the specific protections afforded to medical marijuana patients under the Jake Honig Act in employment, the receipt of medical services, and real estate. Mack advises Hemp-CBD companies on state and federal laws affecting their advertising and businesses. He also works in tandem with Pashman Stein’s attorneys to offer clients counsel in the interplay between cannabis/hemp laws and corporate, employment , intellectual property and real estate laws.

Mack’s business litigation practice focuses on complex disputes involving unfair business competition in a variety of forms. He regularly represents businesses, business owners and senior executives in lawsuits involving theft of corporate opportunities, theft of trade secrets, breaches of non-competition agreements, breaches of confidentiality and non-disclosure agreements, and other unfair business practices. Clients often retain Mack when a joint business venture has gone awry or when they believe it is time to divorce their business partners. Many of his cases arise from complicated contractual and licensing disputes. He also has represented clients in trademark and trade dress infringement cases and in counterfeiting cases.

He can be reached at [email protected].

This Post Has 2 Comments

Michael “Budsy” Davis says:

November 10, 2022 at 9:48 pm

It seems that if the states can circumvent the federal prohibition of illegality of cannabis that the state rules of residency is also appropriately applied here. Still the rules and regulations for a plant that can grow wild if allowed to are extreme with weed.

Reply
Debra DeGiovanni says:

November 11, 2022 at 12:46 pm

Has the state given you any indication on a timeframe for which they will start executing licenses for this first round. Also you indicated that there might be a delay because of the situation mentioned in your article. Did the state give you any indication on how long of a delay it might be?

Reply