Unpacking New York’s Cannabis Program Challenges and Future Outlook

Apr 15, 2024 | Legal Update, News

Unpacking New York's Cannabis Program Challenges and Future Outlook

When New York State legalized recreational marijuana in March 2021, equity was a key feature of the new law. The intent was to address past injustices in cannabis arrests and prosecutions. In New York City, for example, before legalization, Black people were arrested on low-level marijuana charges at eight times the rate (in Manhattan, at 15 times the rate) that non-Latino white people were arrested, and Latinos were arrested at five times the rate of whites.

War on Drugs Cannabis Equity

The plan was for forty percent of the tax revenue from cannabis sales in the state to be invested in communities where minorities had been disproportionately affected by the war on drugs. And past convictions on marijuana-related offenses that were now no longer crimes would be automatically expunged.

The New York cannabis legislation also set a goal of awarding 50% of recreational marijuana licenses to Social and Economic Equity (SEE) groups: minority-owned businesses, women-owned businesses, distressed farmers, service-disabled veterans, and people from disproportionately impacted communities. Applicants for licenses would get priority if they were members of these communities, had incomes lower than 80% of the people in their county, and had been previously convicted, or a close relative had been convicted, of a marijuana offense.

Now, three years later, the licensing program is, in Governor Hochul’s words, “a disaster.” As of March 2024, there were only 85 legal marijuana shops throughout the whole state – and more than 1,500 illegal shops just in New York City alone. Out of all the legal shops, only 10 had received assistance from the state.

New York Cannabis Program Legal Challenges

Problems have been coming from all directions, including lawsuits challenging the state’s licensing requirements. In September 2022, Variscite NY One, a Michigan company, filed a lawsuit in federal court against New York State and the state’s Office of Cannabis Management (OCM). The lawsuit temporarily threw a monkey wrench into plans to open New York’s first batch of legal dispensaries.

At stake was the question of who could apply for a license to operate a dispensary for recreational cannabis. Among other things, applicants for the licenses, known as Conditional Adult-Use Retail Dispensary (CAURD) licenses, must have been “justice involved” – previously convicted of a marijuana offense in New York State or having a close relative who was. Applicants must also have a significant presence in New York State.

Variscite’s majority owner did have a marijuana conviction, but it was in Michigan, not in New York. OCM rejected his application for this reason and also for his not having a significant connection to New York. The lawsuit argued that the CAURD licensing process was unconstitutional, specifically that the discrimination against out-of-state residents licensing applicants violated the dormant Commerce Clause, which prohibits states from passing laws that excessively burden interstate commerce.

In November 2022, a federal judge sided with Variscite and issued a preliminary injunction blocking OCM from issuing any CAURD licenses at all in five out of the 14 regions of the state. In March 2023, an appeals court narrowed the injunction to apply to only one region, Finger Lakes. In May 2023, New York’s Cannabis Control Board reached a settlement agreement with Variscite that lifted the remaining injunction and gave Variscite the right to receive a CAURD license when available.

Then in December 2023, Variscite sued again, using similar legal arguments to claim they should have received extra priority in the application process. This time, the court took New York State’s side and denied Variscite’s request to stop the state from issuing licenses.

Cannabis Program Discrimination Case

In January 2024, another business sued OCM, seeking an injunction on Constitutional grounds but coming at it from a different angle. The plaintiff in this case, Valencia AG, is a New York company. In the lawsuit, it’s alleging that the SEE program, which gives licensing priority to minority- and women-owned businesses, violates the federal Equal Protection Clause by discriminating against white men.

The complaint also describes the “pigmentation” and gender of the OCM executive director, chairperson of the OCM board, and each individual board member, and states that they were selected for their positions on the basis of their race and gender and that they were implementing SEE procedures to favor their own race and gender. While some sections of the complaint seem absurd, the SEE program could be vulnerable to legal challenges after the June 2023 Supreme Court case striking down university affirmative action admissions policies.

These Cannabis Board lawsuits, along with internal problems, have created a great deal of chaos and uncertainty. In March 2024, Governor Hochul ordered a thorough review of the licensing program. In April, the Board approved 101 new licenses. But the number of illegal shops still vastly outnumber the tiny number that have been granted state licenses.

If you have any questions or need help with New York State cannabis licensing or New York cannabis-related issues, please contact us at Kavinoky Cook.