Judge orders temporary shutdown of NY's marijuana licensing

Judge orders temporary shutdown of NY's marijuana licensing

Restraining order was issued in case filed by four military vets who were blocked from getting a retail license due to system that favored "justice involved" applicants.

ALBANY — A state Supreme Court justice signed a restraining order Monday that will temporarily scuttle New York’s retail marijuana rollout pending a hearing later this week. The order was issued in a case filed by four military veterans who have accused regulators of unlawfully prioritizing applicants with prior drug convictions while excluding others.

The lawsuit filed last week against the state Office of Cannabis Management and its top officials marks the latest case in which regulators of the nascent industry have been accused of violating the provisions of the law that legalized marijuana. 

The state attorney general’s office, which represents the Office of Cannabis Management in the litigation, told a judge last week that the Cannabis Control Board, which issues the conditional retail licenses, is not scheduled to meet again until September and does not anticipate issuing any new licenses before then.

However, the attorney general’s office challenged a provision of the order that prohibits regulators from “processing” or “conferring operational approval” of pending licenses.

The state’s letter, filed Friday, said they “will continue reviewing application materials and other activity consistent with 'processing' (conditional retail) applications,” including reviewing background checks.

“Defendants are not willing to agree to cease all activities associated with provisional and approved licenses pending the scheduled argument,” assistant Attorney General Shannan C. Krasnokutski wrote in the letter.

She added the approved licensees “are incurring financial obligations each day in the hundreds of thousands of dollars on construction crews renovating their stores, various vendors installing point of sale systems and other items required to meet the regulatory specifications, suppliers preparing orders to ship product to the provisional licensees, meetings with compliance teams and local communities, and press schedules, among others.”

“Asking for a stop to all this activity is not asking for the status quo to be maintained, but rather is asking for affirmative mandatory action that will harm current licensees, and which should be issued only in extraordinary circumstances, which plaintiffs have not established here,” she added.

The judge did not address the attorney general’s letter and it’s unclear whether any court action on that issue will take place before Friday’s hearing.

The petition that was filed in state Supreme Court in Albany last week accuses officials overseeing the rollout of assuming the role of the state Legislature by changing the rules that had established “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.” The issuance of licenses was supposed to prioritize “social equity” applicants, which some have argued includes more than just those with prior marijuana convictions.

The four veterans collectively have served more than two decades in U.S. military branches. They argue the Office of Cannabis Management failed to follow New York’s Marijuana Regulation and Taxation Act (MRTA), in part by not issuing licenses to disabled service veterans and other “social equity” applicants.

The lawsuit invokes similar legal arguments to a case filed in March by a coalition of medical marijuana license holders and recreational market hopefuls whose civil complaint, which is pending, sought a court order to open the retail licensing process “for all applicants immediately.”

Cannabis regulators have issued 463 conditional retail licenses to applicants with prior cannabis convictions — and to a small number of non-profit agencies that provide services in minority communities.

 “It’s out of character for a veteran to sue the state to uphold a law,” William Norgard, a U.S. Army veteran and one of the plaintiffs, said in a statement issued by a public relations firm announcing the lawsuit. “We take oaths to defend the laws of our nation, and trust — maybe naively — that government officials will faithfully and legally execute those laws. What the Office of Cannabis Management is doing right now is in complete breach of that trust. As veterans, we know that someone has to hold the line.”

Both lawsuits assert that the cannabis regulators overstepped their authority by creating a special licensing category for people with convictions — a decision that was not approved by the Legislature. The petitions contend the move violates the state constitution.
The law legalizing marijuana established a goal of awarding 50 percent of all retail marijuana shop licenses for social and economic equity applicants, which regulators changed to priortize those with past marijuana convictions.

Carmine Fiore, one of the veterans in the case filed last week, served eight years in the U.S. Army and New York Army National Guard. He had secured a storefront location in Suffolk County not long after the law legalizing marijuana went into effect in April 2021, but when regulators passed over service-disabled veterans in the licensing process he had to give up that location and lost his opportunity “to become a market leader on Long Island.”

The other plaintiffs are Steve Mejia and Dominic Spaccio, who both served six years in the U.S. Air Force.

The temporary restraining order will remain in effect at least until a hearing that’s scheduled for Friday morning in Kingston.

A spokesman for the Office of Cannabis Management has said the agency does not comment on pending litigation.

New York legalized marijuana more than two years ago and has struggled to establish a bustling retail market, in part, because of provisions in the 2021 law that placed restrictions on licensing requirements to achieve what state officials have said are important social equity objectives.

Industry observers have noted that in the first four months of this year — after the state’s first retail shop opened late last year in New York City — the state has collected nearly $17 million in tax revenues from cannabis sales. Under the law that legalized the drug, roughly 40 percent of that revenue is supposed to be redirected to communities most impacted by prior marijuana enforcement.

It’s unclear whether New York can keep pace with the tax revenues generated in other states that legalized marijuana. In Illinois, where recreational marijuana sales became legal in January 2020, the state saw a 50 percent increase in taxes collected from that industry between 2021 and last year, when it collected $443.3 million in taxes.

Illinois, which does not have the same “social equity” requirements as New York, mandates that 25 percent of its tax revenue from cannabis sales “must support communities that are economically distressed, experience high rates of violence, and have been disproportionately impacted by drug criminalization.” That state’s tax disbursements to local governments increased from $82.8 million in 2021 to $146.2 million last year.

New York officials have said their regulations, which include a two-tiered market structure that mirrors the state’s alcohol industry, creates a firewall between the business owners who grow and-or process the plant and those who sell it. Those strict business requirements, designed to prevent monopolies and help small business owners with prior marijuana convictions succeed, have also apparently attributed to the difficulties getting the industry rolling.

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