Cannabis vendors in Limbo as Judge Halts N.Y. License Program
The state made convicted weed dealers the first legal sellers. Those left out sued, and a judge paused the program.
State inspectors visiting a storefront in the Bronx on a recent Thursday were so certain the owners would be cleared in a few days to open a cannabis dispensary that they handed them a window sticker announcing in bold blue letters that the business was “LICENSED.”
The owners, Deniz and Levent Ozkurt, who are cousins, thought the difficult work of getting started as one of the state’s first official retailers was finally done. They celebrated by taking their families for a fancy steak dinner.
But they had not yet been approved to open by the following Monday. That day a judge overseeing two lawsuits challenging the state’s licensing process ordered regulators to stop opening new shops. The order left the future of New York’s cannabis market in limbo.
At a hearing last week, Justice Kevin R. Bryant urged the state to negotiate a settlement with the plaintiffs, who include disabled veterans and companies licensed to sell medical marijuana in New York.
“We were anticipating opening in two to three weeks,” Deniz Ozkurt said. “Now, our anxiety levels are through the roof.”
The order is the latest setback in the state’s efforts to create a robust recreational marijuana industry, a process plagued by bureaucratic delays and lawsuits from people and companies clamoring to sell cannabis since the state legalized it in 2021.
The state reserved those early licenses overwhelmingly for people who had been convicted of marijuana-related offenses and their close relatives, a landmark effort to atone for decades of unjust enforcement practices.
But the veterans filed suit earlier this month, arguing that state officials had gone beyond their authority, imposing their own priorities to favor people like Deniz Ozkurt, who spent seven years in prison on charges including marijuana possession. That violated the Legislature’s mandate for everyone to be able to apply for licenses at the same time, they said.
Justice Bryant then barred state cannabis regulators from awarding and processing any more licenses, and he forbade regulators from approving licensed dispensaries that had not yet opened. The Ozkurts’ shop was one of as many as 15 stores stopped from opening this month.
If the lawsuit is not resolved by November, the state said regulators will have to delay plans to make a greater variety of licenses available. That expansion, scheduled to begin in October, could be pushed well into next year, officials said.
Justice Bryant, at the hearing last week in Ulster County Supreme Court in Kingston, seemed skeptical of the state’s claim that regulators had the authority to create new licenses for just one class of applicants. But he was also reluctant to issue an injunction that would freeze the licensing rollout until the case is resolved.
“I don’t want anyone in this state to feel unnecessary pain,” Justice Bryant told the lawyers. “I just need some reasonable minds with some good ideas that can make everyone flourish.”
At the Hush cannabis dispensary, the floors are clean but the opening is now on hold. “Now, our anxiety levels are through the roof,” said Deniz Ozkurt. Credit...David Dee Delgado for The New York Times
A prolonged delay could be fatal for many existing businesses. That includes 453 retailers in various stages of opening, 328 growers and manufacturers sitting on a $3 billion stockpile of cannabis, and a dozen labs that test the potency and cleanliness of items for sale.
Just 23 retailers have opened storefronts or delivery services since the first licensed shop opened in December, and only about 18,000 pounds of cannabis have been sold so far, according to the Office of Cannabis Management. At the current sales rate, 564,000 pounds of legally grown cannabis will remain unsold by the end of the year, agency officials said.
Beau Allulli Jr., 47, a photographer who had received a license and was negotiating a lease to open a dispensary on The Bowery in Lower Manhattan, said the pause on dispensary openings was not helpful to the struggling industry.
“It just shows the volatility and the uncertainty of what we’re all getting into,” he said.
Some licensees and lawyers have laid some of the blame on Attorney General Letitia James, whose office is responsible for defending the cannabis program against lawsuits. At the hearing last week, her lawyer struggled to answer basic questions about the program from Justice Bryant, such as distancing requirements between dispensaries. That prompted loud sighs from the crowd of licensees.
The restraining order dealt another blow to Gov. Kathy Hochul’s signature cannabis initiative. Her administration had planned for at least 150 dispensaries to have opened by now with the help of a $200 million loan fund to help the owners lease storefronts and cover start-up costs. But the plan failed as the fund missed key deadlines for finding investors and securing enough real estate.
Officials gradually loosened rules to help licensed retailers open, and in May, regulators settled another claim that had held up licensing in five of the state’s most populous regions. Then, an investor agreed in June to put up $150 million to revive the state’s dispensary plan under terms that have not been disclosed.
The veterans filed their lawsuit on Aug. 3 as the rollout seemed to be gaining momentum. Just 12 dispensaries opened between December and June, but 11 more have opened since then, with most owners leasing and financing their dispensaries without the state’s help.
The veterans’ main argument — that regulators had overstepped their authority — was nearly identical to a case filed in March by a coalition led by four companies licensed to sell medical marijuana in the state.
“When a regulatory agency acts directly contrary to what a statute requires, it’s a violation of the separation of powers and it’s impermissible,” Brian Burns, a lawyer for the veterans, said in court. “They opened up retail dispensary license applications to certain people, but not to everyone. We think it’s really as straightforward as that.”
In court papers and oral arguments, state officials argued that several statutes gave regulators the authority to create the new dispensary licenses. Shannan Krasnokutski, who argued the case on behalf of regulators, said that lawmakers had affirmed the legitimacy of the licenses in subsequent budget measures.
But Judge Bryant was unsure if that was enough.
Even some supporters of the state’s approach find it hard to disagree with the lawsuits’ claims that regulators went about it the wrong way. Robert DiPisa, a cannabis lawyer who represents some licensees, said the lawsuits might have been avoided if regulators had allowed everyone to apply at once, and then given extra points to people representing priority groups.
But Wei Hu, a cannabis lawyer who previously worked for New York City on administrative and regulatory issues, said that opening licensing to everyone would have left some people waiting even longer than those who applied last year and have yet to receive a decision.
And Mr. Hu said there was no doubt that the cannabis agency had the authority to create the new licenses because the Legislature had clearly signaled its approval.
The similarities between the two legal challenges to the state’s licensing process have raised suspicion among some licensees and social justice activists that big cannabis companies are using the lawsuits to eliminate small players, in an effort to dominate New York’s market the way they do in states like Florida and New Jersey.
Asked whether there was a connection between the lawsuits beyond the shared arguments, David Feuerstein, the lawyer for the coalition, cited attorney-client privilege.
Many licensees have tapped into their life savings, borrowed from friends and family or against mortgages, and used money they saved for children’s tuition to get their businesses off the ground. Now, they stand to lose it all if the standstill drags out, and they will be on the hook for millions of dollars.
Coss Marte and his cousins, Alfredo Angueira and Ramon Martinez, received a license in April and have since invested more than $1 million in Conbud, a dispensary they plan to open on Manhattan’s Lower East Side. In October, they will have to start paying $40,000 a month in rent, on top of paying contractors for things like construction, plumbing and security.
Their goal was to open in September, but regulators will not be able to give them the necessary approval unless the order is lifted.
“If that delays us,” Mr. Martinez said, referring to the restraining order, “easily, we’ll probably be bankrupt in four weeks.”
