NY Cannabis industry suffers another blow in court ruling
A judge, citing misrepresentations by state regulators, reversed his order that last week had allowed 30 retail marijuana store applicants to move forward.
A state Supreme Court justice on Tuesday reversed his order last week that had exempted more than two dozen retail cannabis store applicants from an injunction that has frozen the program pending the outcome of litigation challenging the constitutionality of New York’s licensing processes.
The injunction was issued two weeks ago in a case in which state Supreme Court Justice Kevin R. Bryant found that marijuana regulators had “failed to follow the clear language of the applicable legislation” that legalized cannabis when they veered from the plain language of the 2021 statute and created a program to award conditional retail licenses exclusively to applicants with past marijuana convictions.
Bryant’s ruling noted that New York regulators continued their preferential licensing program, and even expanded it, in the face of mounting legal challenges asserting that it was unlawful and violated the constitutional rights of other “social equity” applicants, including minority- and women-owned businesses, as well as disabled military veterans.
Last week, Bryan agreed to allow those with pending applications and who met all licensing approvals prior to Aug. 7 — when his order was issued — to go forward. On Friday, after reviewing court petitions from 30 of those applicants, he issued an order allowing them to continue on a path toward opening their retail cannabis shops.
But in a follow-up order Tuesday, after hearing additional arguments from attorneys for four service-disabled military veterans who challenged the fairness of state’s licensing system, Bryant reversed course and said the injunction will remain in place for all pending applications.
His order noted that state regulators had implied all 30 applicants were in the final stages of their application process and had met the requirements to open their stores. But an affidavit filed by Patrick McKeage, first deputy director of the Office of Cannabis Management, noted that not all applicants had completed those steps.
“They have submitted a list which, by their own admission, includes licensees who are still finalizing construction and whose post-selection inspections have not been scheduled or completed,” Bryant wrote. “It is also clear that an unclear number of the sites have not been inspected 'to ensure (the site) meets all the public health and safety requirements in the Cannabis Law and associated regulations.' It is not clear to this court whether any of the 30 identified licensees have completed all post-selection requirements and inspections and it should be clear that those who have not, should not have been included on the list submitted to the court as set forth in the prior order.”
Some of the cannabis license applicants whose processing will be halted a second time had hoped to open shops in the Hudson Valley, where none have opened, as well as other areas of the state.
The unexpected ruling Tuesday was another setback in the stumbling rollout of New York’s nascent retail cannabis market that has been plagued with delays, missed deadlines and legal challenges that have, at times, stopped it in its tracks.
The injunction shutting off the state’s marijuana retail licensing program was issued in response to a lawsuit filed earlier this month by four service-disabled veterans who accused regulators of unlawfully prioritizing applicants with prior drug convictions while excluding others. The state had asserted that regulators had the authority under the law that legalized marijuana to create a special class of licenses, but Bryant said in his ruling that there is a “significant likelihood” that they will lose that argument.
New York’s attorneys also had argued that the Legislature recognized their new conditional licensing program by including funding for it in a budget bill, which the state argued was the equivalent of statutory authority. But the judge said that acknowledgment was not the same as amending the licensing section of the Marijuana Regulation and Taxation Act.
The state had previously lost a similar argument in a federal lawsuit filed on behalf of Variscite NY One, a company owned by two men, Jeffrey Jensen and Kenneth Gay, who is a resident of Michigan and owns a construction company there and has a past marijuana conviction in that state. In court filings, their attorney said their retail license application failed to qualify because neither the company nor Gay, who has a 51 percent ownership of the company, had met the application’s definition of “a significant New York state presence” — including having his marijuana conviction in another state.
A federal injunction that had been issued in that case shut down the processing of retail marijuana licensing for months in five of the state 14 regions. The case was later settled and the state resumed its controversial licensing program at an “expanded and accelerated rate” despite the constitutional issues that had been raised.
Attorneys for the state had argued at a hearing several weeks ago Bryant that an injunction would cause further harm to the rollout program that has already been beset with delays and problems. Bryant opined that much of that harm had been self-inflicted.
“This court also notes that it was (the state Office of Cannabis Management) that decided to move forward and accelerate the (conditional licensing) program in the face of unresolved litigation and they were undeniably on notice of the alleged constitutional defects at issue,” Bryant wrote. “Despite this notice, (regulators) encouraged potential licensees to incur significant expenses in reliance on a program that (they) knew was at issue in pending litigation.”
Many distressed farmers and others were blocked from applying for cannabis licenses as a result of the ruling.
Bryant had invoked the concerns of those groups in his ruling, noting the “denial of the injunction and the continued processing of licenses in the face of the pending challenges could potentially cause irreparable harm to the potential licensees, the development of the market and the community at large.”
He found that the state’s embattled licensing process also was plagued with “numerous potential defects” that “have already resulted in numerous constitutional challenges to the actions.”
The lawsuit filed by the four veterans invoked 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 also pending, sought a court order to open the retail licensing process “for all applicants immediately.” That case, which was rolled into the veterans' case, did not seek an injunction.
Cannabis regulators have issued 463 conditional retail licenses to applicants with prior cannabis convictions — and to a small number of nonprofit agencies that provide services in minority communities.
But both lawsuits assert that the cannabis regulators overstepped their authority by creating a special licensing category for people with convictions — a decision that they claim was not approved by the Legislature. The petitions contend the move violated the state constitution.
