A federal appeals court has thrown a wrench into New York’s legalization rollout, ruling that some of the criteria used to award cannabis licenses may be unconstitutional. The decision, issued Tuesday by the Second Circuit Court of Appeals in Manhattan, could have sweeping implications for marijuana markets across the United States.
Since legalizing recreational cannabis in 2021, New York has prioritized granting cannabis licenses to low-income residents with prior marijuana convictions under state law, especially those from neighborhoods heavily targeted by past enforcement. But the court found that excluding applicants with federal or out-of-state convictions could violate the constitutional prohibition on states favoring their own residents over others.
Judge Dennis Jacobs, writing for the 2-1 majority, stated, “Congress has given New York no clear permission to enforce protectionist marijuana licensing laws.” The case was brought by two California applicants denied priority for cannabis licenses, despite having cannabis-related convictions in their home state.
While the ruling does not immediately halt licensing, it sends the case back to trial court and challenges the foundation of New York’s social equity approach. Cannabis attorney Neil Willner said the decision “struck at the heart” of the state’s effort to correct the harms of past policing through its cannabis licenses program.
Industry experts warn the decision could trigger legal challenges to similar programs in other states. Hirsh Jain, founder of Ananda Strategy in Los Angeles, called it “a significant setback for social equity-focused licensing schemes,” adding that many state-level cannabis economies rely on supply chains that could now be vulnerable.
New York’s cannabis rollout has already faced delays, lawsuits, and a surge of illegal dispensaries. In a separate issue, the Office of Cannabis Management recently admitted that over 150 licensed dispensaries were too close to schools, potentially forcing relocations unless lawmakers intervene.
The Second Circuit’s ruling marks the first time a federal circuit court has applied the dormant Commerce Clause to recreational cannabis, even though marijuana remains illegal under federal law. This legal precedent could reshape how states design their cannabis licenses systems, forcing them to allow fair competition from out-of-state applicants.
With nearly 4,700 applications for cannabis licenses still pending in New York—more than half for retail dispensaries—regulators may now have to revise their review process. The changes could delay approvals even further, stretching the backlog for years.
For now, the fight over who qualifies for cannabis licenses in New York is far from over, and the ripple effects may soon reach far beyond state lines.
