On Friday, August 18, 2023, New York Supreme Court Justice Kevin R. Bryant extended a previously issued restraining order and injunction that effectively halts the processing of new applications for retail licenses under the State’s conditional adult-use retail dispensary (“CAURD”) program. Judge Bryant found regulators exceeded their legal authority by creating a new licensing category that excluded specific minority groups prioritized by the Marihuana Regulation and Taxation Act (“MRTA”) and instituting a program to improperly award conditional retail licenses exclusively to individuals with non-violent marijuana convictions and two years of successful involvement in a profitable legal business.
Notably, the MRTA solely addresses “social equity” applicants in its provisions, encompassing individuals with prior marijuana convictions, struggling agriculturalists, enterprises owned by women and minorities, veterans, and other specified groups. The present legal action has been initiated by a group representing veterans, who contend that according to the MRTA’s mandate, the Office of Cannabis Management (“OCM”) should have simultaneously extended licenses to all social equity applicants.
The injunction temporarily prevents the processing of new CAURD applications, although Judge Bryant directed the OCM to submit a list of licensees by Tuesday, August 22, 2023, who had fulfilled the criteria for a final license but had not yet received one, and OCM submitted a list of some 30-odd provisional licensees who qualified for a final license. In addition, Judge Bryant said that certain applicants can seek court intervention on a “case-by-case” basis to potentially gain exemption from the suspension. This means that applicants whose cases demonstrate exceptional circumstances, such as incurring substantial costs in anticipation of receiving a final license and membership in one of the MRTA’s priority groups, may be allowed to proceed with their applications despite the overall halt. In a recent letter to provisional CAURD licensees, the OCM stated that it is developing an application form for provisional licensees to apply for an individual exception, which the OCM will submit to the judge. Additionally, the court directed the Cannabis Control Board (“CCB”) to promptly issue its regulations for recreational marijuana to move forward with the application process for all identified groups set forth in the MRTA. It is expected that the CCB will promulgate the final regulations for adult-use cannabis licenses at its September meeting.
Despite these legal developments, an element of uncertainty prevails in the differentiation between those exempted from the injunction and those affected by it. The lack of clear demarcation poses challenges not only for applicants but also for the broader cannabis industry and regulatory bodies. As the legal proceedings unfold and the litigation progresses, it remains to be seen how the court’s eventual decision will impact the industry’s landscape and the equitable realization of the MRTA’s goals.
1. How will the ongoing legal proceedings affect the balance between the illegal and legal cannabis markets?
As long as the injunction remains in place, the illegal market will flourish, while the legal market will be restricted to the existing 23 dispensaries operating across the state. The illicit market will maintain a competitive edge in terms of pricing, given its failure to pay the mandated taxes.
2. What implications will this have for prospective licensees who have made financial commitments based on the expectation of opening by a specific date?
Consequently, several outcomes have transpired:
a) No further CAURD licenses are presently being issued
b) Unless granted an exemption, individuals possessing provisional CAURD licenses (pertaining to licenses pending completion of administrative procedures) find themselves unable to convert these licenses into full licenses, which would permit operations. These individuals are effectively caught in a state of uncertainty, accruing expenses without being able to generate revenue.
c) Individuals fortunate enough to possess full licenses are allowed to continue their operations.
3. How is the program’s timeline likely to be influenced by these developments?
The implications of this situation of the program’s remaining timeline are currently unclear. It is foreseen that the OCM and CCB will enact definitive regulations during their meeting in September, meaning the framework for the award of both social equity licenses and general licenses will be complete, and that an application window will open 30 days thereafter. However, in the event that the OCM segments the applications into categories, it is uncertain whether the same issues of preference will remain. On the other hand, the whole issue might be mooted if all licenses are made available simultaneously.
If you would like a call to discuss how these developments may impact you and/or your business, please contact me at Jonathan.email@example.com or 914.461.1634.
ABOUT JONATHAN S. BERCK
firstname.lastname@example.org | 914.461.1634
Jonathan S. Berck is a Principal attorney in the firm’s Business Law and Transactions practice group. Mr. Berck maintains a general corporate practice, with emphasis on domestic and international business transactions, counseling and formation of small and medium businesses, business succession planning and commercial real estate. He regularly represents and advises his clients in matters concerning domestic and international agreements, mergers & acquisitions, joint ventures, project finance and captive insurance companies. Mr. Berck is also a member of Offit Kurman’s Cannabis Law group, where he represents clients throughout New York and the nation. He also frequently writes and speaks on cannabis law topics.