Things do not bode well for New York’s 463 provisional Conditional Adult Use Retail Dispensary License holders after the latest court order in a case to determine how open the initial round of licensing should be.
New York Cannabis Control Board has approved 463 provisional CAURD licenses between its Nov. 21 meeting and its most recent on July 19. Of those, 23 have commenced operation. The state’s Office of Cannabis Management (OCM) created the CAURD license type to allow social equity applicants with a cannabis-related conviction in New York first crack at licensing. Subsequently, social equity candidates who were not able to apply sued, resulting in an Aug. 18 court order continuing an injunction that prevents the state from processing pending license applications.
Judge Kevin Bryant, of the Supreme Court in Albany, appeared convinced that OCM overstepped its authority per the Marihuana Regulation and Taxation Act (MRTA) when it created the CAURD license type.
"The legislation does not mention or outline any process for the administrative creation of additional license categories and neither the phrase "Conditional Adult Use Recreational License," nor the term "CAURD" appear anywhere in the MRTA."
Third lawsuit to challenge social equity licensing process
Four service-disabled veterans sued the state Aug. 2, alleging that as social equity applicants they were unfairly excluded from applying. It was the third lawsuit so far that challenged how the state had been rolling out its adult-use cannabis market, the first coming from an applicant who was excluded because his cannabis conviction took place in Michigan and not New York.
Coalition for Access to Regulated & Safe Cannabis (CARSC), which includes at least four MSOs from the state's medical market, then sued the state because they had been left out by the CAURD requirements.
The coalition previously petitioned to enjoin its case with the current litigation from the four veterans, though they publicly decried the injunction ruling.
"This is an unfortunate, but also inevitable, result based on the Hochul administration's abject refusal to heed the court's directive to negotiate a universal settlement with all involved parties," said coalition spokesperson Rev. Kirsten John Foy in a statement. "The Coalition continues to believe that a solution to this problem can be reached if everyone comes to the table and negotiates in good faith with the intention of helping all current and potential stakeholders in New York's nascent cannabis market flourish. That is a suggestion that Coalition has repeatedly endorsed and offered, and which has been repeatedly ignored by the Hochul administration."
Hal McCabe, interim executive director of the Cannabis Association of New York, has been a vocal opponent to the injunction in this case. He issued a statement in response to the latest court action by calling on the CCB to amend the regulations to ensure that the 10 large medical operators are not given an early market advantage while CAURD applicants remain in stasis under a court order.
"Press pause on the entrance of mega-cannabis companies into New York until further notice," said McCabe. "The Cannabis Control Board should have its own emergency meeting and pass the emergency regulations. They let the ROs (New York Registered Organizations) move up their entry into the market, yet these giant corporate cannabis operations are trying to block entry into the market for everyone but themselves."
That first lawsuit against OCM, filed by a company called Variscite, resulted in a temporary injunction against new CAURD licenses, but that ended when Variscite and the state settled out of court. As part of those terms, Variscite was granted a single CAURD license. Judge Bryant criticized the state for moving forward with its licensing program despite the question of its legality remaining unresolved.
"This Court again notes the pendency of the Variscite matter and the injunction that was in effect for much of the time between the introduction of the program and the filing of this application," wrote Bryant. "This Court also notes that it was Defendant that decided to move forward and accelerate the CAURD program in the face of unresolved litigation and they were undeniably on notice of the alleged constitutional defects at issue. Despite this notice, Defendants encouraged potential licensees to incur significant expenses in reliance on a program that Defendants knew was at issue in pending litigation."
The judge reiterated that the OCM is not permitted to process any more CAURD applications with the exception of those that were awaiting final approval before Aug. 7 when the judge issued his previous injunction in the case.
"It is certainly conceivable that a successful challenge to the CAURD program could result in a finding that the licenses are invalid. In this light, a denial of the injunction would be a tacit endorsement from this Court of further expenditures in reliance on a program that is potentially in legal jeopardy."
On Aug. 22, OCM provided the court with a list of 30 applicants who were ready before Aug. 7.
Following the court's ruling, OCM sent out a letter to all CAURD licensees in response. License holders who were ready by that date can petition the court to move forward, but they must do so on a case-by-case basis. The state said it plans to create an online portal to streamline the petitioning process.
Finally, OCM said that it would no longer be accepting applications while the injunction is in effect.
"While the decision is disappointing, the Office will be working to ensure provisionally licensed CAURD are able to move forward with the licensing process," said the unsigned letter. "The Court’s decision did acknowledge the significant efforts, expenditures, and other costs have already been made by provisional licensees to get their dispensaries open, and created pathways for provisional licensees who meet certain criteria to move forward and be exempted from the injunction."
In the meantime, Bryant urged OCM to complete its final set of regulations, which opens the application process for all other non-CAURD license types.
"The Court will continue to require regular appearances from counsel before the Court to provide updates and to ensure that appropriate progress is being made to ameliorate whatever impediments exist to the approval of a process that arguably will make these proceedings moot," he wrote.
-- Zack Huffman, CRB Monitor News