Medical Cannabis Operators File Complaint Against New York’s Regulators

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New York’s medical cannabis operators filed a complaint against the state’s regulators to seek opening licenses for all retail dispensary applicants.

The Coalition for Access to Regulated & Safe Cannabis (CARSC), which includes New York’s medical cannabis operators Acreage Holdings, PharmaCann, Green Thumb Industries, and Curaleaf, as well as two hopeful dispensary owners, as first reported by Syracuse.com, sued New York’s Office of Cannabis Management (OCM) and the Cannabis Control Board (CCB), the two agencies responsible for the implementation of the cannabis legislation.

The lawsuit filed in Albany County Supreme Court on March 16 alleges unconstitutional overreach and policymaking, the abdication of the agencies’ duties, and actions that put New Yorkers’ health and safety at risk.

The coalition alleges that the OCM and the CCB did not fulfill the requirements of the Marijuana Regulation and Taxation Act (MRTA), the law that legalized cannabis in New York in March 2021, and it argues that the regulators disregarded the legislation’s requirement to provide all applicants equal access to retail dispensary licenses.

Furthermore, the lawsuit states that the regulators went beyond their authority by establishing a separate program, the Conditional Adult-Use Retail Dispensary (CAURD), which restricted eligibility to those with prior involvement in cannabis-related offenses, at least two years of successful business operation and a “significant presence” in the state. This, according to the coalition, limited access to dispensary licenses to a specific group of individuals.

By establishing the CAURD program, the regulators have “improperly assumed the role of the Legislature to impose their own policies,” overreaching New York’s lawmakers and violating the separation of powers doctrine, and “postponed indefinitely the licensing of hundreds of additional dispensaries necessary to satisfy consumer demand,” according to the allegation.

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Furthermore, the coalition has identified several missteps by New York’s cannabis regulators during the implementation of regulations. These include a delay of 20 months in proposing regulations for the marketplace, still unfinished, consistent violation of state law through changing guidance for growers and processors, unfulfilled promises of state-subsidized real estate and loans, cultivation of large quantities of cannabis by growers without a retail infrastructure to sell it, failure to publish a required social and economic equity plan under MRTA, and an attack on the state’s registered organizations that is harming the existing medical market.

The coalition alleges that the actions of the cannabis regulators have had several negative consequences. According to them, the regulators’ inaction has allowed the illicit market to thrive, which has put medical patients and adult-use consumers in danger, and deprived communities affected by the War on Drugs of essential tax revenue.

The coalition also asserts that the regulators’ actions have jeopardized New Yorkers’ health and safety while working against MRTA’s intended purpose to establish a well-regulated cannabis program that would benefit all state residents, referring to a recent report commissioned by the New York Medical Cannabis Industry Association (NYMCIA), which includes members of the medical marijuana operators in the state, such as Columbia Care, Cresco Labs, and Curaleaf, among others, that highlighted that about 40% of marijuana products sold in New York’s unlicensed businesses contain potentially harmful contaminants.

The implementation of regulations for a legal cannabis market encountered multiple challenges.

During the process, thousands of unlicensed cannabis businesses emerged throughout the state. Initially, New York regulators attempted to shut them down by sending cease and desist letters, followed by law enforcement operations, but with little success.

As of today, over 1,400 unlicensed businesses are still operating throughout the state. This could result in the loss of around $2.6 billion in tax revenue over the next seven years.

To date, the CCB has only granted 66 CAURD licenses, and only four legal dispensaries are currently operating in New York.

However, the CCB and OCM have recently announced plans to increase the number of CAURD licenses to 300, doubling the current amount.

The coalition is, therefore, asking a judge to declare OCM’s CAURD license unconstitutional and outside the agency’s legal power, and wants the regulators to take legal action against all illegal cannabis stores and open the licensing process for adult-use retail dispensaries to all applicants, including registered organizations and those who qualify under the MRTA’s social and economic equity provisions.

Multistate medical cannabis operators have shown frustration with New York’s restrictions on their ability to enter the market.

New York has taken a different approach than other states by prioritizing retail licenses for those negatively affected by the war on drugs.

This has caused concern for the current medical cannabis licensees that wish to enter the legal adult-use market in New York.

Furthermore, there have been discussions about allowing medical cannabis operators to sell cannabis outside of the medical program for a fee of $20 million per operator. However, the medical marijuana industry is trying to negotiate a lower fee.

Although both CCB and OCM haven’t commented on the lawsuit, OCM’s executive director Chris Alexander, who appeared on the Open Society Foundation’s progress report live stream the day after the suit was announced, stated several times, “We are not anti-Big Cannabis,” and explained they are trying to make space for others.

“The space has been dominated by a few across the country. We want folks to be here, but in New York, you have to compete. You can’t suck up the entirety of the market. There’s going to be big businesses here. I hope the small businesses will become big businesses,” he said, as reported by the cannabis news website CelebStoner.

It’s not the first time that New York’s cannabis regulator has been sued over the CAURD program.

In September 2022, Variscite NY One Inc., a company that applied for the CAURD program, filed a lawsuit against New York State after cannabis regulators rejected its application. The company claims that the CAURD regulations unfairly discriminate against out-of-state residents and violate interstate commerce.