Why New York's cannabis licensing is tied up in court: a lawyer explains

Pot's been legal in New York for more than two years, but its first authorized vendors keep getting caught in limbo.

More than 460 retail licenses have been issued across the state, yet only 23 firms have opened dispensaries or launched a delivery service, according to the website of the state Office of Cannabis Management (OCM), which oversees the industry. Just one of the three dozen businesses licensed on Long Island  has opened a dispensary, with most licensees saying they can't find locations due to zoning restrictions. 

Now two lawsuits have put their progress on hold. In March, a coalition  including medical marijuana firms filed a suit alleging that state regulators overstepped by creating a special license class called conditional adult-use retail dispensaries (CAURD), open only to New York business owners who have — or are related to someone who has — a marijuana offense on their record. Regulators would first grant those licenses, and later open retail licensing to others.

The coalition argued that under the Marijuana Regulation and Taxation Act (MRTA) — the state measure that legalized cannabis — the initial retail license application period must be open to everyone at the same time. The group asked the court to declare the CAURD license unconstitutional and immediately open dispensary applications to everyone. 

Four military veterans separately filed a suit in August claiming that they were harmed by the CAURD licensing. Under the MRTA, veterans disabled during their military service were among five groups granted licensing priority, along with people from communities with disproportionately high marijuana arrest rates. The veterans said they were not being properly prioritized since CUARD licensees were given a head start to open dispensaries..

State regulators are expected to vote Tuesday on creating additional types of licenses. Their decision may influence what happens Friday when the two court cases are scheduled to resume before state Supreme Court Justice Kevin Bryant. 

Here's a look at where things stand and what comes next, according to Neil Kaufman, managing member of Kaufman McGowan PLLC, a law firm in Hauppauge that specializes in corporate cannabis and securities deals. His responses have been edited for clarity.

What's the lawsuits' impact been so far?

The veterans got this judge to issue an injunction. There are 23 stores open, and that’s it. No more are allowed to open under this injunction.

In the meantime, there just is not enough retail sales capacity to sell to consumers all of the backlogged volume of cannabis products that have been cultivated and processed over the past year-plus. So the cultivators are barely hanging on. All of these CAURD licensees, who had invested a lot of money and time to try to open their stores, are frozen.

How strong of an argument do these cases seem to have?

The judge found they have a fairly strong argument.

It’s one thing for these service-disabled veterans to sue the state, claiming that they were cut out of their licenses, and someday get a judgment against the state for whatever the value of their lost business is.

Getting injunctive relief from a court requires a much higher standard. You have to show that money damages would not be adequate to compensate you. I don’t know how you could do that in this case. But the judge has bought their arguments. 

What's the state's defense? 

The CAURD program was tied directly to people that were victims of prosecutions under the war on drugs. The OCM thought that they were acting consistent with the spirit of the statute. They cite article 2 of the MRTA for their claim that they have the authority to accomplish social equity goals.

[The MRTA also states that "extra priority" should be given to certain social justice groups, specifically New Yorkers who have or are related to someone who has a marijuana conviction, and those from communities disproportionately impacted by the enforcement of the old marijuana laws. CAURD was an appropriate way to grant these groups additional priority, the state argued in court filings.] 

How long will the court cases take?

The judge has indicated that once the general licensing is open to the public, which we expect to be about mid-October, that he will view this injunction as being moot. At that point, these veterans, just like everybody else, will be able to get a license. So he may lift the injunction on CAURD licenses either upon the final approval of the regulations [possibly on Tuesday] or upon the commencement of the general licensing round.

But ultimately resolving the lawsuits could take years. If there’s no settlement, the plaintiffs could continue litigating for personal damages.

By Sarina Trangle

sarina.trangle@newsday.comSarinaTrangle

Sarina Trangle covers affordability and cost of living issues and other business topics. She previously worked as an editor and reporter at amNewYork.