Cannabis shop licensing freeze harms farmers, New York State argues in court filing

Recreational marijuana growers and processors will face "tremendous harm" and 94% of their products will go unsold this year if the state Supreme Court continues barring regulators from issuing and finalizing retail licenses, the state argued in court papers.

Four disabled veterans challenged the state's "conditional" or initial retail licensing program earlier this month. In response, state Supreme Court Justice Kevin Bryant issued a temporary restraining order — in place until at least Aug. 25 — that prevents the state from issuing retail licenses or granting final approval of provisional ones. Once awarded, licenses are not finalized until firms find a location and regulators verify it is set up properly. 

If the state has to revise its approach, about 94% — or 564,000 of the 600,000 pounds of cannabis expected to be harvested by the end of October — will not make it in front of consumers before 2024, according to estimates provided in an affidavit from Patrick McKeage, first deputy director of the state Office of Cannabis Management. This assumes the 21 dispensaries now open will each continue selling an average of 5 pounds of weed a day, McKeage said.

"There will be tremendous harm to existing licensed conditional cultivators and processors," McKeage said in the written and sworn statement.

"If the conditional cultivators do not have sufficient retail dispensaries to sell their crop, they will likely lose their businesses or will otherwise be forced to sell their crops on the illicit market," he added.

The impasse emerged after four veterans, including Carmine Fiore, of Levittown,  sued regulators. Their case claims the conditional licenses skirt social justice benefits for veterans and other groups laid out in the Marijuana Regulation and Taxation Act (MRTA), which legalized cannabis.

Five groups — including veterans disabled during their military service — are granted priority for licenses under the law because MRTA considers them "social and economic equity" applicants.

In November, the state began exclusively issuing conditional retail licenses to business owners who have a marijuana conviction or are related to someone with one. Officials said the head start reflects the "extra priority" the MRTA gives to certain economic and social equity candidates, specifically: people convicted of cannabis offenses and those from communities disproportionately impacted by the enforcement of the old marijuana laws. Requiring that licensees have experience successfully running a business ensures regulators are considering how prepared applicants are, as required, the state argued. 

Regulators plan to open applications up to the broader public in early October and grant priority to all of the social and economic equity candidates, including service-disabled veterans, according to court papers. 

But veterans say regulators have undercut lawmakers' authority, as well as their prospects. Fiore spent $11,000 positioning himself to benefit from a "first-to-market advantage" that never materialized, he said in an affidavit. Fiore scoured Long Island for real estate that meets guidelines for pot shops, and negotiated a lease for one of the roughly 22 regional sites he said seemed eligible for a dispensary.

He then lost a three-year agreement for 6,270 square feet in East Farmingdale, where monthly rent ranged from $20,000 to $22,050, according to his affidavit and an unsigned commercial lease submitted as evidence. 

Available spaces are already scarce for licensees able to compete for them now. 

"If [regulators] are permitted to continue unabated, this will practically foreclose the region of Long Island to service-disabled veterans intent upon opening adult-use cannabis retail dispensaries," said Fiore, who noted that medical marijuana helped him with an opioid addiction he developed while treating injuries sustained during his time in the U.S. Army National Guard. 

Retailer's bankruptcy fear

In paperwork defending regulators, state Attorney General Letitia James' office noted that Albany passed funding legislation in 2022 that specifically cited conditional retail licenses. Her office said the harm detailed by veterans is "highly speculative," while hundreds of farmers, processors and conditional retailers are currently suffering. 

One upstate retailer, Christine Richardson, and a partner put $50,000 toward a dispensary, finalized a lease with $200,000 in rent obligations and made $150,000 worth of agreements with vendors, according to an affidavit. Delays could push her into bankruptcy and "because of my conviction," Richardson said "it would be hard for me to find a job that could pay off these debts." 

At least 15 service-disabled veterans qualified for conditional retail licenses under current requirements, which amounts to 3% of these credentials, OCM Chief Equity Officer Damian Fagon said in the affidavit. Service-disabled veterans are about 0.75% of the state's adult population, he added.

The state has so far issued about 450 conditional retail licenses, most of which are still in the provisional stage, according to Fagon. Regulators expect the recreational market to support at least 2,000 dispensaries and 800 cultivators in all, he noted. 

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.