A New York court has preliminarily halted the state’s Conditional Adult Use Retail Dispensary (CAURD) licensing program. In a decision last Friday by Judge Kevin Bryant of the Albany Supreme Court in Fiore, et al. v. New York State Cannabis Control Board, et al., Sup. Ct. Albany Cty., Index No. 907282-23, the court granted a preliminary injunction in favor of four service-disabled veterans who claim that the Cannabis Control Board (“CCB”) unconstitutionally created a conditional license for “justice involved” retailers that does not exist under the states’ Cannabis statute. The injunction prohibits New York’s Office of Cannabis Management (“OCM”) and the CCB from further processing or awarding additional marijuana retail permits pending the court’s full review of the case.

The Fiore plaintiffs argue that the CCB acted beyond the scope of its authority when it created and awarded conditional CAURD licenses, because the state’s Marihuana Regulation and Taxation Act (“MRTA”) provides that special priority be given to five categories of applicants. These categories include disabled veterans, but not the “justice involved” applicants benefitted by the CAURD program. Plaintiffs allege that licenses have been unlawfully awarded in violation of the express language of the Cannabis Law and that they have been harmed as a result, including by losing first market status.

The Preliminary Injunction may be the most significant challenge to the CAURD program to date. The Order does contain exceptions for those license holders who, prior to August 7, 2023, met all requirements for licensing, including site plan approval from the OCM and, where applicable, from local municipalities. Still, a large portion of the CAURD applicants who have received provisional licenses but have not yet opened may not be able to join the 24 operational retailers in New York while the legal case continues.

In the Order, the Court was critical of the OCM for moving forward with the CAURD program despite ongoing legal challenges. The Judge noted that the OCM had prior notice of potential constitutional issues with the program that had been raised in other legal actions. Justice Bryant emphasized that the MRTA’s language was clear and unambiguous, and the creation of the CAURD licenses exceeded the state’s legal authority. The Court stated that “[i]t was Defendants 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.”

While Justice Bryant states in his Order that the entire CAURD program could be in jeopardy due to the legal challenges and the exclusion of priority groups specified in the MRTA, he  directed that the state can request exceptions to the Order by motion, and such motions will be determined on a “case-by-case basis” taking into consideration: (1) “the extent of potential licensee’s reasonable reliance on OCM policy with regard to the CAURD program and applicable regulations,” (2) “the precise timing of the actions” and (3) ”expenses in relation to the pending litigation and the extent to which the expenses at issue would be necessary in order for the potential CAURD licensee to submit an application for an adult use license once Defendants finalize applicable regulations.” Justice Bryant ordered the OCM to provide a list of CAURD retailers that qualify as exempt from the Order by August 22, 2023. The next hearing in the case is scheduled for August 25. The CCB has also been instructed to finalize applicable regulations for Adult Use Cannabis Licenses, as outlined in Article 4 of the MRTA, on an expedited basis.

The preliminary injunction against New York’s CAURD program introduces uncertainty into the state’s cannabis licensing landscape. As this case continues, it remains important for affected parties to stay informed about developments and potential changes to the licensing process.

If you are a CAURD licensee with questions regarding how this preliminary injunction may affect any contracts, leases, and/or goods and services agreements you have executed or are currently negotiating, please contact James K. LandauDavid HollandAndrew Schriever, or any other member of the Prince Lobel Cannabis Team.

With thanks to Alexander Hymowitz and Dalton Battin for their work on this Client Alert.

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