VARISCITE 2.0? LAWSUIT CHALLENGES NEW YORK CANNABIS RESIDENCY REQUIREMENTS

ALEXANDER HYMOWITZ

ASSOCIATE

On December 18, 2023, a pair of applicants for adult use cannabis licenses filed a lawsuit challenging the residency requirements of the New York cannabis law. The new case, brought against New York’s Cannabis Control Board (the “CCB”) and others, threatens to throw the implementation of the cannabis law into further disarray by prohibiting the processing of any applications for licenses within the Adult Use Application Program, which had been accepting applications between October 4 and the day the suit was filed. The case isVariscite NY Four, LLC et al v. New York State Cannabis Control Board et al(Index No. 1:23-cv-01599-DNH-CFH).

The Plaintiffs inVariscite NY Fourare companies that submitted adult-use retail dispensary license applications during New York’s cannabis licensure application program. They allege that the statute’s residency requirements unconstitutionally impair their eligibility for “extra priority” status within the state’s Adult Use Application Program. They also allege that the timing of the general adult-use program, which is being implemented after the state’s Conditional Adult Use Retail Dispensary (“CAURD”) program, violates the New York cannabis law, which requires all applications to be processed at the same time.

According to the Marijuana Regulation and Taxation Act (MRTA), in order to obtain “extra priority” status, an applicant must meet the following three requirements: (i) the applicant must be a member of a New York community disproportionately impacted by the enforcement of cannabis prohibition (CDI)¹; (ii) the applicant must have an income lower than eighty percent of the median income of the county in which the applicant resides; and (iii) the applicant must have been convicted of a cannabis-related offense prior to the effective date of the MRTA (March 31, 2021), or had a parent, guardian, child, spouse, or dependent, or was a dependent of an individual who, prior to March 31, 2021, was convicted of a cannabis-related offense in New York State.

The plaintiffs allege that they meet all of the criteria for “extra priority” status except for the New York residency requirements. The majority owners of the applicants possess out-of-state cannabis conviction histories but are not New York residents. They allege that the residency requirements violate the “Dormant Commerce Clause” of the U.S. Constitution²because they discriminate against out-of-state individuals looking to enter the New York market.

Plaintiffs also argue that the licenses previously issued under New York’s CAURD program are unlawful because they were granted before any other application opportunity came to fruition. Plaintiffs assert that section 10(19) of the MRTA mandates that the initial adult-use cannabis retail dispensary license application period must be opened for all applicants at the same time.

Plaintiffs are asking the court for an injunction which would:

Prohibit the processing of any applications for licenses from the Adult Use Application Program conducted from October 4 through December 18, 2023.
Restrict further processing of applications for storefront cannabis dispensary licenses from the CAURD Application Program held from August 25 to September 26, 2022, except for fully licensed and operational CAURDs as of the date of the Complaint.
Halt the enforcement of portions of the Cannabis Law or Cannabis Regulations favoring New York residents over out-of-state residents.
Prevent the use of an Application System that does not allow applicants to prove residence in a disproportionately impacted community by the enforcement of cannabis prohibition if that community is outside of New York.

Additionally, Plaintiffs are seeking a judgment declaring that 9 NYCRR § 121.1(k), otherwise known as the Social and Economic Equity (SEE) qualifications statute, violates the Dormant Commerce Clause. Our future client alerts will contain critical updates on this important case, which could further upend the implementation of the New York cannabis law.

For more information about these recent developments, this new lawsuit and the evolving New York cannabis space, please contact David Holland, James K. Landau, Andrew Schriever, Mike Ross, John Bradley, or any other member of the Prince Lobel Cannabis Team.

With thanks to Alexander Hymowitz for his work on this Client Alert.

1.https://cannabis.ny.gov/communities-disproportionately-impacted

2. https://constitution.congress.gov/browse/essay/artI-S8-C3-7-1/ALDE_00013307/