New York’s Cannabis Licenses Latest Target of Commerce Clause

New York is the latest state where litigation involving the dormant commerce clause could hold up the issuance of cannabis licenses.

U.S. District Court Judge Gary Sharpe issued a preliminary injunction Nov. 10 that temporarily blocks officials from distributing adult-use cannabis retail licenses in five of the state’s 14 regions—Brooklyn, Central New York, Finger Lakes, Mid-Hudson and Western New York—under the conditional adult-use retail dispensary (CAURD) program.

The injunction affects up to 63 of the 150 CAURD licenses that state regulators from the Office of Cannabis Management (OCM) announced in August. And the ruling could potentially impact the commercial sales launch of New York’s forthcoming adult-use cannabis retail market, which Gov. Kathy Hochul and state regulators indicated would begin no later than the end of 2022.

RELATED: New York Governor Says Adult-Use Cannabis Sales ‘Still on Track’ to Launch This Year

Sharpe’s injunction stems from a lawsuit filed by Variscite NY One Inc., which applied for a CAURD license. However, because the Michigan-based company “is [51 percent] owned by an individual who has a cannabis conviction under Michigan law” and “has no significant connection to New York,” Variscite was deemed ineligible to be selected under New York’s CAURD program, according to the litigation.

OCM regulators announced in March that they were setting up a “Seeding Opportunity Initiative” for the CAURD program with the aim to issue New York’s first adult-use dispensary licenses to individuals with cannabis-related convictions (or their relatives).  

“New York State is making history, launching a first-of-its-kind approach to the cannabis industry that takes a major step forward in righting the wrongs of the past,” Hochul said in a March press release. “The regulations advanced by the Cannabis Control Board today will prioritize local farmers and entrepreneurs, creating jobs and opportunity for communities that have been left out and left behind. I’m proud New York will be a national model for the safe, equitable and inclusive industry we are now building.”

Left out in the process, Variscite’s suit argues that the CAURD requirements violate the U.S. Constitution’s dormant commerce clause by discriminating against out-of-state cannabis operators. The federal clause prohibits states from enacting economic protectionists laws that give priority to in-state products, services or residents over out-of-state interests, or unduly burdens the free flow of commerce among states.

Similar litigation on cannabis licensing parameters with arguments based on the dormant commerce clause have unfolded in Illinois, Maine and Missouri—and even locally in Detroit—as more states gear their licensing structures in an effort to ensure those affected by prohibition get included in the legal cannabis industry through social equity provisions.

Stopping the harm caused by prohibition and providing inclusion are two key pillars of social equity, but the latter pillar remains complex in the state-by-state patchwork of adult-use legalization, where interstate commerce is impeded by federal law.

In New York, the regulated adult-use cannabis market in five regions comprised of roughly 9.5 million people could be affected by a final decision from Sharpe.