New York Medical Cannabis Operators Say Regulatory Agency ‘Abused Its Authority’ in State’s Adult-Use Rollout

Four of New York’s medical cannabis operators sent a letter (embedded below) to Gov. Kathy Hochul Aug. 31 urging her administration to allow the businesses to serve the state’s broader adult-use market.

Matt Darin, CEO of Curaleaf; Ben Kovler, founder, CEO and chairman of Green Thumb Industries; Brett Novey, CEO of PharmaCann; and Dennis Curran, CEO of Acreage, claim that in its rollout of the adult-use market, the New York Office of Cannabis Management (OCM) “abused its authority under New York’s adult use law, played politics with the licensing process, and allowed thousands of unregulated, commercial scale sellers to flood the market with unregulated and unsafe cannabis products.”

This has resulted in “a demonstration of ‘worst’ practices rather than best,” the operators wrote, concluding that “the state’s entire cannabis ecosystem is in dire need of a new direction.”

Former New York Gov. Andrew Cuomo signed the state’s adult-use cannabis legalization bill into law in early 2021. Nearly a year later, in March 2022, Hochul announced plans to issue the state’s first Conditional Adult-Use Retail Dispensary (CAURD) licenses to applicants with past cannabis-related convictions as part of a “Seeding Opportunity Initiative” aimed at prioritizing those most impacted by the war on drugs in the adult-use licensing process.

The plan of course shut the state’s 10 existing medical cannabis operators—called registered organizations—out of the adult-use licensing process, at least for the foreseeable future; those licensed under the CAURD program were given three years to find their footing in the market before medical cannabis licensees could expand to adult-use sales, meaning that December 2025 was the earliest any of the ROs could expand to serve adult-use customers. However, this three-year wait period could be expedited to one year for ROs (see details below).

The state’s adult-use rollout has since been slow going—Housing Works Cannabis Co. was the first dispensary to launch adult-use sales in December 2022, and as of Sept. 5, there are only 18 adult-use storefronts and five delivery-only retailers operating in the state.

RELATED: ‘The Lost Year’: New York’s Adult-Use Cannabis Industry Grapples With Sluggish Rollout

In May, the OCM published a proposed draft of revised adult-use regulations that would allow ROs to expand up to three of their retail locations to adult-use sales, including a first site on Dec. 29, 2023—two years before originally proposed.

As that proposal works its way through the rulemaking process, litigation filed in early August by a group of veterans threatens to stall adult-use licensing altogether. In the lawsuit, four service-disabled veterans argue that the OCM violated state law when it excluded them and other groups from adult-use cannabis licensing opportunities.

An Aug. 7 court order stemming from the case blocked state regulators from issuing new licenses and approving dispensary openings. Although Supreme Court Judge Kevin Bryant announced Aug. 18 an exemption in the temporary restraining order for qualified CAURD awardees, allowing 30 licensees who met specific requirements to operate in the market, Bryant reversed course less than a week later. Now, all CAURD licensees that haven’t opened their businesses are on hold, including the 30 who were initially told they would be exempt from the injunction.

For the executives who signed off on the letter to Hochul last week, enough is enough.

“Following the passage of New York’s adult-use law in 2021, medical operators, including each of our businesses, were incredibly excited by this new opportunity to expand our service to New Yorkers,” they wrote in the Aug. 31 letter. “We fully expected to play the vital role envisioned for medical operators by the state Legislature in the Marihuana Regulation and Taxation Act (MRTA). Now, almost two and a half years later, the reality is much different. During that time, OCM has ignored the collective wisdom of every other state with an adult-use cannabis program—most recently Maryland—to permit existing medical operators to stand up the adult-use market."

Those states, Darin, Kovler, Novey and Curran argued, demonstrate that allowing medical cannabis operators initial access to the adult-use market achieves the following:

• Medical operators provide a stable supply chain of safe, tested, and taxed cannabis products for new retailers and their customers;

• Medical operators build market infrastructure, giving rise to transportation processes, testing

  labs, seed-to-sale tracking, and other behind-the-scenes consumer protection, safety, and security measures; and

• Medical operators ease the entry of new adult-use businesses, particularly for social equity licensees by providing immediate training opportunities, both at retail and at wholesale.

“Supported neither by law, nor regulation, OCM has sought to launch the adult-use market using cannabis supplied exclusively by outdoor micro-cultivation facilities run by hemp farmers and sold exclusively by dispensaries owned by a very small subset of applicants with limited access to necessary financing,” the executives wrote. “While we agree with the social aims of issuing licenses to justice-involved individuals, OCM has done so in a way that clearly violates the law, forcing the courts to constantly intervene and pause New York’s rollout of legalized cannabis. Indeed, by choosing to create this Conditional Adult Use Retail Dispensary (CAURD) program—despite the state Legislature’s clear instruction to open the adult-use retail dispensary application window for all applicants at the same time—OCM has put New York’s cannabis program on a clear course for failure.”

Darin, Kovler, Novey and Curran argue that the slow rollout has allowed the unregulated market to “undermine the legal market,” citing the estimated  2,000 unlicensed cannabis retailers in New York City alone.

"As OCM has continued to neglect the state’s medical program, disregarding the significant investment and infrastructure our teams have built over the past decade, the proliferation of these unlicensed smoke shops has diverted patients from the safety of licensed medical dispensaries and toward unlicensed shops selling untested, contaminated products,” they wrote.

Hochul signed legislation into law in May to allow regulators to take harsher action against unlicensed operators, and in mid-June, her office announced that the first enforcement actions carried out under the new law resulted in the seizure of roughly 1,000 pounds of product valued at nearly $11 million.

Still, adult-use sales and tax revenues are lagging, as noted in the medical cannabis operators’ letter.

“The state’s ineptitude is endangering New Yorkers who wish to use cannabis safely and legally, while also hurting taxpayers,” the executives wrote. “Despite an almost 40% larger population, New York is on track to generate less than a quarter of the revenue Illinois generated in its first year of adult-use cannabis sales in 2020.”

RELATED: New York Cannabis Sales Hiding in Shadows of Connecticut, Missouri, Rhode Island, Vermont (and Illicit Market)

Darin, Kovler, Novey and Curran argue that OCM must issue additional adult-use cannabis business licenses to qualified applicants “as soon as possible.”

“By simply issuing licenses to the medical operators alone, the state can more than double the existing dispensaries in the state, while providing a dependable supply of safe and professionally grown products,” they wrote. “The legal sales from these dispensaries would help displace the unlicensed market, while simultaneously generating the revenue necessary to help cannabis entrepreneurs of all backgrounds open and sustain their own businesses.”

Hochul’s office told the New York Post that it is reviewing the letter.

“New York State is establishing the most equitable adult-use cannabis market in the nation that offers consumers high-quality, New York-grown, processed and tested products while addressing the wrongs of the past,” John Lindsay, a spokesman for Hochul’s office, told the news outlet. “Gov. Hochul will continue her efforts to expand and improve New York’s cannabis market.”

At least four of the state’s medical cannabis operators believe that expansion and improvement should include their businesses moving forward.

Final August 31 Coalition Letter to Governor Hochul .Docx (1) by Tony Lange on Scribd