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This guest column is from Benjamin Rattner, a partner at Cermele & Wood, LLP, where he leads the cannabis practice, and an active member of the Cannabis Association of New York. The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views or positions of NY Cannabis Insider.
The recent legal challenges to the CAURD program foretell legal challenges to programs designed to benefit social and economic equity (SEE) applicants. There is a federal lawsuit that, so far, has gone largely unnoticed, but could portend major trouble for New York State’s SEE program under the Cannabis Law. That lawsuit is captioned Cannabis Impact Prevention Coalition et al. v. Kathy Hochul, et al.
As a refresher, the Cannabis Law requires that the Cannabis Control Board, in consultation with the chief equity officer and executive director of the Office of Cannabis Management, create and implement a “social and economic equity plan.”
That plan is intended to actively promote applicants from communities disproportionately impacted by the war on cannabis, as well as service-disabled veterans, minority or women owned businesses, and distressed farmers.
The Cannabis Law envisions that the SEE plan provide various business support services for SEE licensees. To help fund this incubator program, the Cannabis Law permits the Cannabis Control Board to assess a “one-time special licensing fee” on registered organizations (medical cannabis companies) that seek to open adult-use dispensaries. The recently-adopted adult-use regulations require registered organizations that open adult-use retail dispensaries to pay a “one-time special licensing fee” of up to $20 million in stages. (Yes, there’s a contradiction between the Cannabis Law’s language and the regulatory language, but I digress.)
Those special licensing fees are to be deposited into the New York State cannabis revenue fund, where they will be used to, among other things, pay the costs of OCM and other state agencies “related to the administration of incubators and other assistance” to SEE applicants, including “provision of low and zero interest loans to such applicants.”
In other words, New York State anticipates providing funding to SEE applicants. And therein lies the problem.
A federal lawsuit spearheaded by the Cannabis Impact Prevention Coalition, LLC (CIPC) and Cannabis Industry Victims Seeking Justice, LLC (CIVEL) aims to declare that the $200 million public-private New York Cannabis Social Equity Investment Fund, intended to support CAURD licensees, is unconstitutional.
These are the same plaintiffs that filed a legal challenge to the medical cannabis regulations, the adult-use packaging and labeling regulations, and the adult-use marketing and advertising regulations in a special proceeding that is currently pending before Albany’s Supreme Court.
That there is another challenge to key aspects of the CAURD program is not all that surprising. What is noteworthy in CIPC’s federal lawsuit, however, is the legal theory.
Specifically, CIPC and CIVEL are attempting to stop New York State from using any public or private funds to assist CAURD licensees by relying on Section 123 of New York State’s Finance Law.
That law provides New York State citizens with the right to sue for an injunction or declaratory relief against state officials who are “causing” or “about to cause a wrongful expenditure, misappropriation, misapplication, or any other illegal or unconstitutional disbursement of state funds.”
In a nutshell, CIPC and CIVEL allege that New York State officials are supporting marijuana trafficking in violation of federal law. They then argue that because federal law trumps state law when there is a conflict between the laws, the creation of the Social Equity Cannabis Investment Fund was illegal, and New York State should be enjoined from disbursing any of those funds to CAURD licensees.
Although the CAURD program is currently in limbo due to a recent preliminary injunction, it is not hard to envision CIPC, CIVEL, or some other plaintiff repurposing the argument made in CIPC’s federal case to attack an incubator program designed to help SEE applicants. Indeed, it would not be surprising to see a lawsuit alleging that it is unconstitutional or otherwise impermissible for New York State officials to use the proceeds from the one-time special licensing fee to support qualifying SEE applicants via capitalizing them or providing them with low interest loans.
The cruel irony of this situation is that New York enacted the Cannabis Law, in part, to address the devastating social and economic impact caused by the war on cannabis, yet qualifying SEE applicants most in need of financial support may not be able to receive it to get open.
In other words, the Cannabis Control Board may very well achieve the Cannabis Law’s goal of awarding fifty percent of adult-use licenses to SEE applicants, but that achievement is meaningless without funding to support those licensees in becoming operational.