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The immediate consequences of the lawsuit roiling New York’s cannabis industry and the state’s Conditional Adult-Use Retail Dispensary program, Carmine Fiore v. New York State Cannabis Control Board, have been significant.
Almost all CAURD licensees who were not in operation before an August injunction are prevented from opening. No new CAURD licenses can be allocated. And now that applications for licenses are open to all, CAURD licensees could miss out on first-mover advantages.
Meanwhile, businesses throughout the cannabis supply chain continue to suffer a dramatic oversupply of product. Ancillary providers are suffering, as well.
As harmful as this case has already been for social equity cannabis businesses, there is potential for greater disruption in the long term. This case could spell the end of the CAURD program entirely.
That outcome isn’t necessarily the likeliest. But it is a significant possibility. To help make sense of the potential outcomes, NY Cannabis Insider spoke with three New York cannabis attorneys for their views of the case: Jeffrey Hoffman, managing partner of Jeffrey Hoffman & Associates, PLLC; Andrew Cooper, chair of Falcon Rappaport & Berkman LLP’s Cannabis & Psychedelics Practice Groups; and Paula Collins, attorney at the Law Office of Paula Collins.
Their views do not represent a full range of legal opinions but they set the stage for what is at stake in this lawsuit.
A summary of the argument
The plaintiffs, a group of service-disabled veterans, argue that the CAURD licensing program violates New York’s cannabis legalization law, the Marijuana Regulation and Taxation Act, and that their inability to obtain a CAURD license is unconstitutional. This argument is made on a couple fronts.
The first revolves around the language of section 10, subsection 19 of MRTA, which says that “the initial adult-use cannabis retail dispensary license application period shall be opened for all applicants at the same time.”
The CAURD program allocated the first round of retail licenses only to applicants that had been arrested for a marijuana-related offense, or were the family member of such a person, and who have had ownership in a business that was profitable for two years.
The plaintiffs argue that criteria meant applications were not open for all at the same time and therefore CAURD violates the “same time” provision.
The plaintiffs also argue that the Cannabis Control Board (CCB) and the Office of Cannabis Management (OCM) unconstitutionally acted as a legislature, rather than in their capacity as regulators, when creating the criteria for CAURD licenses.
MRTA identifies a number of groups to be given priority for cannabis retail licenses. Super priority is to be given to applicants who:
- Have been arrested for a marijuana-related offense, or are the family member of such a person.
- Have an income lower than 80 percent of the median income of the county they live in.
- Are a member of a community disproportionately impacted by cannabis prohibition.
Lesser priority is to be given to other social equity groups: applicants that are a member of a community that cannabis prohibition disproportionately impacted but do not meet those two other criteria, women-owned businesses, minority-owned businesses, distressed farmers, and service-disabled veterans.
The plaintiffs argue that it was not in the OCM’s purview to establish new criteria for a CAURD license, which adopts one prong of MRTA’s super priority group (the prior conviction) but drops the two other prongs and adds a new prong not established in MRTA (the profitable business requirement).
The legislature could create such a license, the plaintiffs argue, but not the regulator.
Chances of settlement
Consensus among the three attorneys interviewed is that settlement between the parties is unlikely.
“It’s pretty clear that it’s not going to get settled,” said Hoffman of Jeffrey Hoffman & Associates. “They had settlement discussions in August and they ended very quickly.”
Unlike in the Variscite case, where a Michigan-based man who argued that OCM unfairly denied his business a CAURD license was awarded a license in a settlement, licenses may not be a compelling reason to settle for the plaintiffs of this lawsuit.
Service-disabled veterans are prioritized in the state’s licensing scheme. Now that license applications are open to everyone, those plaintiffs will likely receive licenses in the near future regardless of any settlement. And the medical retailers attached to this case are already operating businesses.
“I don’t think that there’s anything that OCM or the state could have afforded them – both of those parties – to settle,” Hoffman said.
Even if there were such a thing, OCM would be wary of offering it if it came at the expense of other CAURD licensees.
“From what I hear, settlement is unlikely because the parties can’t really figure out a way to get that done without leaving the program vulnerable to others,” said Cooper of Falcon Rappaport & Berkman.
Chances the case is deemed moot
Less agreed upon are the chances that the court finds this lawsuit moot.
Judge Kevin Bryant’s Aug. 18, 2023, decision to grant an injunction on the CAURD program suggests those chances are significant. The decision reads:
“Given the representations by Counsel for Defendants regarding the imminent approval of regulations and the Board opening an application process for all identified groups set forth in the MRTA, this Court will continue to require regular appearances from counsel before the Court to provide updates and to ensure that appropriate progress is being made to ameliorate whatever impediments exist to the approval of a process that arguably will make these proceedings moot.”
In other words, this case is arguably resolved once applications are open to everyone.
Applications for licenses, of course, have opened since that decision. So we will soon see if their opening is sufficient for a determination of mootness.
Attorney Paula Collins, also an adjunct professor at Pace University’s Law School, doubts it will be.
“I don’t think it’ll be found moot,” she said.
This is because, even if they receive licenses, the plaintiffs can argue that they missed out on first-mover advantages for which licenses cannot compensate.
“We essentially spent a year spinning our wheels,” Collins said. “People will never get back that year of time, talent, and energy.”
All three attorneys stress the centrality of real estate to Judge Bryant’s consideration of the plaintiff’s argument.
“The judge got hundreds and hundreds of pages of briefs. And the judge asked a couple questions,” Hoffman said. “The most notable question: ‘Are there distance requirements between these dispensaries?’ What does that question mean? It means that real estate is important.”
The availability of viable economic space is severely limited, for one, because cannabis retailers are subject to often onerous distance requirements – from schools, churches, and other dispensaries – and because landlords are often unwilling to rent to cannabis businesses.
The plaintiffs further argue, given how limited space is, that being left out of the first round of licensing is a missed opportunity that a future license can’t make up for; first-mover advantages were too great.
So while Judge Bryant’s August decision signals amenability to the idea that opening licenses for everyone makes this case moot, his questions signal amenability to the argument that licenses may not be sufficient compensation for a loss of first-mover advantage.
Cooper, also an adjunct professor at Hofstra University’s Law School, complicates the question of mootness further.
Even if the court identifies real estate as a significant first-mover advantage, he says, the case could still be deemed moot. For one, because the plaintiffs could have likewise been disadvantaged if applications were open for all at the same time because CAURD licensees would still be given top priority.
And secondly, because service-disabled veterans are still advantaged relative to the general market, even if that advantage is less than that of CAURD licensees.
The outcome of mootness, then, is on the table – but far from certain.
The merits
With settlement a longshot, and with mootness uncertain, there is a significant chance that this case is seen all the way through and tested on its merits.
Each attorney finds the merits of the plaintiff’s argument compelling, albeit with some distinctions.
Hoffman seems the most receptive to the argument that the OCM unconstitutionally acted as a legislator when it created the CAURD criteria.
OCM “can’t create licensing,” he said. “They can decide when application periods can open. They can create regs and set priorities. They absolutely cannot create new licenses.”
Collins says that OCM probably “had the authority to expand social equity, but not the authority to expand to the detriment of other social equity groups.”
Cooper, meanwhile, says that it was likely within OCM’s purview to create the CAURD license criteria, but that the argument that applications were not appropriately open for everyone is likely a winning one. Collins and Hoffman likewise find the “same time” argument compelling.
But, regardless of how the attorneys personally assess the case’s merits, an injunction being placed is itself evidence that there is a strong likelihood that the court sides with the plaintiffs.
“To get an injunction, you have to have a pretty good chance of winning on the merits,” Hoffman said. “That’s the criteria the judge has to look at.”
Those chances seem especially high considering an appeal to the injunction recently failed in court.
That appeal argued that other language in MRTA granted CCB an authority to create new licenses that overrides the “same time” provision; essentially, it argued that it was within OCM’s purview to create the CAURD program.
Judge Bryant signaled skepticism to that argument in his August 18 decision. There “is a significant likelihood that the Defendants will not prevail on their argument that the Board had some general authority under Article 2 of the MRTA to establish new classes of licenses as such authority would render” the “same time” provision “meaningless,” the decision said.
So there is a good chance this case goes to trial and a good chance the plaintiffs win on the merits.
What are the consequences if that happens?
If the court sides with the plaintiffs
The doomsday scenario for the CAURD program is that it is disbanded if CAURD licenses are found unconstitutional. Licensees would lose their license and subsequently their business.
That would be the strictest interpretation of what plaintiffs are entitled to if they’re successful, Cooper said. “That’s a possible outcome. Not a likely one, but that’s definitely a possible outcome.”
If CAURD licenses “get found unconstitutional, there is a world where these licenses have to get taken back,” Hoffman said. “There’s some people who think that’s the likelihood. I don’t know that that’s the likelihood.”
A less onerous, though certainly still damaging, possibility Hoffman suggests is that, if found unconstitutional, the CAURD program could be put on hold in some capacity as licenses are given to businesses that arguably should have been included in the first round of licensing, essentially a prolonged period of the current state of injunction.
Yet, there are a few ways that the CAURD program could potentially be safeguarded against a ruling of unconstitutionality.
The most direct would be if the state legislature codifies CAURD into state law when it returns to session in January, a move activists are vying for.
Legislators could also ease distance requirements, Cooper said, so that retail space is not as limited. The court might then understand first-mover advantage as less impactful. Subsequently, the plaintiffs receiving licenses might be regarded as adequate compensation.
OCM, meanwhile, could potentially preserve CAURD licensees by prioritizing them in the new round of licenses they allocate, Cooper added. “They would have this CAURD license sitting there that they can’t do anything with and then a second license which would allow them to move forward,” he said.
Collins thinks this approach would be a recipe for another lawsuit. “I don’t know how they could transfer a criteria found unconstitutional onto a new license. It would taint the new licenses.”
Perhaps the biggest consequence of the lawsuit could be its opening the door for further litigation. If the plaintiffs are successful, Hoffman expects other groups designated as social equity in the MRTA, like women- and minority-owned businesses, who were likewise not considered during the first round of licenses to follow suit.
“I’m optimistic that it won’t happen,” Cooper said. “But no one is going to tell you that there’s not a possibility of future litigation. Nobody.”
“I don’t think it’s ‘if.’ It’s ‘when,’” Collins said. “The result of the lawsuit will cause us to really examine all of the regs. You know when the internet goes out and you need to reset the router? It feels like that. We need to reset the router.”
Chris Peraino is a Master’s student of Political Science at the CUNY Graduate Center and a freelance journalist who covers cannabis policy.