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Myriad issues have plagued New York’s legal cannabis industry since the state’s Office of Cannabis Management and Cannabis Control Board began issuing marijuana business licenses over 18 months ago, but many of the problems stem from a foundational aspect of the rollout – retail.
New York State’s Senate Subcommittee on Cannabis conducted a fact-finding hearing on Monday related to the Empire State’s nascent and troubled industry.
Ten people, including legal dispensary owners, license applicants and advocates, told legislators how retail stakeholders have suffered as a result of the tumultuous situation.
Unless state legislators codify the Conditional Adult-Use Retail Dispensary program into law, it’s likely a current court case will destroy the CAURD program, and its licensees’ businesses, said Britni Tantalo, co-founder of cannabis retail applicant Flower City Dispensary and president of the New York Cannabis Retail Association (formerly the NY CAURD Coalition).
“The ruling by [state] Supreme Court justice Kevin Bryant … could not be more clear that CAURD is likely to be deemed unconstitutional,” Tantalo said. “Millions of dollars have been spent, entire life savings are gone.”
Monday’s hearing comes amid the state’s cascading legal cannabis problems that have left hundreds of farmers with an estimated hundreds of millions of dollars-worth of unsold weed and few opportunities to offload it among a dearth of statewide retail outlets.
Additionally, hundreds of retail licensees are unable to open their doors due to a court injunction stemming from a predictable lawsuit.
NYS Supreme Court Justice Bryant’s recent injunction almost prevented Coss Marte, CEO of CONBUD NY, from opening his CAURD dispensary in Manhattan.
“It’s just a disaster,” Marte said in an interview after a court proceeding in August. “If we don’t solve this … within three to four months, I could be bankrupt.”
However, Bryant eventually exempted Marte and a handful of other CAURD licensees from that court order.
But to date, less than 30 CAURD dispensaries are operational statewide, while an estimated several thousand unlicensed shops are selling to cannabis consumers from Long Island to Western New York.
At the hearing on Monday, Marte said New York needs to codify the CAURD program into law. He also noted that regulations on CAURD dispensaries are making it difficult for CONBUD to compete with the many illicit shops in Manhattan. For example, OCM regulations severely limit the signage his store is allowed to use, while unlicensed stores can advertise more openly.
“I think marijuana leaves on windows is tacky for me, but I can’t do anything else but put two logos on my window, and put ‘adult-use cannabis dispensary,’” Marte said. “I don’t mind competing against them, but let me compete the right way,” Marte said.
The current injunction – and a previous one from another lawsuit – stems from regulatory efforts to launch New York’s legal cannabis industry with stores owned by people who’d been negatively affected by past cannabis enforcement efforts.
In May of 2022, the CCB passed a measure creating the CAURD license. This marked a big step in New York’s efforts to open a legal marijuana market that focused on righting the wrongs of a decades-long War on Drugs.
These licenses were reserved for applicants convicted of a marijuana offense prior to state legalization, or whose parents, spouses or children were convicted of the same thing.
Presumably, they’d be the first to open legal marijuana retail stores in New York State. (Some licenses were also set aside for nonprofits.)
Though the CAURD program didn’t go through the same legislative process as the Adult-Use Conditional Cultivator (AUCC) or Adult-Use Conditional Processor (AUCP) licensing regimes, Gov. Kathy Hochul billed the trio of temporary licenses as part of a package called the Seeding Opportunity Initiative.
“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,” Hochul said in March of 2022.
Lawyers who spoke with NY Cannabis Insider just a few months later identified several issues with the way regulators structured and approved the CAURD program, citing legal vulnerabilities.
Experts said CAURD appeared to violate the MRTA, which does not allow regulators to create new license types and says “the initial adult-use retail cannabis retail dispensary license application period shall be opened for all applicants at the same time.”
Additionally, attorneys said CAURD violates the U.S. Dormant Commerce Clause because the program includes residency requirements.
That commerce clause prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce.
In November of last year, Michigan-based plaintiff Variscite NY One sued New York State and its regulators in federal court, arguing that CAURD requirements discriminate against out-of-state cannabis operators in violation of the same commerce clause.
The judge in that case issued an injunction on the CAURD program in five of the 14 regions in which the OCM was licensing CAURD dispensaries.
The judge later narrowed the injunction to apply only to the Finger Lakes. The state then settled the lawsuit in late May, awarded the plaintiff a license, and lifted the enjoinment entirely.
But about two months later, four service-disabled veterans who intend to apply for dispensary licenses brought another lawsuit over CAURD, and were later joined by the Coalition for Access to Regulated & Safe Cannabis – a group representing some of New York’s medical cannabis companies that is also suing the OCM in a separate case.
As a result, a New York State Supreme Court judge issued another statewide injunction preventing the OCM from approving new CAURD licenses and blocking most licensees who hadn’t yet launched their businesses from opening stores.
During Monday’s state Senate hearing, Eli Northrup, policy director of The Bronx Defenders’ Bronx Cannabis Hub – which has been helping people apply for CAURD licenses – brought up troubling practices by private equity firm Chicago Atlantic, the sole lender to the Dormitory Authority of the State of New York’s Cannabis Social Equity Investment Fund.
Senators expressed shock when Northrup said Chicago Atlantic is negotiating loan agreements directly with CAURD licensees, speaking to licensees without the presence of counsel and engaging in high-pressure tactics.
“The fund is not a social equity fund, it is a private investment fund … they are looking to make money, and applicants know they’re a target for money,” Northrup said. “They are dangling these contracts in front of all of these CAURD holders, and they’re saying, ‘sign tomorrow, or you’re going to get kicked out of your store.’”
Sen. Liz Krueger said Chicago Atlantic’s direct involvement goes beyond what she thought their role as an investor into the fund included. She said she doesn’t understand why the company is negotiating with CAURD licensees.
“I really don’t think we were ever led to believe that somehow this company was going to be negotiating individual deals under individual terms with any CAURD holder,” Krueger said.
Marte told senators he’s hearing about CAURDs taking loans between $1.5 and $1.7 million with a 13% interest rate to be paid back in 10 years.
“It’s setting you up for failure,” said Marte, who self-funded his store with business partners. “I wish I would have gotten the DASNY contract, because I could have built everybody’s dispensary for a third of the price,” he joked.
Matt Robinson, CEO of Essential Flowers Legacy Dispensers in Albany, said a DASNY lease he declined to sign would have cost him $19,000 per month for a 4,000-square-foot space.
“What 4,000-square-foot space in the Capital Region costs $19,000 to lease?”
Northrup suggested senators get the terms of the deal signed between DASNY and Chicago Atlantic, because the Dormitory Authority hasn’t released details of that contract.
“If you all could ask for the contract between Chicago Atlantic and DASNY – has anyone even seen that?” Northrup said. “It would seem that you all would be able to get that information and intervene.”