Another proximity protection lawsuit surfaces against NY cannabis regulators, with possibly more on the way

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A cannabis retail license hopeful is suing New York marijuana regulators after they allegedly rejected his application because it was too close to another weed shop, but allowed another store to open in the same area.

The lawsuit is one of several filed against the Office of Cannabis Management over the agency’s handling of “proximity protection,” a policy that some retailers praise as a necessary backstop against market saturation, and others criticize as convoluted and unreasonably broad.

Joseph Frustagli – who holds a Conditional Adult-Use Retail Dispensary license – filed suit in New York State Supreme Court last week. Frustagli alleges that regulators initially granted him proximity protection for a storefront in Manhattan’s NoMad neighborhood, but later said the letter was sent in error, before allowing a different dispensary to open in that area.

“There has been persistent confusion within OCM,” Frustagli said in his complaint. “The compounded effects of this persistent confusion are reflected in contradicting assertions, administrative errors, an inability to respond to the flow of inquiries.”

Officials from the OCM did not respond to a request for comment about the lawsuit, though the agency typically doesn’t comment on ongoing litigation.

New York’s Cannabis Control Board approved a provisional CAURD license for Frustagli’s provisional retail business, Taozen, LLC, at its July 19, 2023 meeting. About three months later, Frustagli secured a five-year commercial lease at 52 West 27th St. in Manhattan, Frustagli’s complaint said. After he notified the area community board and submitted all necessary paperwork to regulators, Frustagli received proximity protection on Jan. 17, he said.

“I was relieved and elated to receive my Proximity Protection Approval,” Frustgali said in the lawsuit.

But on Feb. 2, he received an email from OCM, which said that their “previous location approval letter was sent in error … The proposed address conflicts with the location of an adult-use cannabis dispensary, medical cannabis dispensary, and/or CAURD location(s) under proximity protection and therefore, does not meet the location requirements.”

The location falls within 1,000 feet of a Fiorello Pharmaceuticals medical cannabis dispensary. But, as the lawsuit notes, OCM officials later provided proximity protection to CAURD licensee Candice LoPizzo for a shop in the same area, following a public appeal after regulators initially denied their location.

Frustgali’s lawsuit alleges the OCM’s decision to approve LoPizzo’s location and deny Frustgali’s was arbitrary and capricious, and an abuse of the agency’s discretion. In the complaint, the plaintiff doesn’t seek a specific court action, but asks the court for “any type of relief within this Court’s jurisdiction appropriate.”

In an email — through his attorney — Frustagli told NY Cannabis Insider that he’d like the state to either find him a new location, or allow him to operate out of the one they rejected. He is currently seeking out a new location.

“I’m hoping that I can negotiate with the OCM that they can, 1) allow me a window of time to find a New Location in a designated neighborhood 2) Find a location for me via DASNY 3) Find a location for me via an exiting closed illegal shop,” Frustagli said via email.

The OCM is already fielding multiple lawsuits stemming from proximity protection decisions – including ones filed by Gracious Greens and TJ’s Cannabis Corp. – and the agency has reason to expect more, said attorney Ben Rattner, who leads the cannabis practice at Cermele & Wood LLP.

“Proximity protection rules and site approvals are a real pain point for licensees and applicants,” Rattner said. “I wouldn’t be surprised if there was further litigation involving site approval and proximity protection.”

The OCM would limit its vulnerability by laying out a formal process for adjudicating proximity protection when multiple licensee hopefuls apply with storefronts in the same area, Rattner said. The agency could also alleviate the situation by shifting to a policy that provides more flexibility for locations, while still limiting the number of shops in certain areas, to avoid market saturation.

“It would be nice to understand the exact process,” Rattner said.