(September 10, 2025) - Alexander Malyshev and Sarah Ganley of Carter Ledyard & Milburn LLP discuss a court decision holding that the Dormant Commerce Clause applies to the recreational cannabis market, thus prohibiting New York from privileging its residents when awarding licenses to cannabis businesses.
As readers of this column know, New York's Adult-Use licensing scheme has experienced numerous challenges, both operationally and in court. Last month, the 2nd U.S. Circuit Court of Appeals added violations of the Dormant Commerce Clause ("DCC") to that list.
In Variscite NY Four, LLC v. New York State Cannabis Control Board, it held that the DCC ' a constitutional doctrine prohibiting states from privileging their own citizens ' applies to the recreational cannabis market, thus prohibiting New York from privileging its own residents when awarding licenses to cannabis businesses.
This decision follows the 1st U.S. Circuit Court of Appeals' prior decision in Northeast Patients Group v. United Cannabis Patients & Caregivers of Me., 45 F.4th 542 (1st Cir. 2022), which struck down Maine's residency requirement for officers and directors of medical marijuana dispensaries under the DCC.
In Variscite, a split-panel held that New York's Adult-Use cannabis licensing regime violates the DCC by prioritizing the review of applications for retail cannabis licenses submitted by applicants with a past New York marijuana conviction (or those who have a close relative with such a conviction) over the applications of similarly situated applicants with out-of-state convictions. Finding it "fair to assume" that most New York marijuana offenders are New Yorkers, the court concluded this system is a protectionist measure that unconstitutionally favors in-state applicants over others.
Although not surprising in light of Northeast Patients Group, the Variscite decision underscores a growing judicial consensus that the DCC constrains state cannabis regulations to the same extent as any other industry, possibly sending regulators back to the drawing board.
New York's licensing framework
Since legalizing recreational adult use cannabis in 2021, New York has instituted two separate application programs for retail cannabis dispensary licenses.
First, from August through September 2022, New York regulators accepted applications under the Conditional Adult-Use Retail Dispensary ("CAURD") Application Program, which required qualifying applicants to have a significant presence in...
