Variscite NY Four, LLC v. N.Y. State Cannabis Control Bd.

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VARISCITE NY FOUR, LLC AND VARISCITE NY FIVE, LLC, Plaintiffs, v. NEW YORK STATE CANNABIS CONTROL BOARD; NEW YORK STATE OFFICE OF CANNABIS MANAGEMENT; TREMAINE WRIGHT; AND CHRIS ALEXANDER, Defendants.

No. 1:23-cv-01599 (AMN/CFH)

United States District Court, N.D. New York

February 2, 2024

Jeffrey M. Jensen Attorney for Plaintiffs

E Stewart Jones Hacker Murphy, LLP Attorneys for Plaintiffs

Hon Letitia James New York State Attorney General The Capitol Albany, Attorney for Defendants

Jeffrey M. Jensen, Esq. Pro Hac Vice

Thomas J. Higgs, Esq.

Ryan W. Hickey, Esq. Assistant Attorney General

MEMORANDUM-DECISION AND ORDER

Hon. Anne M. Nardacci, United States District Judge

I. INTRODUCTION

Plaintiffs Variscite NY Four, LLC and Variscite NY Five, LLC (“Plaintiffs”) commenced this action on December 18, 2023 against Defendants New York State Cannabis Control Board (the “Board”), New York State Office of Cannabis Management (“OCM” or the “Office”), Tremaine Wright, and Chris Alexander (collectively “Defendants”), pursuant to 42 U.S.C. § 1983. See Dkt. No. 1^[1] (the “Complaint”).^[2] Plaintiffs allege that New York's Adult Use Application Program, which accepted applications for adult use retail dispensary cannabis licenses (“Adult Use Licenses”) from October 4, 2023 through December 18, 2023 (the “Adult Use Application Program”), violates the dormant Commerce Clause. See generally id.

On December 21, 2023, Plaintiffs filed a motion by order to show cause for a temporary restraining order and preliminary injunction seeking to enjoin Defendants from issuing Adult Use Licenses or issuing any additional licenses under the CAURD Application Program. See Dkt. Nos. 10-12 (the “Motion”). On December 28, 2023, Defendants submitted a Letter Brief opposing the Motion. Dkt. No. 16.^[3] On January 9, 2024, the Court directed expedited briefing on the Motion, and on January 16, 2024, Defendants filed an Opposition, Dkt. Nos. 25-29.^[4] On January 26, 2024, the Court held a hearing on the Motion (the “Motion Hearing”).^[5] For the reasons set forth herein, the Court denies Plaintiffs' Motion for a temporary restraining order and a preliminary injunction.

II. BACKGROUND

A. Legality of Cannabis under Federal Law

Under the Controlled Substances Act (“CSA”), it is unlawful “to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance,” including cannabis. 21 U.S.C. § 841(a)(1); see 21 U.S.C. § 812(c) (classifying cannabis as a Schedule I controlled substance). However, as to the use of cannabis for certain medical conditions, Congress has prohibited the Department of Justice (“DOJ”) from using funds “to prevent any [state] from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” See Consolidated Appropriations Act of 2022, Pub. L. No. 117-103, 136 Stat. 49, § 530 (2022) (the “Rohrabacher-Farr Amendment”); see also Brinkmeyer v. Wash. State Liquor & Cannabis Bd., No. C20-5661 BHS, 2023 WL 1798173, at *2 (W.D. Wash. Feb. 7, 2023) (noting that in “each fiscal year since fiscal year 2015, Congress has prohibited the [DOJ] from using its appropriated funds to take legal action against states that have implemented laws legalizing medicinal marijuana”), appeal dismissed, No. 23-35162, 2023 WL 3884102 (9th Cir. Apr. 11, 2023).^[6] On the other hand, Congress “has not amended the CSA to legalize marijuana for either medical or recreational use.” Ne. Patients Grp. v. Me. Dep't of Admin. & Fin. Servs., 554 F.Supp.3d 177, 182 (D. Me. 2021), aff'd sub nom. Ne. Patients Grp. v. United Cannabis Patients & Caregivers of Me., 45 F.4th 542 (1st Cir. 2022).

B. New York Cannabis Law

In 2021, the New York Legislature determined that existing marihuana laws had “resulted in devastating collateral consequences including mass incarceration and other complex generational trauma, that inhibit an otherwise law-abiding citizen's ability to access housing, employment opportunities, and other vital services.” N.Y. CANBS. § 2. To address these collateral consequences and for various other purposes, on March 31, 2021, New York enacted the Marihuana Regulation & Taxation Act (“MRTA”), with the short title of “Cannabis Law.” N.Y. CANBS. § 1.^[7] Article II of the Cannabis Law establishes the OCM^[8] and the Board,^[9] which are responsible for implementing and enforcing the Cannabis Law in New York. N.Y. CANBS. §§ 711. Additionally, the Cannabis Law legalizes adult use cannabis and regulates its production, manufacturing, distribution, and sale in New York. See N.Y. CANBS. §§ 3, 61-89; see also N.Y. CANBS. § 72 (authorizing the licensing of adult use retail dispensaries).

1. CAURD Application Program

The Adult Use Application Program was preceded by the CAURD Application Program.^[10] “On or about August 25, 2022, through September 26, 2022, the Office accepted applications for” CAURD licenses. Dkt. No. 29 at ¶ 3. To be eligible for a CAURD license, an applicant had to establish, among other things, that an individual “(a) was convicted of a marihuana-related offense in New York State prior to [March 31, 2021]; (b) had a parent, legal guardian, child, spouse, or dependent who was convicted of a marihuana-related offense in New York State prior to [March 31, 2021]; or (c) was a dependent of an individual who was convicted of a marihuana-related offense in New York State prior to [March 31, 2021].” N.Y. Comp. Codes R&R tit. 9 (“NYCRR”) § l16.4(a)(2)(i).^[11]

On August 2, 2023, four individual plaintiffs filed a complaint in New York State court challenging the validity and constitutionality of the CAURD program. Carmine Fiore, et al. v. New York State Cannabis Control Board, et. al, No. 907282-23 (Sup. Ct., Albany Cnty., 2023).

The defendants subsequently entered into a settlement of the state lawsuit, pursuant to which they agreed not to issue any “new or additional provisional CAURD licenses until April 1, 2024.” See Dkt. No. 12-4 at 7 (the “Fiore Settlement”). However, the settlement permitted the defendants to proceed with issuing licenses for already-processed CAURD applications. Id.^[12] To date, Defendants have awarded 463 CAURD licenses, Dkt. No. 28 at ¶ 6, and represented at the Motion Hearing that approximately 70 of these CAURD licenses have been finally approved while the remaining 393 licenses have been provisionally approved.

2. New York's Social and Economic Equity Plan

The Cannabis Law requires the Board “in consultation with the chief equity officer and executive director, [] after receiving public input” to “create and implement a social and economic equity plan” (“SEE Plan”) which “prioritize[es] consideration of applications by applicants who are from communities disproportionately impacted by the enforcement of cannabis prohibition [(“CDI”)] or who qualify as a minority or women-owned business, distressed farmers, or servicedisabled veterans” (“SEE Applicants”). N.Y. CANBS. § 87(1).

On September 27, 2023, the OCM adopted and/or amended regulations for the adult use market (“the Adult Use Regulations”) as to how applications, including SEE applications, will be reviewed and selected. Dkt. No. 1 at ¶ 13 (citing 9 NYCRR §§ 118-21, 123-25, 131).^[13] The Adult Use Regulations prioritize applications from individuals from CDIs. 9 NYCRR § 121.1(d). An applicant qualifies as an individual from a CDI if the applicant can show: (1) ownership and sole control^[14] over the applicant by one or more individuals from communities disproportionally impacted; and (2) one or more individuals that have an ownership interest in the business have resided in a community disproportionately impacted for an aggregate of five of the first 18 years of their life or an aggregate of seven years of their life. Id. An individual from a CDI does not need to be from New York to qualify for priority as a SEE Applicant. Dkt. No. 27 at ¶¶ 32-33 (citing 9 NYCRR § 121.1(e)); see also id. at ¶¶ 34-37 (noting that the Office provides guidance on its website that residents of any state are eligible to apply for SEE status if they lived in a CDI).

Additionally, under the Adult Use Regulations the Board must give “extra priority” to a SEE Applicant if a majority owner:

(i) [has] an income lower than eighty percent (80%) of the median income of the county in which the applicant resides; and (ii) was convicted of a marihuana-related offense [under New York law] prior to the effective date of the Marihuana Regulation and Taxation Act [March 31, 2021], or had a parent, guardian, child, spouse, or dependent, or was a dependent of an individual who, prior to the effective date of the Marihuana Regulation and Taxation Act, was convicted of a marihuana-related offense [under New York Law].

9 NYCRR § 121.1(k) (emphasis added).^[15] While the Adult Use Regulations require that an owner or their relative have a marihuana-related conviction under New York law, they do not require that the applicant or their relative be a New York resident. Dkt. No. 27 at ¶ 55.^[16]

3. The November and December 2023 Adult Use Application Process

The application window for Adult Use Licenses for all types of applications (i.e., non priority, priority, and extra priority) opened on October 4, 2023. Dkt. No. 26 at ¶ 26. The application window “for applicants seeking a retail dispensary license with proof of control over a proposed premises from which they intend to operate” closed on November 17, 2023 (the “November Applications”). Id.^[17] The application window for applicants seeking “a provisional license without proof of control over a premises” closed on December 18, 2023 (the “December Applications”). Id.^[18]

On “December 7, 2023, the Office randomly ordered the...