Court Grants Injunction Against Issuing CAURD Licenses in Five NYS Regions

Court Grants Injunction Against Issuing CAURD Licenses in Five NYS Regions

by Julia Evans

November 28, 2022

On November 10, 2022, U.S. District Court Judge Gary L. Sharpe of the New York Northern District granted a preliminary injunction against the State of New York (“NYS”), the N.Y.S. Office of Cannabis Management (“OCM”), and Christopher Alexander as Executive Director of OCM (collectively the “Defendants”), enjoining the Defendants from issuing any cannabis licenses under the CAURD application program in the following geographic areas: Finger Lakes; Central New York; Western New York, Mid-Hudson; and Brooklyn during the pendency of the litigation commenced by Michigan-based Plaintiff, Variscite NY One, Inc., alleging a violation of the Dormant Commerce Clause.

Plaintiff Variscite NY One, Inc. filed a Motion for Preliminary Injunction and Temporary Restraining Order on October 4, 2022 against the Defendants arguing that the CAURD application program discriminates against interstate commerce. The court agreed, finding that the CAURD application requirements, specifically the rule requiring “significant presence” of the applicant in NYS and the rule requiring the justice involved individual have a NYS marijuana-related conviction, will have a discriminatory effect on out-of-state residents seeking a CAURD license. 

The Northern District evaluated whether the discriminatory cannabis law was narrowly tailored to advance a legitimate local purpose, as that would allow this challenged law to survive scrutiny. Unfortunately, Defendants failed to make a showing that the challenged law was narrowly tailored. Plaintiff argued and the court agreed that Plaintiff would be irreparably harmed by being excluded from the NYS retail cannabis market, and that even if it could join at a later date, all advantages to early entrants in the market, such as access to customers who have not developed loyalty to other businesses, will have been claimed. Defendants argued that if the injunction is ordered, the 261 already State licensed cannabis cultivators who have already grown cannabis would face spoilation or diversion into the illicit market and would delay the enactment of the Cannabis Law and Regulations which will allow the illicit market to continue to thrive. Despite this, the court found that the Plaintiff would suffer more egregiously in the absence of the injunction as OCM had not yet begun issuing licenses and as they were not enjoined from issuing licenses to the eight other regions in NYS. Finally, the court found that there is no public interest served by maintaining an unconstitutional policy when constitutional alternatives are available to achieve the same goal. 

The grant of this preliminary injunction does not enjoin OCM from issuing CAURD licenses in the following districts: Capital Region; Long Island; Manhattan; Mohawk Valley; North Country; Queens; Southern Tier; and Staten Island. In fact, in a Cannabis Control Board Meeting having occurred on November 21, 2022, OCM issued 36 CAURD licenses to applicants within New York City (excluding Brooklyn), Capital Region, Southern Tier, Mohawk Valley, Long Island, and North Country. Although the current litigation blocked the release of 63 CAURD licenses from the enjoined regions, OCM stuck to its word wherein these 36 CAURD dispensaries are projected to open for business before the new year. 

In response to the injunction, OCM made its own motion requesting the modification of the preliminary injunction, or in the alternative, requesting a stay of the litigation pending appeal. OCM’s Director of Operations, Herb Barbot, submitted a supplemental declaration alongside the motion, arguing that because the geographic area covered by the injunction includes a significant amount of license applicants, the injunction is doing more harm than good when OCM only considers geographic locations after the applicant’s first choice in limited circumstances. OCM argues that the preliminary injunction should be narrowed to Plaintiff’s first geographic choice only, the Finger Lakes region. Further, OCM claims that the modification of the injunction is necessary to prevent manifest injustice specifically to the cultivators in the Central New York, Western New York, Mid-Hudson, and Brooklyn regions relying on the CAURD program. These cultivators will have immense difficulty selling their retail harvest product with the injunction as it currently stands. 

The Plaintiff here has a chance to oppose OCM’s motion, and the Court will then decide whether to limit the preliminary injunction as requested. OCM has made known that if the Court does not modify the injunction, they will be appealing. We are watching closely to see how this litigation will affect not only the currently enjoined regions and their CAURD applicants’ access to dispensary licenses, but also the already licensed cultivators and processors looking to pass their cannabis product down an incomplete supply chain. Inevitably, problems for current licensees and CAURD applicants will arise no matter the outcome of this litigation. If you have any questions or any other cannabis-related matters, please Contact Us.