New York claps back at two cannabis lawsuits

The New York cannabis program has been under fire from several directions, but now it’s firing back at some of the targets. Two cases in particular received a response from the state this week:

• The crackdown on unlicensed cannabis shops
• The residency requirement for licenses

Unlicensed stores

The proliferation of unlicensed cannabis stores in New York, especially in New York City, has caused unwanted competition for licensed dispensaries. It has also robbed the city and state of tax revenues from the sale of cannabis products. So officials started cracking down.

In response to the crackdown, a lawsuit was filed against the state by 27 businesses that were selling cannabis illegally. They claimed that padlocking the stores was unconstitutional because there was no judicial review or court order.

“The execution and enforcement of the SMOKEOUT Act, by the Sheriff, with the limited administrative review by OATH [Office of Administrative Trials and Hearings], has resulted in the unconstitutional closure of hundreds of businesses, including the Plaintiffs, throughout New York City,” according to the lawsuit.

In a response to the request for injunction, the city filed a memorandum with the courts noting that the plaintiffs can ask the Sheriff’s department to reopen “at any time” as long as they don’t illegally sell cannabis. The filing also states that while the businesses can petition the court to reopen, their alleged harms are purely financial, which isn’t irreparable.

The city said that because these stores are selling untested, unlicensed, and unlabeled products, they are harming the residents of the city, which outweighs their claims of financial harm. The memorandum also states that these businesses targeted minors with packaging resembling candy and popular snack foods, and by doing so, they risked the safety of those minors.

Residency requirement

The other case that triggered a formal response this week revolved around the dormant commerce clause. In that case, Variscite 4 and Variscite 5 claimed that the requirement of the licensees to be residents in the state conflicted with interstate commerce laws.

Green Market Report wrote in January that the federal lawsuit filed just a week before Christmas formally requested a temporary restraining order and a preliminary injunction to force the court to act quickly on another potential retail licensing freeze. That restraining order was denied, but the case is still ongoing.

This week, New York’s Cannabis Control Board responded, asserting in its filing that since Congress still believes cannabis is federally illegal, the commerce clause can’t be applied.

The brief also states that while the Variscite parties did apply and receive queue numbers, the number of issued licenses was limited, which is ultimately why they didn’t get licenses.

The most recent windows to apply for licenses were in November and December of 2023. The numbers of applications were overwhelming for the understaffed agency to review and many applications were not approved.

The New York Office of Cannabis Management also said in the brief that since there were so many unapproved applications in the windows, parties could ask for application refunds.