On August 18, 2023, a New York Supreme Court judge has enjoined New York cannabis regulators from further processing, approving, or investigating any new or pending applications for a state conditional adult-use retail dispensary (CAURD) license, leaving New York’s nascent adult-use cannabis market in limbo.

The CAURD program is the only avenue available to cannabis entrepreneurs who wish to operate an adult-use marijuana dispensary as permitted by the New York Marihuana Regulation and Taxation Act (MRTA), the 2021 state law that legalized the commercial sale of marijuana for recreational purposes in New York state.

Created by the New York Office of Cannabis Management (OCM), which is charged under the MRTA with regulating the adult-use and medical marijuana market in New York under the oversight of the New York Cannabis Control Board (CCB), the CAURD program made New York’s initial adult-use dispensary licenses available only to applicants under sole or (if an entity) at least 30% ownership by a “justice involved” individual with “qualifying business experience.” Earlier this month, a group of service-disabled veterans who intended to pursue adult-use cannabis licenses filed a lawsuit against the OCM and CCB, alleging that the CAURD program regulation was invalid because the MRTA requires regulators to simultaneously open the licensing process to all social equity applicants — a group that under the MRTA includes women, minorities, and service-disabled veterans, in addition to “justice-involved” individuals.

New York Supreme Court Judge Kevin R. Bryant entered a temporary restraining order against the CAURD program on August 7, at the outset of the litigation, in which state cannabis regulators are represented by the office of New York Attorney General Leticia James. In his August 18 order enjoining any further issuance of CAURD licenses pending the outcome of the plaintiffs’ lawsuit, Judge Bryant, among other things, held that the plaintiffs are likely to prevail on their contention that the CAURD regulatory scheme exceeds the authority of the OCM and CCB under the MRTA. He ordered that a meeting of the CCB be convened “forthwith to begin finalizing applicable regulations for Adult Use Cannabis Licenses as set forth in Article 4 of the MRTA.”

Judge Bryant’s order, however, exempts licensees “who, prior to August 7, 2023, met all requirements for licensing, including but not limited to site plan approval from the CCB and, where applicable, from local municipalities.” He required the CCB and OCM to produce a list of such licensees by August 22, and set a deadline of August 24 to object to the exemption of any licensee.

The veterans’ lawsuit is not the first challenge to the legality of New York’s retail cannabis licensing scheme, which was also contested in a since-settled 2022 lawsuit filed in the U.S. District Court for the Northern District of New York, alleging that the program violated the dormant commerce clause to the U.S. Constitution by excluding out-of-state participants. According to Judge Bryant’s order, the CAURD program is also the subject of a pending state court action filed by a coalition that includes New York medical cannabis operators, who contend that the program violates separation-of-powers principles under the New York State Constitution.

Why It Matters

The New York Supreme Court’s issuance of the August 18 preliminary injunction creates considerable uncertainty regarding when New York, a significant retail cannabis market, may begin licensing recreational cannabis dispensaries in conformance with the 2021 act legalizing the retail sale of marijuana products in the Empire State, which has seen unlicensed sellers flourish amid the CAURD program’s legal struggles.

Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.

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	Ashley Taylor – Co-leader and Firm Vice Chair Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation.
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