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.

Troutman Pepper State Attorneys General Team

	Ashley Taylor – Co-leader and Firm Vice Chair Ashley is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. He focuses primarily on federal and state government regulatory and enforcement matters involving state attorneys general, the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC). Drawing upon his experience as a deputy attorney general, Ashley has developed an extensive consumer practice with regard to the consumer financial services industry.
	Clay Friedman – Co-leader Clay is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. Informed by nearly a decade in a state attorneys general office, and more than 25 years in private practice, Clay spends much of his time representing clients in singular or multistate regulatory actions. Clay has repeatedly led teams before all 50 state attorneys general and also handles matters with the Federal Trade Commission, the Consumer Financial Protection Bureau, and other local, state and federal agencies.
	Judy Jagdmann Judy is a partner in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice, based in the Richmond office. She brings experience serving as chair and commissioner of the Virginia State Corporate Commission (VSCC) from 2006 through 2022, which includes regulating the utilities, insurance, banking, and securities industries. She also served as Virginia’s attorney general from 2005-2006.
	Stephen Piepgrass Stephen represents clients interacting with, and being investigated by, state attorneys general and other enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, particularly in heavily regulated industries.
	Avi Schick A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies.
	Michael Yaghi Michael handles high-profile state attorneys general, FTC, and CFPB investigations by advising clients through these complex government inquiries. He assists clients through the entire life cycle of investigations, from regulatory enforcement through formal litigation.
	Ketan Bhirud As a former government official at the state and federal level, Ketan leverages extensive experience in the public and private sectors to skillfully represent client interests.
	Tim Bado Tim is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, with a primary focus on financial services litigation.
	Chris Carlson Chris represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
	Natalia Jacobo Natalia is an associate in the firm’s business litigation practice. She recently received her J.D from the University of California, Davis School of Law.
	Namrata Kang Namrata is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. Her work includes advising clients in regulatory investigations and compliance matters, in addition to representing clients in civil litigation matters.
	Michael Lafleur Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general.
	Susan Nikdel Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes. Susan also represents banks, fintechs, and financial services companies in connection with regulatory examinations and investigations brought by the CFPB, state attorneys general, and the California Department of Financial Protection and Innovation.
	John Sample John represents clients in a wide variety of general and complex litigation matters, shareholder disputes, products liability, and privacy claims.
	Whitney Shephard Whitney is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation.
	Trey Smith Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement practice. His experience includes serving as a summer associate at the firm in 2021.
	Daniel Waltz An experienced litigator, Daniel advises and represents regional, national and international companies, financial institutions and insurers in all facets of business, complex commercial and insurance coverage litigation. He is committed to working with his clients to find creative solutions to meet their needs.
	Stephanie Kozol Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department.