A federal judge denied motions to drop an injunction that bars New York from issuing conditional dispensary licenses in five regions, extending uncertainty surrounding the program in particular, and state cannabis markets in general.
The Tuesday decision is the latest action in a lawsuit filed against the state by Variscite NY One, a Michigan company which alleges New York’s Conditional Adult-Use Retail Dispensary (CAURD) license requirements discriminate against out-of-state cannabis operators in violation of the federal legal theory called the Dormant Commerce Clause.
In his decision on the state’s motion to dismiss the case – or at least narrow the enjoinment to a smaller geographic area – U.S. District Judge Gary Sharpe wrote the state didn’t meet standards to reverse or mitigate any part of his November decision.
“Defendants’ arguments regarding irreparable harm to them, the relative lack of harm Variscite faces, and the public interest are … unpersuasive,” Sharpe wrote, and denied the Office of Cannabis Management’s motion for a stay of the November order.
Variscite filed suit late last year, after the state found it was ineligible for CAURD because the company is 51% owned by an individual who has no significant connection to New York and who has a cannabis conviction in Michigan. CAURD rules require an applicant must have been convicted of a cannabis crime in New York and have a “significant presence” here.
This violates the Dormant Commerce Clause, the plaintiff argues, because the clause prohibits states from passing legislation that discriminates against or excessively burdens interstate commerce.
In November, Sharpe issued an injunction preventing New York to issue CAURD licenses in five of the 14 regions in which the agency is licensing CAURD dispensaries. The injunction applies to applicants in the Finger Lakes, Central New York, Western New York, Mid-Hudson and Brooklyn.
Sharpe’s decisions have thrown a serious wrench into the CAURD program, and raise questions about whether the Dormant Commerce Clause invalidates state-based cannabis programs in general. Cannabis legalization statutes in New York and other states bar interstate commerce for weed, but legal experts have said that flies in the face of the commerce clause, which is designed to prevent states from barring imports or exports of legal goods to or from other states.
NY Cannabis Insider reported in August about a ruling out of a federal Court of Appeals in Maine, in which two of three judges on a panel struck down the state’s requirement for medical marijuana company owners to be state residents, citing the Dormant Commerce Clause.
Back then, Robert Mikos, a law professor at Vanderbilt University and expert in federalism and drug law, said he thought “the writing’s on the wall” for a successful challenge to the CAURD program. He argued New York’s requirement of a New York marijuana conviction and residency is in conflict with the federal commerce doctrine.
However, attorney David Holland doubts Sharpe’s decision would survive an appeal. Holland, a partner in the Massachusetts and New York-based law firm of Prince Lobel & Tye and president of the New York City Cannabis Industry Association, said he’s not sure the Dormant Commerce argument applies in this case.
The CAURD program requires applicants to have been convicted of a cannabis crime in the state of New York before the MRTA was passed, Holland said. The state made this a requirement as part of an effort at restorative justice toward people who the state of New York harmed via cannabis enforcement.
Because the program was created to benefit a specific group of people who were harmed by the state, and there’s no requirement for these people to reside in New York, Holland believes the Dormant Commerce Clause shouldn’t apply.
“I don’t know that this is a decision of Judge Sharpe that will be held up by the second circuit, and I wouldn’t be surprised if the Office of Cannabis Management decides to pursue the appeal despite the injunction,” Holland said.
H/T: www.syracuse.com
