In a landmark ruling issued in August 2025, the U.S. Court of Appeals for the Second Circuit struck down New York State’s cannabis licensing preferences that favored residents with prior in-state marijuana convictions. The court found that the system violates the Dormant Commerce Clause of the U.S. Constitution, which prohibits states from enacting laws that discriminate against out-of-state commerce.
The Legal Challenge
New York’s adult-use cannabis program was designed to advance social equity by prioritizing applicants who had been directly affected by past cannabis criminalization. Applicants who met three conditions—living in a disproportionately impacted community, earning below 80 percent of the county’s median income, and having a cannabis conviction in New York or a close relative with one—were given “Extra Priority” in the licensing process.
However, businesses and individuals from outside the state argued that this framework unfairly excluded them, even when they had similar experiences with cannabis convictions elsewhere. Two applicants, Variscite NY Four and Variscite NY Five, brought the case to federal court, claiming the system effectively created a protectionist barrier against non-New York residents.
A lower court had previously sided with the state, ruling that the Dormant Commerce Clause did not apply because cannabis remains illegal under federal law. The Second Circuit reversed that decision, stating that constitutional protections against economic discrimination still apply—even in industries that are federally prohibited.
The Court’s Reasoning
In its decision, the appellate court wrote that New York’s approach amounted to “economic protectionism disguised as restorative justice.” The judges emphasized that while states can pursue equity goals, they cannot do so by favoring in-state residents at the expense of others. The ruling found that Congress had not given New York—or any state—the authority to enact such protectionist policies.
The decision invalidates the portion of the state’s cannabis licensing program that grants special consideration to applicants with New York-based convictions. The case has been sent back to the lower court for further proceedings consistent with the appellate ruling.
Implications for the Cannabis Industry
This decision represents a major turning point in how courts interpret state-level cannabis regulations. It reinforces the principle that constitutional commerce protections remain in force, even within the cannabis market. Legal experts predict that the ruling will influence similar cases across the country, where states have implemented “locals-first” policies intended to foster social equity.
For New York regulators, the ruling poses an immediate challenge. The state’s cannabis program may now require substantial revision to ensure that its licensing framework meets constitutional standards. Advocates warn that while the decision may complicate equity efforts, it also pushes states toward designing fairer, more inclusive systems that don’t rely on residency-based criteria.
Ultimately, the ruling highlights a growing tension in U.S. cannabis law—between the states’ desire to promote local opportunity and the Constitution’s demand for open and equal access to commerce.
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