ALBANY — A lawsuit filed Monday on behalf of the Cannabis Farmers Alliance accuses the state Office of Cannabis Management and Cannabis Control Board of pushing growers with small operations to the brink of financial ruin as their industry faces potential collapse.
The lawsuit alleges that the “OCM’S rollout of legalized cannabis in New York has been disastrous” and that regulators ignored public concerns about its rules that have handicapped the industry’s early stakeholders, many of whom leveraged nearly all of their assets to invest in a share of the nascent market.
Despite licensed growers’ harvested products being ready for sale, a lack of sufficient retailers has contributed to their financial struggles while an illicit marketplace has boomed across the state over the past three years, even with increased enforcement efforts.
The goal had been for cannabis growers and state regulators to “move in lockstep. However, that is far from the case,” according to the lawsuit.
The distress of the farmers is not unknown to state cannabis regulators, who have previously learned of their troubles during numerous public hearings over the past several years. Many have also described how their mental health has been harmed by their stress that was exacerbated by the bungled rollout.
Chris Alexander, the former executive director of the state Office of Cannabis Management, left in May after he was asked by Gov. Kathy Hochul to step down following a more than monthlong review of the office.
That outside review of the embattled cannabis agency’s operations revealed widespread problems and also triggered what state officials said would be a major overhaul of the office. Numerous lawsuits that successfully challenged the constitutionality of New York’s cannabis regulations, as well as the office’s documented poor communication with stakeholders and a stalled licensing system, had hobbled the establishment of the retail marijuana industry.
But even after an overhaul and leadership shakeup, the lawsuit alleges the strife of small farmers and others is continuing.
“The Cannabis Farmers Alliance is taking this action to hold the Office of Cannabis Management accountable for its failed regulatory rollout, which has devastated New York’s small cannabis farmers,” said Dean DiPilato, an attorney whose Onondaga County firm, Centolella Law, represents the not-for-profit farmers alliance. “We are fighting to ensure a fair, transparent, and lawful cannabis market where New York farmers can thrive, as envisioned by New York’s cannabis laws.”
The lawsuit asserts that “small cannabis farmers in New York are facing severe financial distress, with 97% operating at a loss, nearly two-thirds under a 1% profit margin, and over 90% in need of operating funds to maintain solvency. … Without relief, the industry is at risk of collapse.”
Joseph Calderone, president of the Cannabis Farmers Alliance, said the lawsuit was necessary as they’d “exhausted all other means to negotiate in good faith with the Cannabis Control Board in the state.”
“When you’re talking about over 90% of your membership either failing or working on fumes, then you know that it’s not a business issue,” Calderone said. “It’s a policy issue.”
Calderone mentioned that there are plenty of success stories, even within the group’s membership, involving cannabis farmers. But he also has 81 testimonials from last September detailing how the rollout has affected farmers’ finances, health, home and personal relationships.
Calderone was part of the effort to secure relief funds for cannabis farmers. He says despite a relief package being passed granting $128 million from the Senate and $80 million from the Assembly, it didn’t aid the growers.
“The governor just flat out rejected that because she was more interested in enforcement and allocated the millions for enforcement to close all the sticker store and bodegas,” Calderone said.
The OCM’s original goal was to grant 50% of licenses to small businesses to ensure the industry reflects the state’s demographics and to avoid market dominance. But the lawsuit alleges that the “OCM has allowed other entities and groups of licenses free reign at dominating the market, in clear violation of cannabis laws.”
The lawsuit also alleges that cannabis regulators are now granting licenses without considering the impact on the marketplace. The Cannabis Control Board passed a resolution last month granting more than 100 licenses to applicants while the current license holders are already struggling to find outlets for their product.
“These new licensees include dozens of entities with the same license type as CFA’s members, despite the fact that the CFA members are financially distressed and risk becoming financially insolvent due to the increase in licenses to competing entities,” states the complaint, which was filed in state Supreme Court in Onondaga County.
Because of how the cannabis industry, particularly growers, have struggled during the rollout, the farmers alliance has asked for relief funds to support struggling growers. The group has also pressed lawmakers to redefine cannabis as an agricultural crop to grant them the same protections as farmers who grow other crops.
Recreational cannabis was legalized for adults 21 and over in March 2021 when former Gov. Andrew M. Cuomo signed the Marihuana Regulation and Taxation Act into law.
The OCM released the first draft of proposed regulations on Dec. 14, 2022, which the lawsuit says contained “provisions that would directly affect, and in some cases severely handicap, participants at all levels of the cannabis industry — from growers to dispensaries.” Revised regulations were released on June 14, 2023, though the lawsuit alleges they did not address the concerns that arose from public comments made following the first draft.
Members of the cannabis industry have been expressing concern about the industry’s regulations and structure for several years.
In April, a state Supreme Court justice issued an order striking down New York’s oft-embattled cannabis regulations as the result of a case filed last year by a Seattle company that provides third-party marketing for marijuana businesses. That case had challenged the constitutionality of the state’s ban on certain types of advertising. The petitioners in that case included a New York cannabis consumer and a retail shop owner.
The lawsuit filed Monday, which cited that prior decision by state Supreme Court Justice Kevin R. Bryant, says that “regulatory decisions have been repeatedly and successfully challenged in court and its enforcement failures have allowed illicit dispensaries to supply products of unknown quality and safety to New York’s consumers,” which it alleges have had negative impacts on participants in the industry at all levels.
The complaint also notes that the outside investigation of the Office of Cannabis Management conducted earlier this year found serious staffing problems with over 55 critical positions left vacant and no internal controls. A lack of transparency, lackluster communication and little guidance for operational decisions also were highlighted in the report, which was issued by Jeanette Moy, commissioner of the state Office of General Services.
The lawsuit, among other claims, seeks a declaration that cannabis regulators have failed to adhere to the mandates of the law while creating a retail marketplace. It also seeks an injunction requiring them “to properly oversee the number of registrations, licenses and permits in a manner that prioritizes social and economic equity and considers small business opportunities and concerns.”
“We’re hoping that it will finally open the eyes of the regulators to listen to the farmers and to the supply side to act in good faith and listen to what our needs are,” Calderone said. “Because what affects the supply side affects the entire industry.”
Officials with the state Office of Cannabis Management have said they will not comment on pending litigation.
H/T: www.timesunion.com
