Court Grants TRO Prohibiting the OCM and the NYS Cannabis Control Board from Awarding More CAURD Licenses For At Least Two Weeks

Foley Hoag LLP - Cannabis and the Law

Foley Hoag LLP - Cannabis and the Law

A group of four military veterans filed a lawsuit two weeks ago in New York State Supreme Court against the New York’s Office of Cannabis Management (“OCM”), claiming that the agency’s rules that prioritize applicants with prior cannabis convictions for dispensary licenses violate the NY Marijuana Regulation and Taxation Act (“MRTA”).

In our recent blog post, we discussed Fiore et al. v. NYS Cannabis Control Board et al., where the plaintiffs sought and received a temporary restraining order barring OCM from issuing, or further processing applications for licenses, or from conferring operational approval upon any other Conditional Adult-Use Retail Dispensary (“CAURD”) program, which have been reserved for applicants with a New York state cannabis-related criminal conviction and a record of profitable business ownership. On August 7, 2023, the court granted a temporary restraining order (“TRO”), prohibiting the OCM and the NYS Cannabis Control Board (“CCB”) from “awarding or further processing any more CAURD licenses and/or conferring operational approval upon any more provisional or existing CAURD licensees, pending further order” of the court. As of August 14th, there are 463 total CAURD licensees, of which 442 have not yet opened their doors and likely have not received OCM approval to begin operations.

In a complaint filed in the New York State Supreme Court, the four plaintiffs are seeking an order from the Court (i) declaring the CAURD program an ultra vires and unconstitutional licensing category that both violates the MRTA and New York’s separation of powers doctrine, and (ii) enjoining the state indefinitely from “awarding or further processing any more CAURD licenses and/or from authorizing any more CAURD licensees to open adult-use retail dispensaries”.

The CCB and OCM’s response, filed on Wednesday August 9, first argued that there is no irreparable harm as the allegations of “critical time” and “valuable retail locations” lost are not concrete and even if they can be proven, would only amount to monetary damages. The defendants continued their argument by stating that the CAURD program is consistent with MRTA as Article 2 of the law give the CCB the rulemaking authority to recognize and provide for the issuance of other license types to be approved. The defendants further argued that the CAURD program follows the legislative history and intent of MRTA, which is to “alleviate past deleterious impacts on individuals from justice-involved communities,” and that the legislature approved of the CAURD program through acknowledgement of its status and providing funding to cover cost of the program through the New York 2022-23 Aid to Localities Bill and the Transportation, Economic Development and Environmental Conservation 2022-23 Budget Bill.

Despite these indirect acknowledgments, the presiding judge, Justice Kevin Bryant, pressed the defendants who eventually conceded that there is no specific reference to the CAURD program in any legislation. The Defendants’ final argument stated that the plaintiffs’ delay in commencing the action is prejudicial to current CAURD licensees, many of whom are days or weeks away from opening, have invested significant capital, and have ongoing obligations to their landlords, lenders, employees, and other supply chain partners, and that an injunction’s impact on the program, as a whole, would be catastrophic. The defendants also highlighted that an injunction would backfire on the plaintiffs by causing OCM to fail to adopt the vast majority of regulations under the MRTA, which they otherwise expect to occur on September 12th with the application windowing opening October 4th. OCM intends to further delay the adoption of regulations (and the application window so that they have an opportunity to add specific definitions for the CAURD program, including but not limited to “Justice Involved Individuals”, which would cause a 2 ½-month delay. Counsel for several CAURDs appeared at the hearing to plead their case as well, which was particularly poignant for CAURDs who are within days or weeks of opening and will suffer incalculable losses given the commercially unrealistic “option” of mothballing operation that are on the cusp of launching in earnest or continuing to incur significant losses under an indefinite timeframe and an unclear future.

Justice Bryant ultimately extended the TRO for two more weeks until the next hearing, scheduled for August 25th. Both parties have until 5pm on Tuesday to file revised arguments. Perhaps the most important message from Justice Bryant was a strongly worded suggestion to the parties to privately negotiate a settlement prior to the August 25th hearing. So, it would not be far-fetched to think there will be a concrete resolution at any point between now and the 25th. One alternative potential ending to this story is that we see fast-tracked legislation from Albany, explicitly authorizing the CAURD program, an idea publicly suggested by Senator Jeremy Cooney, Chairman of the Senate Subcommittee on Cannabis. One thing is certain: the stakes are rising in New York for everyone.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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