New York's Rollout Of Its Adult-Use Cannabis Program Hits Another Snag

• Published date: 12 December 2022
• Subject Matter: Government, Public Sector, Cannabis & Hemp, Constitutional & Administrative Law
• Law Firm: Carter Ledyard & Milburn
• Author: Mr Alexander Malyshev

As we previously covered in these pages, the story of New York's adult-use cannabis legalization is a long and tortured one. After numerous false starts, the Marihuana Regulation & Taxation Act (MRTA) was signed into law on March 31, 2021. Yet, almost two years later, there are still no legal sales of adult-use cannabis in New York. This, in turn, has led to a proliferation of unlicensed cannabis retail shops'euphemistically referred to as the 'grey market'even though '136 of the MRTA refers to such untaxed cannabis as 'illicit cannabis.' Recently, reports have circulated that a crackdown has begun in some parts of New York City on both trucks and 'smoke shops' selling such illicit cannabis (leading to at least two arrest). The proposed adult-use regulations, published on Nov. 21, 2022, warn that the sale of such illicit cannabis may preclude the award or renewal of licenses. See Proposed Rule '120.12(a)(9) (License Denials).

A delay was to be expected since the MRTA required the establishment of an entirely new bureaucracy'the Office of Cannabis Management (OCM)'and the promulgation of rules and regulations for the various tiers of the industry (cultivation, manufacture, distribution and retail). But at least some of the delay is attributable to New York's decision to prioritize its social equity through its Seeding Opportunity initiative, which was designed to give 'justice involved' social equity applicants a first mover advantage through the Conditional Adult-Use Retail Dispensary (CAURD) program. In essence, this meant that, by design, retail licenses in 2022 would only be awarded to New Yorkers who have been impacted by the war on drugs (generally through a conviction for marijuana related offenses), while cultivation licenses were awarded to existing participants in the hemp cultivation program in order to create supply for these dispensaries. As noted, the proposed rules for the wider program were published on Nov. 21, 2022, and as a result will not become final until January 2023 (after the 60-day comment period ends). A timeline for opening the application window for that program has not yet been announced.

In the meantime, the CAURD program ran into its first major hurdle on Nov. 10, 2022, when a federal judge in the Northern District of New York found that it ran afoul of the dormant commerce clause of the U.S. Constitution because it discriminates against out of state residents. As a result, Judge Sharpe issued an injunction, covering five out...