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Federal Judge Upholds Block on Certain New York Cannabis Licenses

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The New York Office of Cannabis Management had filed a motion in November 2022 to reconsider a federal judge’s freeze on adult-use cannabis licenses in five regions of the state. The state regulatory office is presently allowed to issue licenses in nine regions across the state, but those other five—the Finger Lakes, Central New York, Western New York, Mid-Hudson and Brooklyn—are hung up in court.

On Jan. 31, Judge Gary Sharpe of the Northern District of New York denied the OCM’s motion and kept the block on those five regions in place.

Sharpe also denied the office’s motion to dismiss the lawsuit outright. Read the full decision below.

Those latest decisions stem from Variscite NY One’s Sept. 26, 2022, complaint that the New York Office of Cannabis Management was violating the dormant Commerce Clause by enacting an allegedly “unconstitutional” licensing process.

READ MORE: New York’s Cannabis Licenses Latest Target of Commerce Clause

The crux of the issue in this case is that 51% of the ownership of Variscite NY One hails from Michigan, and the company points out that OCM is privileging New York residency over out-of-state ownership. Rather than wait for a response to the company’s license application (one would assume the company is bracing for rejection), Variscite has taken the matter to court. “Waiting until the application is formally denied would leave Variscite in a position where it would be ‘inequitable for the court to issue an injunction, clawing back licenses from other applicants,’” Sharpe wrote, quoting Variscite.


U.S. Court, Northern District of New York

Five of the 14 regions in New York, as outlined by the Office of Cannabis Management, are now blocked from the office’s licensing process.

Indeed, portions of Sharpe’s Jan. 31 decision had more to do with timing than with the merits of Variscite NY One’s actual application for retail licensure—which is being left, ultimately, to the OCM.

“Variscite is not seeking a license from the court, but, rather, judgement restraining [the OCM] from ‘enforcing any portions of the Cannabis Law or Cannabis Regulations that favor New York residents over out-of-state residents,’ and a declaration that certain portions of the law and regulations violate the dormant Commerce Clause … relief which the court can provide,” Sharpe wrote.

Michael Sampson and Philip Simpson, attorneys at Leech Tishman, addressed the dormant Commerce Clause in an article published when Sharpe initially blocked licensed in those five regions. In short, the dormant Commerce Clause overrides state laws that would affect interstate commerce and invalidates specific “protectionist” state law (in Supreme Court Justice Samuel Alito’s verbiage)—two issues baked into the fragmented U.S. cannabis industry, of course. 

Cases like Variscite’s lawsuit are only throwing more scrutiny on this federal clause.

“If and when federal legalization occurs, new dormant Commerce Clause challenges are likely to arise,” Sampson and Simpson wrote. “At that time, state regulations and restrictions—concerning matters such as additives, packaging, and labeling—could be challenged as unconstitutionally burdening interstate commerce. And, at that time, there also may be challenges to whether a state can require that all cannabis sold in the state be grown in the state. It is, therefore, important that participants in the cannabis industry in New York and across the United States continue to pay attention to dormant Commerce Clause-related developments in the states, the U.S. Congress, and the courts.”

Order: Variscite NY One v State of NY by sandydocs on Scribd


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