This guest column was written by david hollandlaw firm partner Prince Lobel Tye.
Prince Lobel Tye LLP is a Massachusetts and New York law firm with significant cannabis clients in both markets as well as in other states. On the eve of the issuance of Conditional Adult Dispensary (“CAURD”) licenses, we urge the Cannabis Control Board (“CCB”) and Office of Cannabis Management (“OCM”) to clarify and/or partially withdraw their decision of November 8, 2022, Revised Guidelines for Adult Use Retail Clinics in the Empire State (the “Guidelines”).
While the CCB and OCM have the best intentions of protecting and promoting New York’s deployment of its conditional and unconditional adult-use retail dispensary licenses, serious concerns arise regarding paragraph 34 of the guidelines. These guidelines are contrary to the express provisions of the Marihuana Regulation and Taxation Act (“MRTA”), are unconstitutional, and invite litigation that will delay the opening of the New York market.
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The MRTA, which legalized adult cannabis use in New York, includes individuals and entities who have operated successfully elsewhere to ensure that the domestic market would thrive through the collective experience of market participants outside the State. The legislative findings of the MRTA state:
“The intent of this law is to regulate, control and tax marihuana, … generate significant new revenue, make substantial investments in the communities and people most affected by the criminalization of cannabis to address the collateral consequences of such criminalization, … create new industries, protect the environment, improve the state’s resilience to climate change, protect the public health, safety and welfare of the state’s population, increase the employment and strengthen New York’s agricultural sector.
The MRTA allows holding licenses at more than one level. For example, licensed growers can also obtain a processor’s license (Art. I §3(19), Art. 4 §68(3)), and licensed processors can obtain distributor’s licenses (Art. 4 §68( 3), Art 4 §69(1) and (5)), provided that they only process and distribute their own product. Below is a table of licenses permitted under the MRTA:
Paragraph 34 of the Nov. 8 guidelines aims to limit “undue influence” on cannabis retailers by preventing an entity at one license level from influencing the actions of an entity at another level. Although this is a legitimate aim, the legal problem stems from the part of the provision which states:
“Retail dispensaries, their genuine interested parties, passive investors and any management service provider may not have any interest in any business anywhere grows, processes or distributes cannabis. [Emphasis Added].
Paragraph 34 goes on to explain that applicants with such an interest across the license tiers, “no matter how small that interest, will not be approved” and if approved, may face revocation of their license. if a “prohibited interest” is subsequently discovered. This is not only against the licensing scheme in the table above, but it is unconstitutional.
The Commerce Clause set forth in Article 1, Section 8, Clause 3 of the United States Constitution gives Congress the power “to regulate commerce with foreign nations, and between the several States, and with Indian tribes” . The Dormant Commerce Clause refers to the prohibition, implicit in the Commerce Clause, of state laws or regulations that discriminate against or unduly burden interstate commerce.
Paragraph 34 lays out New York’s guidelines for federal challenge and avoidance under the dormant trade clause, as the explicit language impermissibly prohibits”any“licensed operator”everywhere” in the United States or abroad to enter or obtain a dispensary license in New York.
Recent federal decisions on these issues in Northeast Patients Group v. United Cannabis Patients and Caregivers of Maine45 F.4th 542 (1st Cir., Aug. 17, 2022), and Variscite NY One, Inc. v. New York State, NDNY No. 22-CV-01013, ECF Doc. #23, November 10, 2022, found that state actions to prevent out-of-state operators from entering their domestic cannabis market violate the dormant trade clause. Good intentions aside, state protectionism at the expense of foreign participation is unconstitutional and subject to judicial intervention and injunction.
Excluding out-of-state operators from the emerging New York market will impede the state’s stated interests in creating jobs, growing industry, improving communities, and increasing tax revenue. . Indeed, the MTRA editors could not have intended to exclude these foreign entities, since non-New York entities that have a significant presence in New York (but interests outside of it) are included in the definition of “plaintiff” of the law:
“Applicant”…means a person applying for a cannabis license or permit…issued by the New York State Cannabis Control Board…who: has a significant presence in New York State, either individually, either by having a main registered office in the State; is incorporated or otherwise organized under the laws of that state; or the majority of the owners are residents of that state. »
Prince Lobel Tye LLP has established cannabis clients of all sizes who have foreign ownership interests who have submitted CAURD applications or are preparing to apply for a license when the application window opens. Their expertise and business acumen are key to the mix that will contribute to the success of New York’s emerging cannabis industry. Their inclusion in state-licensed industry helps achieve the ambition and scope of the MRTA by ensuring the creation of opportunities, the improvement of communities, the generation of tax revenues and the repair of significant damage and collateral consequences of the war on drugs.
The persistence of Paragraph 34, notwithstanding the express provisions of the MRTA and the court decisions cited above, will certainly cause significant delays and financial hardship in New York’s rollout of its legalized cannabis market.
Prince Lobel urges the CCB and CMO to clarify and/or remove the prohibitions contained in paragraph 34 of the November 8 guidelines.