Ruling Delays Cannabis Shops

Court order affects Beacon, Cold Spring and other areas

A federal judge last week ordered a temporary ban on cannabis retail licenses in the Mid-Hudson and four other regions in response to a lawsuit that accuses New York State of discriminating against out-of-state applicants. 

The lawsuit was filed by Variscite NY One, a company incorporated in Albany County but whose primary address is in Beverly Hills, California. Its majority owner is Kenneth Gay, a resident of Battle Creek, Michigan, who was convicted of a marijuana crime in that state. He and a partner are challenging New York’s criteria for retail licenses, including the decision to award the first permits to people with in-state marijuana convictions.

Judge Gary Sharpe of the U.S. District Court for the Northern District of New York issued his injunction on Nov. 10. It applies to five areas that Variscite selected as potential locations for its retail shop: the Mid-Hudson, where Beacon and Cold Spring are among the municipalities that will allow retail sales; Brooklyn; central New York; the Finger Lakes; and western New York. 

New York’s Office of Cannabis Management (OCM), which oversees the state’s recreational marijuana market, is preparing to issue 150 licenses, including up to 17 in the Mid-Hudson, for its conditional adult-use retail dispensary program (CAURD). 

The program prioritizes people with marijuana convictions and their spouses or dependents, and the highest-scoring applicants will sell New York’s first-ever recreational marijuana crop, harvested this summer and fall and estimated by the state at 300,000 pounds. Those first shops are expected to open as early as the end of next month. 

Dan Livingston, the executive director of the Cannabis Association of New York, which represents businesses in all phases of the supply chain, said the ruling will not stop the launch of retail cannabis sales because it affects just five of New York’s 14 regions. 

However, he said, “people are concerned about what this means for the larger rollout — if it portends more lawsuits to come that are going to sidetrack the program.” 

Under the state’s Marijuana and Taxation Act enacted in 2021, the criteria for the first batch of licenses are designed to benefit communities, primarily Black and Latino, in which justice advocates say residents were disproportionately arrested and prosecuted for marijuana offenses. 

Regulations approved in July specify that applicants must have had a marijuana-related conviction before March 31, 2021 (or be a parent, guardian, child, spouse or dependent of someone with a conviction before that date) and have experience owning and operating a business. Certain nonprofits that serve former prisoners can also apply. 

Applicants also must demonstrate “a significant presence” in New York, either by being a resident or incorporating a business in the state, and are awarded points if the owner’s address at the time of the conviction was low-income, public housing or in an area with high rates of marijuana arrests and convictions. 

Awardees will be eligible to lease space from the state and obtain loans through a $200 million fund. 

“They’re trying to remediate the harm that was done to a lot of communities and individuals over the decades it took to prosecute the war on drugs,” said Livingston.

Variscite submitted two applications to the program, the first as Variscite One, of which Gay owns 51 percent and Jeffrey Jensen, 49 percent; and the second as Variscite NY Two (with Gay holding 11 percent and a third partner, Scott Lambert, 40 percent). 

For both applications, the company checked “yes” when asked if its owner had a marijuana conviction in New York. 

Variscite One’s application has not been denied, but in its lawsuit Variscite NY Two challenges the requirement that applicants be “justice-involved” and have a significant presence in New York. 

Although Variscite’s incorporation in Albany County meets the “significant presence” criteria, the company says it believes that the Office of Cannabis Management will “score an applicant higher” if he or she lived in New York state when arrested or convicted, or in a low-income area or one with high rates of marijuana arrests. 

Sharpe, in his ruling, said that Variscite is “likely to succeed” on its claim that the state is violating the U.S. Constitution’s Commerce Clause, which is generally interpreted as preventing states from enacting laws that affect interstate commerce or discriminate against out-of-state residents. 

In a response filed by the attorney general’s office, the state said that the 150 initial retail licenses represent about 10 percent of the total dispensary permits it will approve and that OCM is currently writing regulations for non-CAURD applicants. 

The AG’s office also said that a review of Variscite One’s application shows that it would be “unable to obtain a sufficiently high score” because of the “high level of household income for the area in which plaintiff’s address is located at the time of conviction.” 

The company also could apply for one of the non-CAURD licenses when regulations are finalized, according to the state. 

“It could end up sorting itself out quickly; it could end up taking time,” said Livingston. “But the important thing for folks to remember is that it’s not going to stop the legal cannabis market in New York from getting started.” 

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