If New York cannabis applicants are wondering why the licensing process is slow, they just need to look at the number of lawsuits facing the state’s Office of Cannabis Management. At the recent New York Cannabis Law Conference, Rudick Law Group lawyers Fatima Afia and Lauren Rudick counted at least 20 cases involving the oversight board.
And that doesn’t include any cases involving the hemp program, medical program, or that were brought to small claims court or against other third-party actors.
That many cases can certainly distract from daily operations, so it’s no surprise that the OCM is behind on issuing licenses and answering Freedom of Information Law (FOIL) requests.
(For full disclosure, Green Market Report has pending FOIL requests with the OCM.)
Afia and Rudick said there were so many cases that they broke them down into seven subject areas:
The Conditional Adult-Use Retail Dispensary (CAURD) program
The Social and Economic Equity (SEE) program
Extra priority status
Location approval and proximity protection
Queue review process
Validity of the Marihuana Regulation and Taxation Act (MRTA), which includes arguments around preemption and the federal prohibition of cannabis
Enforcement against noncompliant/illicit operators
Of the 20 cases, 12 are active at this time. While the program was dealt a major setback when one temporary restraining order was upheld by the courts, five other TROs have been denied.
Rudick also noted that courts typically tend to side with government agencies when ruling, which makes the amount of time spent fighting the cases likely frustrating for the agency. However, while the number of cases is climbing, the success rate is declining.
Leafly case
The legal backlog raises another question though: Why the OCM has chosen to fight the Leafly (NASDAQ: LFLY) battle? Leafly, a website focused on cannabis use and education, sued the OCM over its ban on third-party platforms.
Leafly’s revenue overall is down, so access to the New York market is attractive. However, the state banned these platforms under the theory that less capitalized cannabis operators would not be able to afford to compete with richer companies who could market themselves on the platform.
That’s despite it still costing millions to enter the New York program and with limited ability for signage and advertising for stores, so it seems somewhat counterproductive for the OCM to fight Leafly.
Rudick noted that despite state agencies having an advantage, the OCM is losing its Leafly battle. “The reason why the OCM failed to defend itself properly in the Leafly decision is that it couldn’t come up with even the bare bones and minimum of just say, ‘Here are the minutes, the meetings we had when we complicated these regulations,’” she said.
It would be easier and less costly to just let Leafly operate in the state and give stores a channel for driving customer traffic. But no, the OCM chooses to fight.
So much risk
“Virtually all aspects of the MRTA are vulnerable to lawsuits,” Rudick said.
She also believes that the OCM should open up the queue, which could alleviate many potential lawsuits.
“They need to really step up when it comes to documenting everything with respect to their decision-making,” she added.
Ultimately, Rudick said she wants the legal community to support the OCM, because more licenses means more work for lawyers. As the program remains stalled, there are fewer customers to work with.
Rudick also pointed out that merit-based licensing programs often don’t work. Instead, they create a feeling of scarcity and, coupled with the OCM’s constant license number revisions, a breeding ground for lawsuits.
“They’re forced to sue for licenses, and that’s what they are doing,” she said.
A better approach for achieving a functional industry with higher diversity would be to lower barriers to entry, like seen in New Mexico.