The dormant commerce clause helps Brooklyn in cannabis licensing battle

March 31, 2023 Robert Abruzzese

Marijuana plants for the adult recreational market are are seen in a greenhouse at Hepworth Farms in Milton, N.Y., July 15, 2022. AP Photo/Mary Altaffer

Share this:

BROOKLYN — Brooklyn may finally get its first recreational weed dispensary after the Court of Appeals for the Second Circuit in Manhattan lifted part of an injunction on Tuesday that had prevented cannabis regulators from issuing licenses for recreational dispensaries in some parts of New York.

This decision removes a barrier for the state’s rollout of cannabis dispensaries and allows regulators to issue 108 licenses in Central New York, Western New York, Mid-Hudson, and Brooklyn. There are still 18 licenses in the Finger Lakes region that remain tied up in the lawsuit.

The court’s decision comes three weeks after the state’s Office of Cannabis Management announced plans to double the total number of available business licenses under the conditional adult-use recreational dispensary (CAURD) program from 150 to 300. New licenses could be approved as soon as Monday, April 3, when the Cannabis Control Board holds its monthly meeting. At least 18 licenses in the affected regions have been ready for approval since November.

Gov. Kathy Hochul expressed her satisfaction with the court’s decision, stating that New Yorkers in nearly every region of the state will now have access to safer, high-quality, adult-use cannabis products. This development will enable dispensaries to open in some of the state’s most populous areas, including Buffalo, Syracuse, and the Hudson Valley, providing farmers and manufacturers with more outlets for selling their cannabis products.

Regulators have issued dispensary licenses to 56 businesses and 10 nonprofit groups since Nov. 2022. Only five stores have opened in Manhattan, Ithaca, and Binghamton, with two more scheduled to open this week in Queens and Schenectady.

The injunction had been imposed in a case brought by cannabis company Variscite NY One, whose majority owner is Kenneth Gay, a Michigan resident, which argued that New York’s eligibility criteria violated the U.S. Constitution’s dormant commerce clause.

The dormant commerce clause doctrine prohibits states from discriminating against interstate commerce to favor their own residents. Variscite has since filed a similar lawsuit against Los Angeles, where a judge there declined to block licensing.

The appeals court in Manhattan plans to hold hearings on the case on an expedited schedule, suggesting that the judges want to resolve the matter quickly. No dates had been set late Tuesday.

A separate lawsuit was filed against the state on March 16 by a coalition led by medical cannabis companies, arguing that regulators overstepped their authority in the restrictions they placed on licenses. The plaintiffs seek to make recreational dispensary licenses available to everyone.

The Office of Cannabis Management is due in court on April 28. Axel Bernabe, the agency’s chief of staff and senior policy director, stated in an interview with the New York Times that the agency hopes to open applications for those who don’t qualify for the more restrictive CAURD license after Labor Day.

With the injunction lifted, Brooklyn and other regions in New York can expect legal dispensaries to open in the coming weeks or months.

New York was trying to restrict recreational marijuana licenses to promote social equity and prioritize communities that were disproportionately affected by the war on drugs. By implementing specific criteria for obtaining licenses, the state aimed to give opportunities to those who had been unfairly targeted or had suffered from cannabis-related offenses in the past.

The eligibility criteria for applicants included having strong ties to New York, such as a primary residence or bank accounts, and having been affected by a state-level conviction for a cannabis-related offense. The licensing effort was designed to create a more inclusive and fair cannabis industry, ensuring that the benefits of legalization were shared among those who had been most impacted by prohibition and criminalization.

However, this approach led to legal challenges from applicants who felt that the licensing restrictions were discriminatory and violated the U.S. Constitution’s dormant commerce clause, which prohibits states from favoring their own residents at the expense of interstate commerce.