Another New York lawsuit asks court to halt cannabis licensing

The lawsuit argues that the entire randomized queue process is "arbitrary and capricious."

Yet another lawsuit requesting a court order to halt retail marijuana business licensing in New York state was filed Monday evening, this time by a group of women entrepreneurs who allege state cannabis regulators broke the rules with how they created and are trying to implement a “randomized queue” of more than 2,000 dispensary license applicants.

The suit was filed Monday evening in the Supreme Court of New York in Albany County by seven women-owned social equity cannabis companies, each of which is hoping to win either a retail or microbusiness permit from the most recent application window, which ran from October to December last year.

All of the seven applied in the initial period, which was reserved for retailers that had already locked down real estate for their shops. But when the state Office of Cannabis Management announced last fall that it would be using the random queue process to put the applications in order for review, and then notified applicants in January they would only be giving out 250 retail permits and another 110 for microbusinesses, the group realized they were up against a brick wall and chose to sue.

The lawsuit is an “Article 78” legal action, meaning that it’s attacking the procedure by which regulators have gone about creating the randomized queue, instead of questioning the right of the OCM to proceed in such a fashion.

“We chose that vehicle because it puts us in a position to halt everything as soon as possible, which we feel is important. There’s a first mover advantage here at play,” said attorney Joseph Levey, who’s representing the plaintiffs.

Levey said there’s a meeting scheduled for Tuesday afternoon between the parties, and that “theoretically” the judge overseeing the case could issue a temporary restraining order halting all retail licensing the same day. A hearing has been scheduled for Friday morning at 9 a.m., Levey said.

Friendly Flower NY lawsuit

A flurry of missteps

The entire randomized queue process, the lawsuit argues, is “arbitrary and capricious,” and asks the state court to halt it immediately. The suit also requests an order forcing the OCM to make public all of its policies and procedures related to retail marijuana business licensing and an order requiring the OCM to “reissue a new queue” for retailers and microbusinesses who applied between Oct. 4 and Nov. 17.

The suit also charges that the OCM didn’t notify applicants until the queue itself was released on Jan. 12 that social equity retail applicants who qualified for “extra priority” would also get three chances in the queue instead of just one, arguably decreasing the odds for many of the applicants, including the plaintiffs.

“Had Petitioners known that the rules were subject to change, they would have reconsidered submitting applications in the First Application Period due to the costly barrier to entry such submission required,” the suit states.

A spokesman for the OCM said the agency doesn’t comment on pending litigation.

Levey said his clients had all spent years prepping for the retail license window last year, and one of them even purchased an entire building with the intent of making at least part of it into a dispensary. He estimated the seven had each spent between $50,000 and $750,000 investing in their dreams of opening legal cannabis businesses.

“Everybody on that list in our lawsuit has spent years preparing for this moment, doing every tough thing that they were told to do … and they don’t feel like they’ve gotten that fair shot,” Levey said.

However, Levey also acknowledged he’s not sure what an ideal outcome to the lawsuit would be for his clients, since the OCM appears to be bound to the randomized queue process instead of a merit-based scoring system for permit applications.

“I don’t know what the answer is. I think throwing this lottery out and re-picking numbers would just bring on a whole raft of other lawsuits, and I don’t know that’s realistic, but that’s one potential way to go,” Levey said.

Levey said he’d “love” a merit-based process instead of the randomized queue, and said that’s what his clients believed they were preparing for. But it’s unclear if that may be on the table.

He also noted, however, that the OCM managed to “screw up” the randomized queue. Each retail applicant was allowed to apply for a maximum of three shops, and if each “extra priority” social equity applicant got three chances apiece, that would be a total of nine entries in the queue. But at least one company, Buds R Us LLC, has 10 entries in the queue, Levey said.

“If that’s wrong, what else is wrong? This is just what we know about,” Levey said. “If that’s happening by accident … the whole thing is compromised, as far as I’m concerned.”

The latest suit follows several others that have also been filed in recent weeks and requested court orders to halt or redo the licensing process.

The first, filed just before Christmas by Variscite NY Four and Variscite NY Five, was filed in federal court instead of state court and challenges the social equity requirements tied to New York residency. A judge heard arguments on Friday in that case but has yet to issue a ruling.

A second lawsuit, filed in federal court by Valencia Ag LLC this month, claims the social equity criteria in the New York marijuana licensing regime is discriminatory toward white men and thus violates the U.S. Constitution’s Equal Protection Clause. Hearings in that lawsuit are scheduled for April 29 and May 6, according to court records.

John Schroyer

John Schroyer has been a reporter since 2006, initially with a focus on politics, and covered the 2012 Colorado campaign to legalize marijuana. He has written about the cannabis industry specifically since 2014, after being on hand for the first-ever legal cannabis sales on New Year’s Day that year in Denver. John has covered subsequent marijuana market launches in California and Illinois, has written about every aspect of the marijuana trade, and was part of the team that built the cannabis industry’s first-ever trade show, MJBizCon. He joined Green Market Report in 2022.


6 comments

  • Dave N

    January 30, 2024 at 10:46 pm

    This suit shouldn’t last long.

    There are 250 retail non-provisional licenses being granted from this queue, per OCM public statements. The “top-positioned” plaintiff is currently in “real” position 412 (meaning there are 411 *non-duplicate-from-extra-priority* retail applications ahead of them in queue).

    Even if the “extra priority” applicants only had gotten one draw in the lottery, and **even if they had been drawn in the bottom of their three positions**, this plaintiff would only be in position 353, so they STILL wouldn’t get a license.

    So there is no demonstrable harm to the plaintiffs, thus no actual damage, thus no standing for the suit. Hopefully a competent defense response makes short work of this craziness and lets the rest of the industry continue moving forward towards opening.

    No one told the plaintiffs to *buy a building* years ago. That was *their choice*, knowing full well that they had no guaranty of a license.

    Reply

    • Phillip b

      January 31, 2024 at 12:59 am

      I respectfully disagree with your statement. This suit is not about the number of licenses being granted or the position of the plaintiffs in the queue. It is about the fairness and transparency of the licensing process and the rights of the applicants who invested in their businesses based on the state’s guidance and expectations.

      The OCM has the authority to issue microbusiness licenses to qualified applicants who meet the size, scope, and eligibility requirements established by the Cannabis Control Board (CCB)3. However, the OCM has not provided clear and consistent rules or criteria for granting these licenses, nor has it explained how it determines the priority or extra priority status of the applicants. This creates confusion and uncertainty for the applicants, especially for the social and economic equity applicants who are supposed to benefit from this program.

      The plaintiffs are not asking for a guarantee of a license. They are asking for a fair and transparent process that respects their rights and interests as potential microbusiness owners. They followed the state’s guidance and invested in their businesses, including buying or leasing buildings, based on the reasonable assumption that they would have a chance to obtain a license. They did not know that the OCM would change the rules or favor some applicants over others without any justification or explanation.

      Therefore, the plaintiffs have suffered demonstrable harm and actual damage as a result of the OCM’s actions or inactions. They have a legitimate standing for the suit and a valid claim for relief. This suit is not about delaying or disrupting the industry, but about ensuring that the industry is built on a foundation of fairness and equity for all.

      Reply

    • Ryan F

      January 31, 2024 at 11:08 am

      I also disagree. The 250 number is very much “arbitrary and capricious”. Multiple oral presentations, the FAQ’s, and several areas of the law clearly indicate that social equity applicants and those who secured properties would be given licensing priority. The OCM announced that only 250 licenses would be given out to the first round only after the applications had closed. That was a major rule change after the fact that would have very much influenced the decision to taking on a ton of financial liability by securing a property. It also gives the same chances to SEE’s without extra priority as it does to all others in that same round. The OCM had 2 years to put together this licensing round and instead it was marked by continual rule changes and missing important information for the business owners who were applying to make sound decisions based on the information provided by the OCM. That information turned out to be extremely unreliable or omitted important information. There is also no basis whatsoever for why they limited each round the way they did – that came out of nowhere in late Dec..

      Reply

  • M

    February 1, 2024 at 4:20 pm

    I have to disagree as well. As a microbusiness applicant in the queue, we feel very much that “Arbitrary” is the perfect word to describe OCM operations. Case in point.. back in early November after we submitted our application, as part of the TPI we learned that we needed to get fingerprinted and have our backgrounds checked. On January 16th, the OCM said the main reason why reviews were backed up was because applicants had not been fingerprinted or their backgrounds checked. The OCM didn’t provide the guidelines until January 12th. This is why they had to cancel the January 24th meeting; they only had 3 licenses to approve instead of 100’s that were expected.

    They told us all beforehand that any microbusiness with a property secured would receive expedited review. And so a few hundred of us went out and spent tens of thousands, some hundreds of thousands, to not only just secure property but also from accrued costs from setting up expensive cannabis bank accounts and other things.

    I think the biggest slap in the face is that there’s over 300 microbusinesses on that list and instead of granting 220 microbusinesses with property secured and ready to go, they’ll only be grating 110 licenses because the other 110 is going to be given to applicants that came after us, that don’t have a property secured, and haven’t spent years preparing for this like so many of us on that list have.

    Reply

    • Anthony

      February 2, 2024 at 9:13 am

      I have to disagree on this, you cannot state that those who are going for provisional haven’t been at this for years preparing.

      Over 10 years indoor growing, 15 years outdoor, business plan in place since 2015, quarterly updating of pricing from vendors, hunting investors, CCTM mentee, hunting properties, building our network, just like everyone else. Just because the state screwed this up and some of us legacy operators had the foresight to see this coming, doesn’t mean that we’re ill prepared. I’m based on LI, no real estate here for us to operate in or rent because of town zoning and landlords not wanting to rent to you until license is in hand and there is an income stream.

      If anything my friend, the provisional applicants like myself are the ones who were the most prepared for NY because we’ve been through the system and know not to trust the state. I’ll find a place once I have the license in hand so I’m not in the position that yourself and many others are in. Work smarter not harder.

      Reply

      • UpState Craft Cannabie

        February 2, 2024 at 9:52 am

        Just to make sure I understand your argument, your saying that you should get the same consideration for a license as those of us that have facilities ready to start production today? How does that make sense if the goal of the license is to bring product to market? If anything having a facility should be a requirement to even request the license. This is a regulatory heavy industry and local laws can screw it up as well. Making sure applicants have cleared that hurdle first would be the best way.

        Reply

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