Yet another New York cannabis lawsuit 🗽

NY, NY
Medical cannabis firms sue state over $20 million entrance fee

Driving the news: When New York first legalized cannabis, the government’s explicit and implicit goal was to allow those harmed by the War on Drugs first crack at the lucrative market.

That meant prioritizing dispensary license applications for those who qualified under the social equity program — that is, a conviction for a cannabis-related offense or a close family member with one — as well as keeping big, mostly publicly traded cannabis firms already operating in the medical market out of recreational sales, at least at first. 

Though these firms, known as Registered Organizations, are now allowed in the market, they have to pay a $20 million fee to open up dispensaries serving recreational consumers. 

That fee has obviously ruffled some feathers. 

What happened: The New York Medical Cannabis Industry Association (NYMCIA) on Wednesday filed a lawsuit against both the New York State Cannabis Control Board (CCB) and the Office of Cannabis Management (OCM), the state’s two chief regulatory agencies, arguing that the $20 million fee is a “punitive tax” that’s about six times higher than what any other states have charged.

They add that most medical operators can’t afford this fee, and have been forced to close stores and lay off employees — leaving New York’s thousands of cannabis consumers underserved. 

In the complaint, the lawyers argue that the OCM and CCB subverted the Marijuana Regulation and Taxation Act (MRTA), the bill that legalized cannabis in 2021, in order to levy the fee on medical operators. The MRTA outlined that medical operators would have to pay a fee, though it didn’t specify the amount.  

The lawsuit was filed after nearly two years of negotiations between the state and the medical cannabis industry broke down this week. It’s the latest of multiple lawsuits filed against New York’s cannabis regulators in the last year.

You can read the full complaint. 

What they’re saying: “Once again, the state’s rhetoric around social equity is out of step with its actions,” Ngiste Abebe, the group’s spokesperson said in a statement. 

“Medical cannabis providers have long advocated for and supported a robust and equitable cannabis market, only to be blocked by the state from fulfilling those goals at every turn. Instead of investing in New York’s cannabis future, these operators are struggling to stay afloat, shedding union jobs and closing medical dispensaries. If equity is truly a top priority for state regulators, they must recognize the reality of today’s cannabis landscape and work with medical providers to establish a sensible and attainable fee that supports growth and helps realize the promise of the cannabis economy.” 

And: “Regulators here show an irrational and unconstitutional animus towards medical providers since their appointment in September 2021. 

“For the New York cannabis market to fully live up to its stated potential, the regulators must lower the barriers to entry for medical providers and embrace what the law clearly intends for them — to serve as a mechanism to fuel social equity participation,” Matthew Schweber, an attorney at Feuerstein Kulick, the firm handling the case, said. 

Zoom in: In a November meeting, the CCB voted to authorize a payment schedule for the $20 million. 

Registered organizations that wanted to convert a maximum of three recreational dispensaries would now have to pay $5 million up front, and then the remaining $15 million at an agreed upon later date.

During the meeting, the OCM Policy Director John Kagia said the agency would assess the finances of the businesses to ensure they could actually afford these fees. It was perhaps an acknowledgement that many organizations were unable and unlikely to pay the fee. 

Zoom out: New York’s cannabis market is set to cross $1 billion of sales this year, though it seems no one is happy with the industry’s slow rollout. 

The state’s fledgling cannabis market has been the poster child for the tension between social justice and big business when it comes to cannabis legalization.

The state admirably tried to chart a different path than those before, by centering social equity-aligned operators at the start. But the admirable goals of the program have been kneecapped by lawsuits and poor execution on the government’s part. 

It’s taken years — far too long, many industry observers say — for New York’s legal cannabis market to make a dent in illicit sales, and it could’ve been sped up if they allowed more licensed sellers in at the beginning. It may end up being a cautionary tale for other states looking to balance social equity concerns with stimulating a vibrant, profitable market. 

On the other hand: A group of advocacy organizations including the NAACP and cannabis organizations wrote an open letter to New York Gov. Kathy Hochul, outlining concerns that the state’s cannabis market is shifting toward “corporate interests” at the expense of small businesses. Read the full letter here.

What’s next: Either way, expect this lawsuit to work its way through the courts. Albany is a rough-and-tumble world, and cannabis is right in the middle of it. 

The CCB’s next meeting is on December 10 in Albany. Expect the lawsuit to be addressed. You can register to watch here. 

-JB

“The dispos are concentrating too much on trying to look like an Apple Store, and not concentrating on understanding you’re here to serve the consumer,” Josh Kesselman, the founder and CEO of Raw Rolling Papers, said on the Cultivated Live Living Room series from the MJBizCon showroom floor in Las Vegas. “What does the consumer need?”

You can watch a snippet from the chat below — and keep your eyes peeled on our LinkedIn and Youtube channel for all the awesome conversations we had in Las Vegas. 

Federal cannabis case gets another day in court 👀

The lawyers representing a group of cannabis firms suing the federal government over its ability to regulate state legal cannabis presented their arguments in a federal appeals court in Boston on Thursday. The case has far-reaching implications for the cannabis industry. Though the court hasn’t yet ruled, the lawyers expect that the appeals court will uphold the lower courts decision — the case was dismissed in a Massachusetts court this summer — potentially paving the way for cannabis to work its way up to the Supreme Court. Marijuana Moment has more on the arguments, and check out our conversation with Josh Schiller, a top attorney on the case, here. 

Texas moves to ban consumable THC 🌿

Texas Lt. Governor Dan Patrick said in a statement on Wednesday that state lawmakers will look to ban all forms of consumable THC in the state, following a similar ban in California. The ban centers on the loosely regulated hemp-derived THC products, which were technically legalized via the 2018 Farm Bill nationwide, though many companies have taken advantage of that “loophole” to sell products that are basically just pot to your average consumer. Read the full statement here. A Texas law firm purchased random hemp-derived gummies and found that due to the loose regulations, consumers could be busted with a felony for products they purchase at gas stations and grocery stores across the state. Check out the full report here. 

NFL updates THC policy 🏈

The National Football League increased the THC blood limit for what constitutes a positive drug test from 150 ng/ml to 350 ng/ml. The change builds off the NFL’s increased leniency for cannabis use among players — in 2020, the league ended the practice of suspending players for positive cannabis tests. Here’s the full policy. 

More rescheduling hearing delays 🍿

Doctors for Drug Policy Reform, a coalition of medical professionals and cannabis advocates, is asking the Drug Enforcement Administration to stop the cannabis rescheduling hearings — set to continue on January 21 — until a federal court can review why the organization was denied participation in the hearings. Separately, an attorney representing pro-cannabis groups in the hearing said he may file a separate stay, arguing that the DEA administrator may not have final authority over issuing the rule given that the original proposal wasn’t signed by the agency. Phew.

LivWell facility shutters in Michigan 🥊

Cannabis firm Pharmacann is shutting its LivWell facility in Michigan, resulting in about 170 layoffs, Crain’s Detroit reports. 

And more:

The Cannabist announced a partnership with Flower by Edie Parker to launch products in Virginia and Colorado.

Canadian cannabis retailed High Tide Inc is hiring an advisor for communications and public affairs. Check out the job description here.

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