New York State’s cannabis program has been a magnet for lawsuits that have stymied progress in issuing licenses and growing the industry. Is the problem the agency’s implementation of the governing law, or is it the Marijuana Regulation and Taxation Act itself that is the problem? In this episode Herb speaks with attorney Fatima Afia and covers the full range of lawsuits that have been filed against the NYS Office of Cannabis Management’s adult use program. ...
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Welcome to joint session, Diverse Voices in New York State Cannabis, where you hear from policy makers, legislators, thought leaders, licensees, advocates, and others interested in the state of the New York cannabis market. In this episode, I speak with attorney Fatima Afia about all the lawsuits that have been filed against the New York State Office of Cannabis Management. We focus on those suits challenging aspects of the adult use program and do not delve into those challenging OCMs hemp or medical cannabis programs. Given the number of lawsuits we need to discuss, there is no licensee highlight segment in this episode. In our next episode, we'll speak with our first licensed cultivator.
Speaker 1:But first, let's take a spin around the news. This summer, you can buy cotton candy, corn dogs, and cannabis as the California state fair will allow cannabis consumption and sales. The state fair dipped its toes into the cannabis space in 2022 with an educational exhibiting competition. This year, fairgoers will be able to buy and consume cannabis. The Massachusetts Inspector General, Jeffrey Shapiro, sent a letter to the state legislature asking that a receiver be appointed to manage the day to day operations of the Cannabis Control Commission.
Speaker 1:According to the IG, the Cannabis Control Commission is a rudderless agency without a clear indication of who is responsible for running its day to day operations. In some sports news, and I've always wanted to say that, in some sports news, sprinter Sha'Carri Richardson is heading to the Olympics. In 2021, Richardson had a positive cannabis test derail her participation in the Tokyo Olympics when the World Anti Doping Agency suspended her for one month. While cannabis is not a performance enhancing drug, it is banned in competition. In related news, the NCAA division one council voted to remove cannabinoids from a list of banned substances for championships and post season participation in football.
Speaker 1:Josh Whitman, chair of the council, stated that the NCAA drug testing program is intended to focus on integrity of competition and cannabis products do not provide a competitive advantage. I wanna thank Cannabis Wire for the news. In addition to that, I'd like to point out that you can still get 30% off a subscription to Cannabis Wire by going to cannabiswire.com and using discount code c w joint session. It's one word, c w joint session. Our guest in this episode is Fatima Afia, an attorney at Ruddick Law Group.
Speaker 1:Fatima is a well known cannabis attorney in New York State and has been named a super lawyer rising star in cannabis law. Welcome Fatima.
Speaker 2:Thank you so much for having me.
Speaker 1:Now, Fatima, as a cannabis attorney and from the research I've done, a super lawyer rising star in cannabis, for the past couple of years, how did you come to decide to practice cannabis law? At at some point, it must have been a really, kind of weird topic to tell your in laws you were going to, focus on, but at this point, it was a great decision.
Speaker 2:Yeah. So I definitely didn't go to law school thinking I was gonna be a cannabis lawyer. I came out of law school, and the first practice area I was in was litigation. So I actually come to the space as a litigator, business and commercial litigation, as well as land use and zoning litigation, which is its own sort of, niche area in the law, particularly in New York City where we have so many landmark properties in a short district. And so that was my background.
Speaker 2:And then I became part of a team at my former law firm, that brought a lawsuit against the DOJ and the DEA arguing that the Controlled Substances Act as it applies to cannabis is unconstitutional. And so my first foray into the space was through litigation, trying to actually get cannabis descheduled, federally based on constitutional arguments. And we had appealed all the way to the United States Supreme Court, and I played a pretty pivotal role in actually getting what we call amicus briefs to support our petition to ask the United States Supreme Court to take that case. And an amicus brief is just basically they call it a friend of the court brief. So parties who are not actually parties to the lawsuit, third parties, for, lack of better of a better term, are allowed to submit briefs to say that the court should take on this case because these issues are important to stakeholders that are not actually party to the lawsuit.
Speaker 2:And so I met a ton of stakeholders from various parts of the industry with all different backgrounds from all geographic locations who had a vested interest in the industry and in legalization. And that's sort of what allowed me to transition my practice eventually over to almost a % cannabis and on the transactional side. And so I no longer litigate, but I do still follow very closely all the litigation that has been happening in the space, particularly in New York, because I do have that litigation background.
Speaker 1:Right. And and that's what brings us to the topic of the day, which is the the crazy number of lawsuits that have been filed against the New York State Office of Cannabis Management. And before we go through those cases, I I wanted to get, in your view, is the primary reason for this very large number of cases, is it that the agency isn't implementing the Marijuana Regulation and Taxation Act properly, or or is it the MRTA itself that, you know, may be the problem here?
Speaker 2:So I think that there are a number of factors that are sort of creating this perfect storm for why we're seeing so many lawsuits here, particularly in New York. Though I would preface everything that I'm about to say with the fact that lawsuits challenging social equity in particular are not novel to New York. You know, every state that has created a social equity program has certainly faced its fair share of challenges even outside of social equity.
Speaker 1:Mhmm.
Speaker 2:New Jersey, when it had its medical program, its medical program was in limbo for well over a year because of multiple lawsuits that were challenging the RFI process there in that medical program. So it's certainly not new to see lawsuits that are challenging these programs. This is still a very, very new market and it's all, you know, very much in its infancy. And so I don't think that New York is unique for getting sued, but I will say that we are definitely seeing more lawsuits and some more successful lawsuits here than we have seen in other places. And I do think that there's a variety of factors impacting that.
Speaker 2:Part of it is that OCM has taken on a really, really novel approach to social equity with respect to the CARD program. A lot of the first lawsuits that were filed here were challenging that particular program Mhmm. And it was the first of its kind. There's been no other program in the country that is really geared to helping people who have cannabis convictions and trying to get them the first bite at the apple, so to speak, in the market. And so I think that was sort of the triggering point for all the other lawsuits that we're now seeing because I do think that once we saw our first couple of lawsuits, particularly when we had injunctions imposed, it did sort of derail OCM from its regulatory mission and from its obligations with respect to the general licensing framework.
Speaker 2:Part of it is that OCM really did try to do something really different, really big, really novel. And like most agencies, you know, it's a learning curve. And so, I think that that's part of it. I think it's also a matter of the fact that this is New York. We are not like other places.
Speaker 2:And for better or for worse, everybody does sort of wanna be here. And there's a, you know, variety of reasons for that, but, of course, you know, New York is still essentially the economic capital of the world in many respects. And so I think all eyes are on New York. And I think that when we have a global industry, New York will still be sort of at the epicenter of that. And so everybody is really vying for a place here, and we have so many restrictions, particularly the true party of interest restrictions that make it challenging for out of state participants.
Speaker 2:And I think that that has also made us quite a target because as you will see as we discussed some of the lawsuits that have been filed that are still pending, dormant commerce clause claims have been very common here, and those are claims that are brought saying you're discriminating against me because I'm not from your state. And there have been protections put in place for New Yorkers in the MRTA as well as in the OCM's regulations. And a lot of those particular regulations that are protective of New York residents have been the ones most challenged by people who are not from New York that want to be here.
Speaker 1:Alright. Well, since since you mentioned dormant commerce clause, could can you explain what that is? And also that, that particular challenge is not unique to New York as well. Right? That you've seen that in in other states.
Speaker 2:It's definitely not. The dormant commerce clause claims are actually becoming quite common throughout the country. I think there had been at least five or six lawsuits bringing that claim before we saw the VeriCite lawsuit. VeriCite New York one was the first plaintiff to sue the Office of Cannabis Management, and in their lawsuit, they brought a dormant commerce claim. And the dormant commerce clause is essentially a constitutional principle based upon the commerce clause in our United States Constitution that says states cannot discriminate against out of state participants, against nonresidents, against other states to the detriment of interstate commerce.
Speaker 2:Right? Congress is tasked with the ability and the authorization and the obligation to protect interstate commerce and to encourage it. And if you are imposing laws that are so protective of your own residents to the point that you're actually discriminating against other state residents, it's going to impair and impede having an interstate commerce that is, you know, robust. So that is really the the center of what that clause means.
Speaker 1:Alright. And and and we'll come back to it, you know, briefly because it is, the first lawsuit that was filed against the state and OCN. We have a list of 12 cases that are, you know, either have been filed and have been settled, a number that are still active. But I understand that this is not, the total universe of cases that have been filed or pending against OCM. Is that correct?
Speaker 2:Yeah. We have seen a number of lawsuits that are attacking some of the hemp regulations as well as some of the medical use program regulations. But today's discussion is not gonna really be focusing on those lawsuits. We're gonna be talking primarily about the lawsuits that are challenging the regulations and the law within the adult use program.
Speaker 1:Alright. So we'll begin. And you already mentioned VeriCite New York one, and there's a reason that it's called New York one. But, so VeriCite New York one was the the first lawsuit that was filed against OCM.
Speaker 2:Yes. And in that lawsuit, they challenged the conditional adult use retail dispensary program, the card program, arguing that because you needed to have a New York State cannabis conviction, you also needed to have some significant presence in the state of New York in order to qualify for the program that those things discriminated against out of state participants. And the plaintiff in VeriSight New York one was an out of state residence. I believe he was from Michigan. He did have a cannabis conviction, but it was not from New York.
Speaker 1:Mhmm.
Speaker 2:And so he did not qualify for a license, which is what prompted him to bring the lawsuit. That particular plaintiff, as you noted, is called VeriCite New York one because there are a number of VeriCite entities, that have been filing lawsuits like this all across the country and have also filed multiple lawsuits in the state of New York. That's why it's New York one. As you as we, you know, get through this conversation, there will be another VeriCite lawsuit that has popped its head in New York as well. But so this Michigan resident did not wanna be left out of the card program, which essentially gave the first retail dispensary licenses in the state of New York.
Speaker 2:And as a result of the lawsuit, there was an injunction that was initially issued against about five of the 13 geographic locations for which a card license was going to be issued in New York. Mhmm. And so no licenses for card were allowed to be issued within those five geographic locations. Ultimately, that decision was appealed to the second circuit court, which actually narrowed the, decision and the injunction to only the Finger Lakes, which was the region the only region that the plaintiff here was actually even eligible for assuming he met all other criteria. He could only really get a license in the Finger Lakes because that was the geographic location that he chose as his number one preference of choice.
Speaker 2:So that was narrowed to just the Finger Lakes, and then ultimately, OCM and the plaintiff did settle. And as a result of that settlement, the plaintiff actually did get guaranteed a retail dispensary license out of this.
Speaker 1:And in the end, isn't that what the, defendant is really after? I mean, it's not really a principled argument. Right? Principled lawsuit. They're basically looking to obtain a license.
Speaker 2:I mean, it's certainly the case for this plaintiff. I don't wanna speak on behalf of all plaintiffs. There are, you know, a variety of different legal arguments that have been brought against OCM, and some of which do have some merit to them, and some validity. But with respect to this particular plaintiff and the nature of this particular challenge, seeing how many lawsuits this plaintiff has brought in other states, that is exactly what they were trying to do is get a license out of the process. And, ultimately, that did lead to additional lawsuits where sort of the blood was in the water.
Speaker 2:Everyone could see, like, if I, you know, sue OCM, I'll probably get a license. And I do think that that triggered a little bit of the avalanche of lawsuits that we're now seeing.
Speaker 1:I will move on to, the Fiore versus New York State cannabis control board.
Speaker 2:Yes. So that lawsuit was brought by, veteran plaintiffs who, under the MRTA, do get a level of priority, as being social and economic equity applicants. And they claimed that the card program was in violation of the MRTA because there was no express provision in the MRTA to actually permit a card program. And they also felt that because they were social and economic equity applicants themselves, they were being denied the priority that is supposed to be afforded in the MRTA to them as veterans because of the priority that was given to cards in their place. And so they challenged the validity of the card program as a whole.
Speaker 2:And as a result, we did have an injunction that was imposed on OCM preventing OCM from operationalizing and providing approvals for operations to several hundred, licensees licenses provisional licenses that had been awarded, but that had not been operationalized yet. So I think at the time, we only maybe had 20 or so, maybe a little bit less, card dispensaries actually open. Mhmm. But I believe over 200 or so, licenses for card had been awarded. These were provisional licenses that still had to be finalized for approval to operate.
Speaker 2:And so the injunction prevented OCM from going through that process to give those operational approvals. And that injunction was in place for three to four months or so and ultimately also ended in settlement where the veteran plaintiffs were also guaranteed, retail dispensary licenses and some other protections relating to those licenses. And that is how we were able to sort of get past that FURY injunction. Mhmm.
Speaker 1:Well, you know, it's interesting because in addition to the attacks on social equity, and and in here you have, litigants, plaintiffs that are themselves in that category, there seems to be this big fear, and despite the the size of the market in New York, there seems to be this big fear of not being among the first to open. And I'm not sure how, you know, sort of rational that fear is, again, given the size of the market in in New York state.
Speaker 2:Yeah. I agree. I mean, there's a lot of talk about a supposed first mover's advantage, and and that's sort of why you're seeing so many people wanting to be first. But, you know, in my experience, helping clients in other states before New York, oftentimes, you don't want to be the first because regulators are still learning, sort of the ropes of the game, and, everybody is still trying to figure out what market stability actually looks like. And, typically, some of the first people to get licensed actually, you know, lose quite a bit of money and have invested resources that they can't necessarily afford to lose because there isn't enough market stability at the very beginning of, you know, a a program just being opened.
Speaker 1:Mhmm.
Speaker 2:So, I understand why there's been sort of a lot of propaganda and talk about why you would want that first mover's advantage or that first bite of the apple. But to some respect, I think a lot of that is very inflated. And, ultimately, some of the first people to get licensed and awarded in a state are often the ones who don't make any money because you just don't have enough of a stable market within which to make decisions.
Speaker 1:Right. No. And and that's a great point. But but, again, as an attorney, how do you tell your client, you know, you know, don't rush. You know, wait two or three years, see how things shake out, and and and then enter the market.
Speaker 2:So it's not about waiting to enter, but it's about not needing to be first if you if you aren't prepared. Right?
Speaker 1:Okay.
Speaker 2:So you wanna make sure that you've taken the steps necessary to create a business plan that makes sense for you to, you know, do all of your pro formas, to really have a solid plan in place with your team and to understand your team and to make sure you trust them before jumping headfirst in just to be first. Right? If you're prepared and you feel like you have all the pieces to the puzzle in place, then, you know, we're never gonna stop a client from pursuing a great opportunity. But to us, it's not a great opportunity to just jump in head first when you're ill prepared or when we don't know enough about what the rules of the game are for you to make those important decisions.
Speaker 1:Right. And that would include having the financial resources.
Speaker 2:Correct. Financial resources, the real estate. Yeah.
Speaker 1:Right. The the financial resources to be in for the, you know, for the long haul. Right? And for those that year, eighteen months that's, you know, that may be rough going.
Speaker 2:Exactly.
Speaker 1:Alright. So we'll move to the next case, and that's Leafly Holdings, versus the State Office of Cannabis Management.
Speaker 2:So, this one was quite interesting because in early April, anyone who has been working in this industry can tell you that if you were working in New York cannabis on April, you were probably thinking that the entire adult use program as we know it in New York could be gone. We were sort of calling it our cannabis armageddon because, initially, the judge in the Leafly Holdings case had actually issued a decision that appeared to strike down all of the adult use regulations in the entire program. As many of us predicted, we all were thinking it was probably an error because that was not the relief that was being asked for by the plaintiff. The plaintiff was challenging specifically certain third party marketing restrictions that made it difficult for third party platforms like Leafly, which provide access to, you know, a select number of dispensaries and provide educational information about cannabis and cannabis streams and products to consumers, there are restrictions in the, regulations, in New York regulations that make it hard for a lot of these platforms to contract with licensees in New York. And those are the regulations that were actually being challenged as being arbitrary and capricious and as also violating free speech.
Speaker 2:And the court initially appeared to be striking down all adult use regulations, but it turned out when they amended the decision, it was just striking down those third party marketing regulations that were being challenged.
Speaker 1:Is there a better sense now, and maybe we'll never know, of whether that was, in fact, an error by the court or, or maybe that that was the initial decision and then, seeing the uproar and recognizing the impact that there was an amendment?
Speaker 2:So there are theories going both ways. This was the same judge that did issue the injunction in Fury, which obviously did cause a lot of harm, not only to card licensees, but a lot of reputational harm to OCM. And so there are people who do think that perhaps the judge just really does not agree with how OCM has sort of taken on its mission, and doesn't think that it's really thought through enough of the regulatory framework and maybe perhaps did want to strike down all the regulations and then had to take it back when, you know, he saw sort of the uproar and how people were panicking. That's a theory. We don't have any, you know, proof of that, but it's certainly a valid theory.
Speaker 1:Where are we now with that case? Will there be an appeal?
Speaker 2:So there has been appeal already filed by OCM, and that is currently pending. There's been no decision.
Speaker 1:And do we have a sense of whether dispensary owners want this? I mean, Leafly wants it. Right? But it's their business, and there's a charge for being on their platform. Is there an understanding of what the dispensary owners want?
Speaker 2:So I don't think there's a uniform response from them. I think there are dispensaries that perhaps already did find ways to have a fruitful relationship with third party platforms like Leafly that find it beneficial to their bottom line. And then, of course, there are other dispensaries who don't like the use of these third party platforms because it is sort of pay to play. Mhmm. And obviously the more well resourced you are, the more well funded you are, it's going to be easier for you to engage in contracts with these third party platforms in order to get enough promotion on their platform.
Speaker 2:So, you know, there are lots of reasons why OCM did implement these third party marketing restrictions. The pay to play problem is top of mind for them, I think, in trying to protect small and diversely owned businesses. But I can't say that all the retail dispensaries are sort of in unison saying we are for or against this. I think there really is a variety of opinion even among the dispensaries as to whether they like these restrictions or not.
Speaker 1:Alright. So, we've we've talked a lot about VeriCite, one, and now we have VeriCite four. Actually, VeriCite four and VeriCite five against the Office of Cannabis Management.
Speaker 2:Yeah. So the complaint there was filed in December of twenty twenty three, and they make this case essentially makes very similar arguments to the ones that we saw in VeriCite New York one as well as in the FURY lawsuit. They essentially say the plaintiffs have not been provided with extra priority because of the preference for New York residency, which violates dormant commerce clause. So we're seeing another dormant commerce clause argument here by the same plaintiff. They're saying that under the MRTA, applicants can get what is called extra priority if they show three things.
Speaker 2:One of those things is showing that you have a New York state cannabis conviction. And so their argument is that having to show that you have a New York state cannabis conviction violates the dormant commerce clause.
Speaker 1:But it doesn't necessarily follow, right? I mean, you could have a New York state cannabis conviction and have lived in Michigan, California. Correct. And and if the agency is attempting to, in in some ways deal with the harm that was done by New York laws, then this is one way of doing that, not by, you know, not caring. And it should be okay if you don't care what happened with Michigan law or California law.
Speaker 2:Absolutely. So that's the one key difference between this lawsuit and the one that New VeriSant New York one filed, in 2023 is that in 2023, that lawsuit was attacking criteria for the card program that also did require you to have a significant presence in the state of New York. So it wasn't just the New York State cannabis conviction. You also had to have this significant presence in the state. And to some extent, that is a better argument to say, hey.
Speaker 2:You're discriminating against out of state residents. Mhmm. But when we're talking about only having to show a New York state cannabis conviction, which anyone, as you said, can have, you know, you can just be passing through New York for a day or two and ultimately get arrested and convicted. So I do agree that it's a pretty weak argument. And, in fact, the court did order did, issue an order in February of this year, with respect to a TRO and a preliminary injunction that were requested by the plaintiff.
Speaker 2:The court denied those things and actually held that the dormant commerce clause does not even apply to state legal cannabis programs because cannabis is prohibited from entering interstate commerce under the CSA, we still have, you know, federal prohibition. And according to the court, the purpose of the dormant commerce clause is to actually protect and encourage interstate commerce. So how can we apply this provision, this principle, this legal principle to a program that is still illegal under federal law? That was actually a really important ruling by the court because as I had mentioned before, these dormant commerce clause cases are not unique to New York. They're popping up everywhere
Speaker 1:Mhmm. And
Speaker 2:they've been getting quite some traction, but we're starting to now see courts actually differ on whether or not that that legal, principle even applies to cannabis because of the fact that it is still illegal under federal law. So it's a pretty important, ruling from the court in this case. Ultimately, a motion to dismiss was then filed by OCM in January of twenty twenty four, and that motion is still pending. So we don't have a a final determination on the merits of this case.
Speaker 1:So I guess, you know, to put it more simply, since you can't trade in cannabis, like, say, between New York and New Jersey, that it might be fine to discriminate against New Jersey residents when it comes to the cannabis business.
Speaker 2:Exactly. Because if the entire point of federal prohibition is to say you're not allowed to cross state lines Mhmm. With this product, then how can you on the other hand say, well, we want to make sure that all residents of every state can participate in all state programs because that's necessarily going to encourage some level of interstate commerce, and that's what we're actually trying to prevent by keeping cannabis under the Controlled Substances Act.
Speaker 1:So what's the current status on, Veracyte four and five?
Speaker 2:So a motion to dismiss has been filed by OCM, and that motion is still pending. So there's been no final determination on that case.
Speaker 1:Alright. So we move to, Valencia against OCM, and that's also in federal court in the Northern District Of New York.
Speaker 2:Correct. And that lawsuit brings an equal protection claim under the fourteenth amendment of the United States constitution arguing that, by giving the social and economic equity applicants, particularly the women and minority owned businesses, a priority, they are discriminating against essentially white men. The plaintiffs pointed initially to the race and the gender of many of the members of OCM and the CCB in arguing that there is essentially this intent behind the entire social equity program in New York to discriminate against white men. And that was filed in January of twenty twenty four within the Northern District. And then there was an, amended complaint that was actually filed March thirteenth of this year, which interestingly removes some of the rhetoric that was in there about the race of the members of OCM, which was pretty inflammatory.
Speaker 2:A lot of that language was removed in the amended complaint. And then also, interestingly enough, the plaintiffs filed what's called a notice to voluntarily dismiss OCM, Adam Perry, Jessica Garcia, Jennifer Jenkins, Hope Knight, and Damien Fagan from the lawsuit, but they still maintained Chris Alexander and Tremaine Wright as defendants.
Speaker 1:Now is that as individuals or still as, you know, representatives of OCM? I mean, they're still state employees.
Speaker 2:So I believe it's it still refers to them in their capacity as regulators. I don't think that it's keeping them as in their individual capacity, which is sort of strange, because if you're removing the agency for which they work for, I don't know how you really keep them in as being representatives of those agency of that agency. But I believe that that is still how they're being named in the amended complaint.
Speaker 1:And what's the status of Valencia?
Speaker 2:So there has been no movement since that notice to voluntarily dismiss.
Speaker 1:And now we're we're moving to some of the cases that are still active and pending. So you have, Cannabis Impact Prevention Coalition against OCM.
Speaker 2:So this case is one of those very antiquated arguments that we've seen from many anti cannabis lobbying groups saying that cannabis is harmful and dangerous to the children, etcetera. And it's challenging the validity of the MRTA itself as well as the New York cannabis regulations. Also, some arguments about how, it is in violation of federal law because we still have federal prohibition on the books. Mhmm. And that lawsuit had a motion to file the motion to dismiss was filed by OCM there on October twentieth of twenty twenty three.
Speaker 2:Interestingly, that motion is still pending. There's been no decision, but the AG's office did file a letter with the court on March 11 citing to another decision that we're not really gonna get into during our discussion today, but another decision in a case called Buenos Hill versus Saratoga Springs Planning Board, another lawsuit that was filed against OCM, and they cite to the court decision in that lawsuit, which ruled that there's no private right of action under the Controlled Substances Act, and that as such, a private plaintiff lacked standing under the CSA to assert any challenge under the supremacy clause. Because that was the argument that was being made here as well, is that because we do have a, federalist system, which separates the federal versus state governments, you have the supremacy clause, which means that federal law typically does trump state law when there's a direct conflict. But in the, Hill case, the court pointed out that there's no private right of action. So even if it's true that you are violating the supremacy clause by doing something in direct violation of federal law, you don't actually have a private right of action under the Controlled Substances Act to bring a lawsuit about the supremacy clause being violated.
Speaker 2:And the court also determined that the MRTA is not preempted by the CSA. Meaning, there isn't a direct conflict there, so the MRTA is not violating the CSA through the supremacy clause.
Speaker 1:And you mentioned the AG's office. So I should say for those who are not aware that, in New York State, for the agency office of cannabis management, it's not, their attorneys that, defend the agency in lawsuits, that it's the New York state attorney general's office under Tish James, who has that responsibility.
Speaker 2:Yes. Although general counsel for OCM does participate, in the process of defending OCM in lawsuits. But, yes, the AG does take lead.
Speaker 1:Alright. So we'll move to, friendly flower number one.
Speaker 2:Yeah. So that lawsuit was filed on January twenty ninth of twenty twenty four, and it was filed by a number of social and economic equity applicants who are challenging the creation of the Q system that OCM, created in for purposes of reviewing applications. And the applications we're talking about are the general adult use applications for the windows that opened in October, of twenty twenty, three. So these applicants were arguing that because OCM issued guidance, after the application windows had opened that indicate that extra points would be given to the extra priority applicants, that that in and of itself deprived them of the priority they're supposed to get as social and economic equity applicants because they were not aware of the extra points being given to these extra priority applicants, and had they known, it may have altered the strategy that they used for applying for a license. So that was the basis of that challenge, and the court actually did find a rational basis in the MRTA for the creation of the Q System and for the assignment of the extra points given to these extra priority applicants.
Speaker 2:And so the petition that was filed was actually dismissed on May thirteenth of twenty twenty four. So
Speaker 1:Now this was also in Albany County. Correct?
Speaker 2:Yes. Almost all of the lawsuits in state courts that have been filed against OCM have interestingly been in Albany.
Speaker 1:Right. And and it's a combination of state court and federal court, but different judge than, Leafley and and the earlier parasite cases?
Speaker 2:For Friendly Flower, I'm not a % sure, actually. I would have to go back and check.
Speaker 1:Alright. So that petition was dismissed.
Speaker 2:It was on May 13.
Speaker 1:So we'll move to Jenny's Baked at Home company versus OCM.
Speaker 2:So this was an interesting one, because it made a lot of news, and it did ultimately lead, in many ways, to the AG's investigation into OCM, which we did receive a report of the findings of that investigation just a week or so ago. But Jenny's Baked at Home company is an adult use processor in the state of New York. The owner of that company, Jenny, she had been very vocal and critical of some of OCM's decisions with respect to enforcement of applicants and licensees who had been found to be in violation of the regulations. And she was pretty vocal about how she didn't think it was fair, that there was uneven enforcement against licensed operators who were engaging in things that were totally in violation of the regulations, saying that they were bringing out of state, cannabis products, into the state and selling them among many other things. So she was very vocal and critical of that uneven enforcement policy, And she was then, not too long after being publicly vocal about those issues, she was then issued a stop work order.
Speaker 1:So now this was out of state product being sold in New York state licensed dispensaries?
Speaker 2:Yes. Which is prohibited under the MRTA and the regular regulatory framework. And this is among the claims that she was making is that OCM knew that these things were happening and was kind of letting them slide by and being selective in OCM because they issued a stop work order against her because of a solvent that she was using in her manufacturing process, which she claims is an incredibly safe solvent that is used in many other states. It was not at the time though, however, listed as one of the preapproved solvents, I believe in the regulations.
Speaker 1:Mhmm.
Speaker 2:And so that was OCM's basis for issuing the stop work order. But she said that she did, you know, provide them a ton evidence and support as to why this was a really safe solvent and was basically asking for an exception to that list. And she feels that considering all the other infractions that had sort of been swept under the rug by bigger names in the industry that for her to be the one to be singled out with the stop work order and to have her products recalled, that that was retaliatory for her just being vocal prior to. And she actually had some video recordings of conversations that she had with Damian Fagan, who admitted during some phone calls with her.
Speaker 1:And Damian Fagan was the chief equity officer at Correct. Or is Correct. Currently suspended.
Speaker 2:He he has now been pretty formally removed. I don't know when that actual removal is happening, but yes, he was the chief equity officer at the time, and he was having this conversation with her admitting that OCM was aware of some of these people who were in violation of the regulations, but said that OCM was basically letting it slide because they were afraid that if they started to come down hard on all of these people who were violating the rules, that given how many dispensaries and, supply side licensees were actually operating, it could really hurt the market. At the time, you know, because of all the other lawsuits that had been filed, OCM, I guess, was nervous, that they didn't have enough of the supply tier up and running, and they also didn't have enough dispensaries up and running. And so they were afraid of being too forceful with the enforcement. And so he admitted this on, you know, audio.
Speaker 2:And once that leaked to the press, that also led to additional action and penalizations against her by OCM, including the stop work order. So she filed a lawsuit in order
Speaker 1:And I think there was a recall, that she was
Speaker 2:There was. Her products were recalled. They issued a stop work order in in relation to the solvent that she was using, but the timing was pretty coincidental to when she was vocal at several OCM meetings as well as in Albany before legislators. And then when it came out in a news article, it was leaked that she had had this conversation with Damien on audio, and it was recorded. You know, shortly thereafter is when all of these product recalls and the stop work order were being issued.
Speaker 2:So she filed this lawsuit saying that OCM was retaliating against her, that they were also being arbitrary and capricious in how they were enforcing the regulations because of the people that she's claiming who were not enforced against, yet she was. And, you know, she was claiming that they were engaging in much more, harmful behavior to the public than she was. So that's the basis of her lawsuit. And shortly after the filing of that lawsuit is when we saw Damian Fagan be put on administrative leave. So even though her lawsuit is very specific to her case and to her company, it doesn't, you know, attack any regulations on a grand scale.
Speaker 2:But notwithstanding that, it has had some pretty big rippling effects
Speaker 1:on
Speaker 2:the entire industry because shortly after that is when Dean Yoon was put on administrative leave, and then that's when governor Hochul actually did announce the, launching of an investigation into Oseum, which we're now seeing even additional, movement from. So we are continuing to see many repercussions from this lawsuit being filed. So definitely an important one to watch. The petitioner, Jenny's, Baked at Home did, request a TRO, which was denied on May 15. Interestingly, OCM actually sent out a notice, I believe, to the the labs that had been licensed saying that the solvent she was using was now all of a sudden going to be approved, but it was only gonna be approved in future use.
Speaker 2:So that's why this lawsuit is still pending because Jenny's baked at home is concerned about all the products that she still has in inventory that contain the solvent because so far, the guidance issued from OCM is only allowing the solvent moving forward. So that lawsuit is still pending, and the latest movement there is that Jenny's filed a motion for limited discovery because she wants to get further details about the AG's investigative report that we have all now seen about OCM's licensing process. She wants to get further information about the insides of that report. So that motion for limited discovery is pending.
Speaker 1:And and I think the report that you're referencing is not AG report, but the OGS report, the Office
Speaker 2:of Justice Services. I'm sorry. You're right. The OGS report. Yes.
Speaker 1:Alright. Well, thank you. That's, that's one to follow. And we'll move to Gracious Greens, and and we're sort of coming to the end of the this list, but Gracious Greens.
Speaker 2:Yes. So that complaint was filed on March twenty ninth of this year. It was filed by a service disabled veteran minority owned business that is challenging the implementation and the application of regulation one nineteen point four a. That is the regulation that requires a thousand to 2,000 foot square distance square foot radius distance between cannabis dispensaries, and a thousand to 2,000 square feet will depend on whether or not you're in a municipality that has a population of 20,000 or less. Mhmm.
Speaker 2:So they're challenging this, saying that the matter by which this provision is being implemented by OCM is arbitrary and capricious. They're saying that OCM then issued a proximity protection map, which was supposed to actually make it clearer for applicants to plan and prepare for the locations that they were proposing to be able to see who is going to be located within a thousand to 2,000 feet of your proposed location so that you can make intelligent and informed business decisions about getting site control for that location. And the plaintiff here is arguing that that map didn't actually create any of that transparency or clarity because, one, it was a little bit difficult to actually use. It wasn't being regularly updated by OCM. So there would be locations that would appear on the map to be fine and not blocked by another location, but then OCM would respond to your request for approval of that location with a denial.
Speaker 2:So this is just arguing that the way in which the map is being applied with respect to this provision, that all of it is really arbitrary and capricious, not to mention that the map itself has a disclaimer by OCM saying, please do not rely on this because it is not actually accurate and regularly updated. So that complaint was filed, like I said, in March, and there has been no court decision on the TRO, and there's been no other movement in that case.
Speaker 1:And now we have the three last cases are all, you know, almost filed within the last week or two. Correct?
Speaker 2:So the Treehill Innovations was filed April 30, so about almost a month ago. And then we have two additional lawsuits that were filed basically within the last two weeks.
Speaker 1:Alright. So Treehill. Treehill Innovations.
Speaker 2:So that lawsuit was filed by a woman owned social and economic equity cultivator who's challenging the queue as being arbitrary and capricious. She is similarly to some of the other lawsuits that we've talked about already. She's challenging the extra points that were given to extra priority applicants in the queue system, and she's saying that it's arbitrary and capricious capricious. She wants a declaration from the court to that effect. And she also wants to annul all of the queues for all the supply tier, licensees, so processing, cultivating, and distributing.
Speaker 2:She wants all those queues to be annulled and vacated, and she wants new process and procedure made available to the public for a new queue. That complaint, like I said, was just filed in on April 30, so there has been no additional filings in that lawsuit.
Speaker 1:Okay. Explain the queue.
Speaker 2:Sure. So the queue is essentially the process by which OCM is reviewing applications. So as we know, it is a semi lottery based system in the sense that OCM did not guarantee that it would review every single application that was filed with it. It said that it would create this system, the queue system, in a way that would essentially assign numbers randomly to your application. And then depending upon the number that you get in that queue would determine the likelihood of you being selected for a review, but that doesn't guarantee that you would actually be licensed.
Speaker 1:During the application window, whether you were the first applicant submitted, or whether you were the last applicant submitted
Speaker 2:Made no difference.
Speaker 1:Through the queue, so you that order may be reversed.
Speaker 2:Correct. Yeah. Being first to apply had absolutely no bearing on whether or not you would even be reviewed, let alone licensed. So, that's why we were telling lots of clients, you know, don't rush to get the application in if it's not ready. You know, you wanna get it right rather than be first because OCM has made it clear that they're not gonna be going in the order of when they receive applications.
Speaker 2:They're gonna then randomize them and also separate them based upon the category in which you're applying. So if you're applying for processing, that's gonna be one queue. If you're applying for retail, it's a separate queue. If you're applying as a social economic equity applicant, that also impacts where you are on the queue Mhmm. Depending upon your license type.
Speaker 2:Right? So the order in which you apply had no bearing whatsoever. And so that was the queue system, essentially, that OCM put in place, and that is what has been the target of a few lawsuits now because applicants are saying that way in which this queue is actually being implemented is arbitrary and capricious, that, you know, there's no transparency as to how it's actually being applied in real time. And, you know, people are getting frustrated if they haven't had their applications reviewed yet, finding out that other people who they don't believe should be ahead of them have been either reviewed or have gotten their license approved or what have you.
Speaker 1:Alright. So Organic Blooms LLC versus the cannabis control board.
Speaker 2:So this was filed on May ninth of twenty twenty four. And here, the petitioners are arguing that OCM violated section 76 of the MRTA by waiving the notice to municipality requirements for cards and the provisional licensees who did not have to show proof of location. So the notice to municipality requirement, as many of us have come to know, is a requirement that we submit a form to the municipality in which you're looking to locate your property, and that is a pretty standard form that you're supposed to submit at least thirty days before you submit your application. So that's what section 76 of the MRTA says. It says that you need to submit this notice within thirty days of submitting your application.
Speaker 2:And essentially, because provisional licensees and cards, the conditional adult use retail dispensary, applicants, because none of them had to show proof of their property when they initially applied, naturally, they did not have to comply with this notice to municipality requirement because there was no property to attach to a municipality yet Mhmm. When they applied. And so this the petitioners in this lawsuit are saying that that waiver of the notice municipality requirement is arbitrary and capricious, and they are looking to invalidate all of the card and provisional licenses that have been awarded to date, which, you know, is well over 500 licenses at this point. And that is the argument they're making. There haven't been any additional documents filed because, like I said, the petition was only filed on May 9.
Speaker 2:So we'll see, you know, what OCM says in opposition and how the court decides this. But a pretty a pretty broad form of relief is being requested here because they're looking to actually invalidate, a whole number of licenses that have already been awarded.
Speaker 1:And even with the card licenses, you you have the distinction between those who are holding them and have not yet opened, and then you actually have stores that have opened that are card licensee stores.
Speaker 2:Correct. Correct. I think there's now over a little over a hundred card dispensaries that are open. But there have been several hundred more that have been licensed that are not operating yet.
Speaker 1:And then the final lawsuit, Sands of Cannabis LLC versus, the cannabis control board and the office of cannabis management.
Speaker 2:Yeah. So this one was filed on May twentieth of twenty twenty four. The petitioner is a card licensee who's challenging their proximity protection denial by OCM on the grounds, once again, that it is arbitrary and capricious. They are saying that OCM denied their location on the basis that it was within a thousand feet of another retail dispensary, but OCM never disclosed location of the nearby dispensary that was supposedly blocking them. And they also are arguing that even though the MRTA does set forth a number of waiver factors for being able to waive proximity protection challen restrictions, that there's no actual waiver or appeals procedure or process in place that you can actually access.
Speaker 2:So they said that they emailed OCM and its general counsel on January twenty fourth of twenty twenty four asking to appeal their denial of the location, and they still up until the day that they filed, which was May 20, they did not receive a response to that request. So they're saying that because the proximity restrictions in the MRTA expired for registered organizations, in, December of twenty twenty three, and because there have been a number of waivers of proximity restrictions for the November queue applicants, I believe at the last CCB meeting, OCM announced that it would be waiving the proximity restrictions for all the November queue applicants by essentially giving them provisional licenses. So anyone who applied with a property that was blocked by proximity protection is going to get essentially a provisional license in its place. And so they're saying that the decision to do that, the decision in the MRTA to actually have an expiration date on the proximity restrictions for registered organizations, that those things are showing that there is an uneven application of any supposed waiver of the proximity protection restrictions. And OCM did also, at the last meeting, give provisional cards an additional twelve months to find a location.
Speaker 2:But they're saying, notwithstanding that, there still is an uneven application of these waiver rules because there's no actual formal procedure in place for appealing denial of a location or for seeking a waiver. They're saying the the factors are listed in the MRTA, but OCM has not actually implemented a process by which we can even utilize those factors and get a reversal or any sort of consideration of why our location should be exempted from the proximity protection.
Speaker 1:Well, father, I can't tell you how grateful I am for you to putting this list together and doing the work, that was necessary to have this conversation today. So I wanna thank you very much. It's clear why you're a super lawyer in cannabis law. So thank you. Thank you so much.
Speaker 2:You're so welcome, and thank you so much for having me.
Speaker 1:Fatima and I had this discussion a few weeks ago, and fortunately, there has not been any significant movement on any of these cases. In Gracious Greens, a suit revolving around the 1,000 to 2,000 foot buffer between retail shops and proximity protection, the state did file a motion to dismiss. There has been no ruling yet on that motion. I very much want to thank Fatima for the work to put this list together. Thanks for listening.
Speaker 1:We'll be back in two weeks with a segment on cannabis and traffic safety, as well as our first discussion with a New York state licensed cannabis cultivator. If you're enjoying the show, leave us a rating and review on your favorite podcast platform. It helps new listeners to find the show. Joy's session is produced by me, Herb Barbault, with additional production and engineering by Matt Patterson with Rebecca Malpica on digital marketing and social media. In addition, thank you to Cannabis Wire.
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