What the Hell Is Going on With Legal Weed in New York?
We spoke with NY Cannabis Insider's Brad Racino, who broke down what all of the lawsuits mean for the future of the state's legal weed market: "It's probably the second quarter of 2024 before you'll even start to see more retail stores open."
11:54 AM EDT on August 31, 2023
There are currently only 23 recreational cannabis retailers operating in the entire state of New York, and thanks to an ongoing lawsuit that's put a pause on any new cannabis businesses getting licenses, that's highly unlikely to change any time soon.
Earlier this month, a New York State Supreme Court judge placed an injunction on the Office of Cannabis Management (OCM) and the Cannabis Control Board, who are both being sued over the constitutionality of the state's Conditional Adult-Use Cannabis Retail Dispensary (CAURD) licensing program. That program was designed to give people who've been directly impacted by the war on drugs a head start in entering the legal cannabis industry.
But so far, it hasn't exactly worked out that way. The same judge almost granted 30 CAURD license applicants an exemption, but walked that decision back on Tuesday in light of some errors from the OCM. No new licenses are being issued for the foreseeable future, and even CAURD licensees will not be allowed to open stores until the lawsuit reaches some kind of conclusion.
To help us unpack what exactly is going on with recreational cannabis retail in New York, we spoke to Brad Racino, the editor and publisher of New York Cannabis Insider, a publication dedicated exclusively to covering the legal cannabis rollout in New York state. According to Racino, things aren't looking great for anyone in the state's legal weed industry right now, thanks not just to the current injunction, but the way cannabis legalization has played out in New York since day one.
This interview has been edited and condensed for clarity.
Hell Gate: I know this is probably easier said than done, but could you sum up what's going on with recreational cannabis retail licensing in New York right now?
Brad Racino: To put it as simply as possible, in 2021, New York state passed the Marijuana Regulation and Taxation Act (MRTA). That's what set the framework for the rollout of the legal marijuana marketplace. In that law, the legislature prioritized restorative justice, minority and women-owned businesses, and service-disabled veterans in its licensing plan— the state had to set aside 50 percent of most licenses it was going to give out for these kinds of marginalized groups.
That makes sense. So, what happened?
The Office of Cannabis Management, which was created by this law last year, decided to implement a new kind of licensing scheme that prioritized what they call "justice-involved" individuals— those are people who had prior marijuana convictions, or they have people in their immediate family with convictions, who can also prove that they've run a profitable business for at least two years. That's called the CAURD license, which has been a topic of debate since it was conceived last year, with a lot of attorneys saying this is going to be extremely problematic.
Because what the OCM has done here has kind of usurped the cannabis law. They are prioritizing an entirely different class of people than what the MRTA laid out, and it's going to be a problem.
The OCM got sued many months ago by this company out of Michigan called Variscite. Variscite brought this up in its case, but the OCM settled with them. So the whole thing about, is this constitutional, is this legal, never got decided, because the OCM handed [Variscite] a license and [the company] walked away.
However, earlier this month, four service-disabled veterans filed a lawsuit against the OCM for the same thing, calling the CAURD program unconstitutional—basically asking a judge to end it and for the OCM to open up licensing to everybody at the same time. That was the wording that was in the cannabis law—the applications to get a license for retail dispensaries had to open to everybody at the same time.
The judge heard the case and basically sided with the veterans, and placed an injunction on all of the CAURD licensees who have not yet opened their dispensaries.
How many people are we talking about when we talk about CAURD licensees?
There are 463 CAURD licensees, but only 23 of them have gotten their shops open. There are 17 brick-and-mortar stores, and six of them are delivery only. So that leaves 440 licensees who haven't yet opened who are affected by this injunction.
Then, the newest wrinkle—the judge said during the case last week that he would grant an exemption from the injunction for CAURD licensees who are at the finish line, who are ready to open and have completed basically everything, to the point where the OCM just needs to hand them a license. The judge asked the OCM to submit a list to the court of how many CAURD licensees are ready to open. The OCM submitted the list, and the judge said during the court hearing that he would grant an exemption to these 30 CAURD licensees.
Then, in between when he said that, to when the court actually wrote up his order granting that exemption, the veterans filed another motion that said, "Hey, hold on a minute, this list of licensees, there are some problems here. Not all these people are ready to open, and some shouldn't be opening where they say they're going to open." The judge read that letter, looked through the evidence and said, "Oh yeah, you're right again, OCM messed up, they have not complied with this court order, so forget what I said the other day. I'm not granting any exemptions to anybody—the injunction stays." Then, he said that on a case by case basis, he'll take into consideration any licensee who says they're at the starting line, but OCM needs to really submit the right paperwork this time.
So, we don't know what's going to happen next as far as how many of those 30 are actually ready to open. The OCM is going to go back and argue for them to open in front of the judge. That'll play out in the next week or so, I assume.
Woof. So are any of the retail cannabis businesses that are already open going to be impacted?
I don't think this does anything to them, and I've talked to them, and they think they're okay. However, if this case keeps going and there's a real, full court hearing—which may take a year or more—and a judge ultimately decides that the CAURD program is unconstitutional, nobody really knows what's going to happen to the existing CAURD licensees. How can you operate a business that is set up on shaky legal ground? Basically, you're running an illegal business, if the judge decides that way. I've talked to a bunch of attorneys, and nobody really knows what's going to happen.
If there's a precedent for this, I can't find one, and no attorneys I know can find one, so it's up in the air what will happen to them if this keeps going and the judge rules the licensing program is unconstitutional.
What kind of impact do you expect the pause on issuing CAURD licenses will have on the rest of New York's cannabis industry?
This has ripple effects all the way upstream and all the way downstream. Pick a part of the industry, and it's affected by this. The most obvious people to talk about are the growers, who have just been screwed several ways to Sunday—every week, it's another blow to them. They were conditionally licensed last year on the promise that there would be, by this point, around 200 dispensaries open and operating. There are 280 or so growers that were licensed. They grew all last year, they harvested their crops in October, and then come November, there are zero retail dispensaries open. Come December 31, there was one. By the end of January there were like four or something.
And at this point, like I said, there's 23. So they grew, by conservative estimates, something like $500 million worth of weed, hundreds of thousands of pounds. And it's just sitting there, getting stale in their drying rooms. Every month that goes by, the weed degrades and it's not as good.
I did an informal survey of growers this year, and I got about 40 responses back, asking all these licensees, "Given what happened last year, are you growing again this year?" One hundred percent of people said they were. A lot of them said they were scaling back the size of their grow operation, but they were still growing.
So now, these people probably already planted their crops, and we're a couple months away from October, when they're going to harvest again. And now, they're going to now have another round of all these hundreds of millions of dollars worth of weed, on top of last year's, and nowhere to sell aside from these 23 stores and the grower showcases that they're doing around the state, but those are not making much of a dent in the supply issues. So they're really in a bad way.
Then, you've got the processors, who are reliant on the growers doing well and retail doing well. So they're hurting. Then you've got all the ancillary businesses, whether they're attorneys or consultants, or real estate agents, or security companies, or insurance companies. All those people depend on this ecosystem being up and running, and they're equally hurting, because they have no business. There's nobody with any money at all right now in New York cannabis, so they're all looking at what their next move is gonna be.
I've got to assume the next move has to be related to the absolutely booming illicit market.
Yeah. It's the worst kept secret in the world right now, how this stuff is kind of flying out the back door, falling off the truck, and there does not seem to be much oversight of it. OCM is not really staffed up enough to be doing quality inspections, or inspecting everybody all the time. That side of things is quickly going from bad to worse.
Right, like what else are people supposed to do?
I shouldn't opine on that, but you set up a business, you put in tens, if not hundreds of thousands, of dollars into some kind of promise from the state, and they just don't deliver time and time again.
If you look around, I mean, you can see the environment for these people. They did everything the right way. They went about getting licensed, and they're getting screwed, while thousands of illegal stores are openly operating, making cash hand over fist every day, especially in New York City. They're looking at this like, "Well, what's the point of me being legit if I can just do that?" So, I get it. It's got to be a weird psychological experiment to go through, and I don't envy these people at all.
How does this all bode for the average person who's like, "I would like to buy legal weed?"
What's gonna happen next is OCM and the Cannabis Control Board are holding a meeting on September 12. It's expected that they will announce that they're going to open up applications to the general public for licenses.
Based on the past, based on the CAURD program, and how long it took for an application portal to get up and open for people to submit applications, and for them to judge them and start getting licenses, it's going to be a long time between when they open that portal up for applications, start awarding licenses, and then when people can actually get their business up and running. It's probably the second quarter of 2024 before you'll even start to see more retail stores open.
Then there's a question of, is OCM going to basically take all the current licensees that are licensed right now and just hand them a regular license, once they open up this application? If they grandfather them in that way, there really is no more CAURD program, and there's nothing to call unconstitutional.
But again, we don't know if that's going to happen, if that's what their plan is. But in the short term, basically, consumers in New York state are not going to see any new stores opening for the foreseeable future, until general licensing rolls out and people start opening up regular stores. Or, if the judge starts granting exemptions on a case by case basis, you may start to see one CAURD store open here and there, very slowly, but not enough to make a dent in the lack of retail around the state right now.
How did we kind of get into this situation? Why even create the CAURD program in the first place?
When the governor announced this in March of last year, it was billed as, "New York is taking an extremely progressive approach to legal weed—we want to restore some of the harm from the war on drugs, and we want to be bold and do something different."
Now, why they didn't just do that in general licensing, I still don't know. Like I said earlier though, the law that legalized cannabis the next day said that 50 percent of licenses had to be awarded to marginalized groups. I'm pretty sure they could have just defined marginalized groups in part as the same people identified in the CAURD program, and given them a license.
The other thing to point out is they were warned about this from day one by attorneys in the space, over and over and over again, saying this is going to be a problem. And a lot of people asked for the New York state legislature to codify the CAURD program into law, so that it wasn't OCM just going out and doing something, it would be the legislature saying, "This is legal, we're adding this to the MRTA." They did that with the conditional growers and the conditional processors—those license classes have existed since last year. At the end of the day, it's just that they wanted to do something different and be progressive. But the question remains about why they did it this specific way, and nobody really knows that except for people in OCM and CCB.
Do you get the sense that there are bigger forces at play when it comes to the lawsuit from the service-disabled veterans?
That's the ongoing conspiracy theory, right? So, the veterans filed their lawsuit, and then shortly after, the Coalition for Access to Regulated and Safe Cannabis added themselves to the lawsuit. That group is basically made up of some of the multistate operators in New York, the big medical marijuana companies. They had already been suing OCM over the CAURD program in a different lawsuit, so they just, I guess, thought it makes sense to kind of combine these lawsuits and argued a case alongside the veterans, which then led to people saying, "OK, this is this is a medical marijuana-backed kind of lawsuit that looks to hurt the industry, because the MSOs are mad that they can't get in to this industry in a timely manner."
Now, I personally know the plaintiff in this lawsuit, Carmine Fiore, who's the lead veteran. I've talked to him many times, and we've run some of his guest columns in the past. He was definitely looking for a license. He was looking to set up a shop in Long Island and was getting really, really annoyed by the delays and the problems and all the hurdles, and he and a few others that just had had enough sued over it. The medical lawsuit did not ask for an injunction or a temporary restraining order on the CAURD program. Carmine's asked for a temporary restraining order, and apparently that can expedite a case and make it happen faster. So even though Carmine filed his months after this multistate operator lawsuit, because he included that TRO language, it got heard and adjudicated faster.
I don't really want to weigh in on the conspiracy theories, and how much medical marijuana companies have to do with this. Are they funding it? I don't know. But at the end of the day, it's obvious that Carmine wanted a license. Now, everybody hates his guts. But at the end of the day, I think you've got to look at a court case's merits and what they're arguing. So far, the judge has sided with Carmine over and over and over again. So you've got to kind of question, who's at fault here, really? Who's to blame? Is it Carmine or is it the way that this whole program was instigated and created and rolled out?
That's what I'm wondering, too—whose fault is all of this?
I wouldn't say there's any one person to place blame on, but there are certainly many people to place some blame on. A lot of it too, though, is the reality of operating in the cannabis industry. There are already so many hurdles that exist here that don't exist anywhere else, whether it's banking or insurance or security or whatever. It's already a monumentally difficult task. Then you add in all these other things, these different agencies, these egos, these problems foreseen, unforeseen. It's just a tornado, a disaster.
The main thing for me that I'll always come back to, as a reporter, is accountability and the lack thereof. The fact is that all of this is happening on Governor Hochul's watch, and she has not said anything—I don't know the last time she mentioned the word "cannabis" in public or showed up at an event or anything ever since it started cascading off the ledge. She's the one who promised during an editorial interview with our editorial board at Syracuse.com back in October, she said 20 dispensaries would open by New Year's day, and 20 more a month after that. And there are countless people who listened to that, read that, and then folded that into their business plan. The governor's promising this, and then she just hasn't mentioned it again. She won't talk about it.
And I think, because it's cannabis, not a lot of people pay attention. I've covered every kind of industry you can imagine, and this is a really weird one. People hear "cannabis" or "weed" and they just kind of roll their eyes, but we're talking about a plant that was supposed to generate a $5 billion a year industry, employing 60,000 to 80,000 people. It's a legitimate industry, and it should have reverberations among voters. Even if you don't smoke weed at all, it's an industry. So it's kind of fascinating to see the lack of accountability. I question, if this were any other industry, if this were technology or education or transportation, like, what, what would be happening right now? Would there be calls for resignations, voting people out of office? Whatever it is, because it's weed, it's just different.
There's all these different people and agencies, and the egos and politics at play here are kind of fascinating to watch from an observer standpoint, but it all has very real effects on people's lives.
At the end of the day, the people who are being hurt the most are the exact people New York promised to help and give a leg up from day one. That's the cruel irony of all of this.
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