A federal appeals court on Tuesday ruled that certain criteria used to award licenses to open cannabis businesses in New York State are most likely unconstitutional, in a decision expected to ripple across the country.
New York, which legalized recreational cannabis in 2021, gives the highest priority to low-income applicants who were convicted of marijuana offenses under its past laws and have lived in neighborhoods where marijuana arrests were highest.
But in a 2-to-1 decision, judges on the Court of Appeals for the Second Circuit in Manhattan said that the criteria, which excluded people with federal or out-of-state marijuana convictions from receiving priority, appeared to violate constitutional doctrine barring states from favoring their own residents over people from other states.
“Congress has given New York no clear permission to enforce protectionist marijuana licensing laws,” Judge Dennis Jacobs wrote in the majority opinion. He added, “New York’s prioritization of applicants with convictions under New York law is a protectionist measure that cannot stand.”
The ruling, in a case brought by two out-of-state applicants who were denied priority status, had no immediate effect on licensing or on existing businesses in New York or elsewhere. The case was returned to the trial court for further proceedings.
Still, Neil Willner, a cannabis lawyer based in New York, said the decision struck at the heart of the state’s efforts to use legalization to make amends for its past enforcement against marijuana.
“This was the state’s attempts to right the wrongs of New York policing,” he said.
The decision was the latest blow to New York’s legal cannabis rollout, which has been troubled by delays, lawsuits and the proliferation of illegal dispensaries. Earlier this month, the Office of Cannabis Management said that because of its own measuring error, more than 152 licensed dispensaries were too close to schools. Officials said the businesses would have to move unless the Legislature carved out an exception allowing them to stay in place.
Still, the industry is expanding with nearly 500 dispensaries and $890 million in sales this year as of July.
The biggest impact of the ruling, Mr. Willner added, was that it would provide ammunition for challenges to similar criteria in other states that have legalized cannabis. The plaintiffs have filed lawsuits in a handful of states, including California, Washington, Maryland and Rhode Island, he noted.
The ruling was also the first time that a federal circuit court had applied the doctrine known as the dormant Commerce Clause to recreational cannabis markets, which remain illegal under federal law, Mr. Willner said. The doctrine restricts states from enacting policies that favor local businesses over those from out of state.
The lawsuits were brought by two companies, Variscite NY Four and Variscite NY Five, that applied for recreational dispensary licenses but were ineligible to receive priority. The companies are owned by two men from California who were convicted of cannabis offenses under California law and one of their lawyers, Jeffrey Jensen, who has filed several lawsuits targeting social equity programs in New York and other states.
The decision may force New York to revise the order in which it considers thousands of pending applications for business licenses. At a public meeting in July, regulators said there were nearly 4,700 applications awaiting consideration, more than half of them for recreational dispensaries.
The applications have been waiting since December 2023 for review. Regulators have said they plan to begin the process in January, after completing an earlier round of approvals, though it may take another seven years before they finish them all.
Ashley Southall writes about cannabis legalization in New York.
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