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December 23, 2022

New York Cannabis Insider: "Injunctions and Revocations: Potential Issues for the CAURD Program"

Jason Klimek, Cannabis Team co-leader, had his “Injunctions and Revocations: Potential Issues for the CAURD Program” guest column published by New York Cannabis Insider. The article explores the effects of the lawsuit that resulted in the partial injunction for New York State’s Conditional Adult-Use Retail Dispensary (CAURD) program as well as other cases in court that could affect the program. 

The Variscite lawsuit resulted in OCM being barred from issuing CAURD licenses in the Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn on the grounds that that CAURD violates the US Dormant Commerce Clause (DCC). However, NY Attorney General Letitia James filed a motion to modify the injunction to just the Finger Lakes region. 

Jason’s article goes into detail about a case in Illinois, Finch V. Treto, in which “the court confronted a similar claim that the Illinois program violated the DCC. However, unlike the Variscite case—where the plaintiff had applied for the license and then filed suit—the plaintiffs in Finch did not file applications, yet the court held that the plaintiffs had standing to sue, which is a requirement to maintain a lawsuit in federal court.”

This case may have bearing on future lawsuits in New York State. Jason’s article states, “This could mean that the nine New York regions not currently enjoined by the November 10 decision may be subject to lawsuits filed by parties who did not apply because they felt it was ‘futile’ due to the fact that they did not have a New York conviction. Using the same rationale as Judge Sharpe did in the Variscite case, a federal court in New York State could find that the CAURD program violates the Dormant Commerce Clause, and block CAURD licensing for the entire state.”

Jason’s article also notes that a 2019 IRS ruling may negatively affect the not-for-profit CAURD licenses issued in November 2022; 501(c)(3) entities are at risk of having their tax-exempt status revoked if they are awarded a CAURD license by OCM due to cannabis still being federally illegal—“engaging in activities that contravene federal law.” If a 501(c)(3) organization has its tax-exempt status revoked, Jason’s article explains that it “could face a tax bill in the millions of dollars.”

Ultimately, the CAURD program in New York State could be in jeopardy. Holding this program up will likely result in growers and processors not being able to find customers for the foreseeable future.

Jason’s article was also quoted in “NY Cannabis Insider’s Week in Legal Weed for Dec. 17, 2022” on Syracuse.com.
 

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