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With both sides seeking declaratory judgment in their favor during Friday’s packed hearing in Carmine Fiore et al v. New York State Cannabis Control Board et al, State Supreme Court Judge Kevin R. Bryant instead extended any decision on the case for two weeks, leaving in place the injunction he previously imposed on state cannabis regulators that prevents them from approving additional CAURD licenses or finalizing already approved CAURD licenses. After hearing “passionate” testimony from lawyers representing the litigants and other impacted parties, Judge Bryant all but begged the attorneys and their clients to find common ground and a solution rather than hold out for an outright legal win. He gave the parties two weeks in which to come up with a resolution and set a deadline of Tuesday at 5pm to file any additional pleadings with the court.
As Cannabis Business Executive reported last week, the harm a lengthy halt to the CAURD program would cause is certain to be severe, not just for CAURD applicants but also the many ancillary businesses and service providers that licensees must contract with in order to open and operate their businesses. That point was driven home by a group of CAURD applicants that gathered ahead of the hearing Friday to publicly appeal that the case be dropped, as well as in the courtroom, where Judge Bryant heard from Assistant Attorney General Shannan Krasnokutski, representing the defendants, and an attorney representing CAURD applicants, regarding the extent and breadth of harm a continuing injunction will cause their clients and the CAURD program as a whole.
But Judge Bryant also heard compelling testimony from the plaintiffs’ attorney, Brian Burns, who argued that the harm caused to his clients – service-disabled veterans seeking cannabis licenses in New York – by being excluded from the CAURD program was a result of regulators who had exceeded the mandate given them by the state of New York by creating a CAURD program that excluded categories of impacted people the state specifically wanted to prioritize. Those latter points were buttressed in court by a lawyer representing The Coalition for Access to Regulated & Safe Cannabis (CARSC), an organization of leading MSOs – Acreage Holdings, Curaleaf, Green Thumb Industries, and PharmaCann – formed in order to pursue a separate lawsuit filed earlier this year against the Cannabis Control Board that questioned the legitimacy of the CAURD program on similar grounds as the current lawsuit.
With this as the backdrop for Friday’s court date, the stage was set for an impactful hearing that had the potential to either clear the way for the continuation of the CAURD program or scuttle it completely, throwing New York nascent adult-use program into a state of chaos even worse than what it is currently experiencing. As the hearing began, Judge Bryant told the room that while he understood the stakes, he would not tolerate any outbursts during the proceedings, and cautioned the audience to “hold your emotions and not let it get to the point where it becomes a distraction in any way. Some of you travelled a significant distance to get here, and I don’t want to have to ask anyone to leave.” He had to remind the room of his admonishment only once during the proceedings.
Success on the Merits
Judge Bryant divided his inquiry into two parts: he first wanted to hear the lawyers’ arguments on the likelihood of success on the merits and then he wanted to hear from them on the subject of irreparable harm. Burns spoke first and at length on behalf of his Air Force-veteran clients, arguing, “MRSA puts them as service-disabled veterans in a priority category for obtaining a license. MRSA also expressly requires that the application period including adult use retail dispensary licenses, the kind of licenses that our clients need, must be open to all applicants at the same time.”
The reason why they were in court, added Burns, was precisely to argue for a continuation of the injunction, in order to “stop the defendants” from issuing any more CAURD licenses or operation approval of any approved CAURD licensees. Their likelihood of success, he pointed out, was rooted in the fact that “they created this new retail dispensary license class that is not provided for by the statute, and not provided for by the legislature.
“When a regulatory agency acts directly contrary to what the statute requires,” noted Burns, “it’s a violation of the separation of powers.” Furthermore, he added, “the license category that they created – the conditional adult-use retail dispensary license – is not in the statute.
“What the legislature requires in terms of prioritization is that priority go to the social and economic equity applicants, and there are six specific categories, one of which is the category that our clients fall into: service-disabled veterans,” said Burns. “But there’s also women-owned businesses, minority-owned businesses, individuals from communities disproportionately affected by marijuana prohibition, and the legislature set up a goal that says 50 percent of the licenses should go to these categories.”
Burns noted additional requirements contained in MRSA that he alleges were ignored by the regulators in their zeal to create the CAURD program as it exists, and hammered home his contention that in essentially creating a class of licenses out of whole cloth, the OCM and CCB violated the intent of the legislature, even if the legislature gave tacit approval to the program by budgeting money for it, as the defendants have argued in their written response. “They could do that by amending the statute, not by allocating money to budget it,” countered Burns, concluding his remarks with, “That’s our argument on the likelihood of success on the merits, and we think it’s pretty strong.”
The strength of his merits arguments was made apparent when Assistant Attorney General Shannan Krasnokutski began her comments by noting the “technical” aspect of its rationale. “The plaintiffs’ argument today, much like the argument in their papers, is focused very technically on a couple of provisions in the cannabis law,” she said. “And what I want to do today is something that I think is done a little bit better in oral argument than in papers, which is to take a little bit bigger picture view than that, because I think everybody’s papers pretty well laid out for technical analysis all of the provisions that each side believes apply and don’t apply.”
Rather than thwarting the will of the legislature, Krasnokutski argued that MRSA is purposefully vague on some points in order to give regulators wriggle room, and that the program under attack was considered and approved by the state as one part of an ambitious whole, or it would not have funded it. “The legislature was in fact developing a supply chain, of which the CAURD dispensaries wouldn’t be the end, so the legislature was aware of all of this was meant to work together,” she told the court.
However, in response to questions from the judge whether she could point to any specific language in the statute giving the regulators such sweeping rights to change the program, Krasnokutski had to concede that the idea was “conceptual,” and pointed to a press release issued last year that alerted the legislature to the progress of the CAURD program.
“The point I’m trying to make is that the CAURD program is not based only on the MRSA, or a single provision of the MRSA, or single section of the MRSA, but is based on an entire legislative framework and was intended to be a separate program,” she told the court. Asked again by Judge Bryant if it was her position that “the legislature by passing funding actually intended to authorize all of the terms and conditions within CAURD,” Krasnokutski replied, “It is our position that by passing the legislation that they did, in conjunction with the provisions that already existed in MRSA, that yes, they intended to give the agency sufficient direction and discretion to fill in the rest of the gaps.”
At this point in the proceedings, and despite any remarks offered by the other two attorneys, who were allowed to speak on the merits, the edge in terms of pure argument likely went to the plaintiffs. Sending dispatches to LinkedIn from the courtroom, New York attorney Jeffrey Hoffman posted, “If I was scoring a fight, I would have the plaintiffs ahead on my card. Need the state to step up when we get to the ‘harm’ section and particularly the latches issues.” The latches argument asks the question, why did they wait so long to file the lawsuit?
Irreparable Harm
Proving irreparable harm is not as easy as it looks in a situation in which someone is deprived of an opportunity which does not in itself guarantee success. That said, time is of the essence when it comes to launching cannabis retail, and Burns made the seemingly irrefutable argument that “our clients are being left out, not able to get into the market and enjoy the benefits of first-mover advantage.” He described a rather convincing scenario in which licenses supposedly set aside for service-disabled veterans were seemingly snatched away and awarded to others, giving them the rare opportunity for first-mover status. In this world, the preponderance of “technical” variations between the statute and the eventual regulations only adds to the sense that the amount of harm being done by the CAURD program might even justify undoing the entire program.
Burns also anticipated the latches argument, countering that the escalating number of CAURD licenses being awarded, which began at 150 and now number over 460, only increases the lost market share for his clients and others, as well as the risk that available real estate will be taken. “The confluence of those factors and the way they coalesce into this idea of increasing the harm by potentially being late to the party to be totally excluded from the party, is why we’re here now, and not before.”
Krasnokutski began her remarks on harm with a general point that helped put the proceedings into context. “I just want to state upfront, although I know the court is aware of the standard, that this is not a situation where we’re maintaining status quo in any way,” she said. “This is a mandatory injunction. This is a situation where you are enjoining an entire industry, with a lot of stakeholders who’ve been invested in it for a long time. So, to the extent that the plaintiffs take the position that issuing this injunction is maintaining the status quo somehow. That is not the case, and in the context of this mandatory injunction, let’s have a very high burden to meet.”
Furthermore, she argued, it is failing to end the injunction that will harm the plaintiffs, and not the other way around. “Continuation of this injunction impacts the ability to implement the regulations that will allow these plaintiff to enter the market as well. At this point, the final review of the adult-use regulations is underway, and the public comment period is closed.
“They are now prepared to go on the agenda for adoption in September,” she added, “and if that happens, then the adult-use applications would open October 4, which is less than 60 days from now. The plaintiffs would be part of that adult-use general application period. It is the case, however, that if the CAURD programs were not to continue, those adult-use regulations would have to be revised.”
Now the conversation was starting to get to the crux of the matter as far as Judge Bryant was concerned. Cleary, the jurist was in search of a solution. He asked Krasnokutski about the two tracks of adult-use licenses being pursued by the regulators, “Was the priority of the justice-involved individuals actually required to the exclusion of the other approach. Isn’t there a less-impactful way that both can be addressed without any harm to a particular group?”
“I don’t believe that our program was intended to constitute an exclusion,” Krasnokutski replied. “The two things are just simply on separate timelines. They had to go through a public comment period, they then were revised, and they went through another public comment period, and they are now going to be adopted. I think that a lot of people, probably including a lot of people in the agency, had hoped that that would happen faster, because it’s not intended that once the CAURD program is somehow finished, that we’re going to open the adult-use program.”
“So, there’s no reason why they can’t move on dual-tracks,” said Judge Bryant, more statement than question.
‘That’s what I’m trying to say, your honor,” said Krasnokutski.
“And so why hasn’t that happened,” asked the judge.
“I think that is happening,” she replied. “I just think that it isn’t happening as fast as people would have liked.”
During this same round of questioning, Krasnokutski also revealed, perhaps for the first time, the number of anticipated retail licenses that will be awarded by the state, more or less. “I am told that there will ultimately be 500 to 550 CAURD licensees,” she said after conferring with her regulator clients. “There are 453 currently provisionally approved from over 900 applicants, so only 24 that have fully been through the approval process.
“The CAURD licensing program, though, does not preclude the opening of the adult-use program.,” she added. “It’s not intended to hold up the adult use program, which is intended to start in October regardless of where the CAURD program is. The adult-use program is expected to initially issue 1000 to 2000 licenses, and there’s not intended that there will be any cap on that. It’s anticipated that any cap on the program will depend on what the market will bear.”
Seeds of Compromise?
Following a smattering of final arguments by the lawyers, Judge Bryant made what might end up being one of the more pivotal decisions in the life of New York’s cannabis program when he decided to not only put a ruling off by two weeks, but to toss that ruling back into the parties’ court for them to arbitrate in the spirit of compromise rather than victory.
“I want everyone back here two weeks from today at 10am,” he ordered with slow deliberation. “But I don’t want it to stop right here. It’s clearly obvious the impact on everyone – you heard it from the attorneys – and there are other groups as well.
“I do believe that there is some space that you can all find together to bring this to a resolution that allows everyone to progress,” he added hopefully. “I know you can find it in yourselves. You just need to communicate with each other and come up with ideas. And put the time and effort into it. And do it quicker if you’re committed. And don’t doubt that.
“I don’t want anyone in the state to feel unnecessary pain,” he said pointedly “I just need some reasonable advice with some good ideas that can make everyone flourish. And I’ve received communications from individuals that will not be taken into consideration. It’s not part of the record. I’m not even looking at the m at all, so save your time and effort. As you have all heard, you have attorneys that have been making passionate points. We’re at the point where this needs to be resolved for everyone’s benefit. That can happen. It can.”
For observers keeping score, an argument can certainly be made that it is far easier to envision compromise by the defendants than the plaintiffs (or the MSOs, for that matter), especially when one considers the lengths they have gone to impugn the legality of the CAURD program. And however solid their arguments may be for delaying the lawsuit until now, it is a delay that can only increase the harm to CAURD applicants caught between what may have been the best of intentions on the part of the state and its dismal execution of those intentions.
One can also presume that Judge Bryant is fully aware of the funky dynamics at play in the state, and that as compelling an argument as their lawyers may make regarding the unconstitutionality of the CAURD program, the MSOs that make up CARSC already have first-mover status in the state of New York, albeit medical, but also vertical, and as such, possess advantages that the service-disabled veteran plaintiffs can only dream of and will likely never attain themselves.
We cannot know for sure, but the judge may have taken all of that into account, added in the prospect of multiple lawsuits from CAURD applicants if the injunction continues for long or the program is gutted, factored in the start of general adult-use applications in two months or so, and simply concluded that no one will really win if he decides the case either way. And if one side or the other fails to heed his request and returns in two weeks unwilling to compromise, maybe they will have cast the die of their own defeat.
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