NY Agrees To Settle Residency Lawsuit Over Pot Licenses

New York cannabis regulators on Tuesday voted to settle a lawsuit that was hindering them from issuing the first retail marijuana licenses in one upstate region.

The Cannabis Control Board unanimously approved a settlement between the state's marijuana regulator, the Office of Cannabis Management, and an applicant who brought a federal lawsuit alleging the state's retail marijuana licensure program discriminated against out-of-state participants.

The OCM's general counsel revealed some key details of the settlement agreement on Tuesday. As part of the agreement, regulators have agreed to issue one adult-use license to the plaintiff company, Variscite NY One Inc., when those licenses become available. 

The agreement to settle follows the Second Circuit's decision in March to reduce the scope of a district court order that blocked regulators from issuing licenses in some regions of the state. The circuit court narrowed the order's effect to just one area, the Finger Lakes, out of an original five.

New York state regulators had pushed for the injunction to be limited to the Finger Lakes since it was the geographic region named as the first choice by Variscite when it applied for a retail license.

Variscite is majority-owned by a Michigan resident named Kenneth Gay who has said in court filings that he would have qualified for one of New York's first conditional adult-use retail dispensary licenses except for the fact that he has never lived in the state where he wants to sell pot. Variscite initiated its lawsuit in September.

Linda Baldwin, the OCM's general counsel, told the board Tuesday, "With the prospect of the litigation ongoing, the office has recommended that the litigation be settled, and the plaintiff has agreed to settle it so that we can move forward with the CAURD program and issue licenses also in the Finger Lakes region."

Board member Reuben McDaniel said at the meeting, "Typically when you settle a lawsuit, it's because of a monetary decision. I think we felt that we had strong ground on this. However, it is impeding the CAURD licensees in that region."

He added, "I'm just very pleased that the board is considering this today. I'm fully supportive of it, not because I think that the lawsuit has any merit, but our CAURD licensees need to be in the Finger Lakes as well, getting to work, and on the ground." 

The agreement, which was filed with the court on Wednesday, is still pending approval of a federal district judge. An OCM spokesperson told Law360 on Tuesday, "We will have more to share when [the] settlement is finalized."

Counsel for Variscite did not immediately respond to a request for comment Tuesday.

Companies owned by Gay have pursued litigation challenging cannabis licensure in Los Angeles and Sacramento, California, asserting similar claims that regulators' criteria for cannabis retail applicants are tied to residency and therefore constitutional violations. The Sacramento case is currently pending in the Ninth Circuit.

Variscite is represented by Christian Kernkamp of Kernkamp Law APC and Thomas Higgs of E. Stewart Jones Hacker Murphy LLP.

The state is represented by Letitia James, Barbara D. Underwood, Jeffrey W. Lang and Alexandria Twinem of the New York Attorney General's Office.

The case is Variscite NY One Inc. v. New York et al., case number 1:22-cv-01013, in the U.S. District Court for the Northern District of New York.