NY Cannabis Agency Can't Enforce Emergency Hemp Regulations

A New York state judge blocked cannabis regulators from enforcing an emergency rule adopted over the summer aimed at hemp-derived intoxicants, siding with drink makers who say the rule was unsupported and could drive them out of business.

In an order filed Thursday, Justice Thomas Marcelle granted a bid led by North Fork Distribution Inc., which does business as Cycling Frog, for a preliminary injunction against the New York State Cannabis Control Board and Office of Cannabis Management, finding that the agencies didn't provide sufficient reasoning for the sudden emergency rule made in July.

According to the order, the suit stems from a CCB decision on July 19, which put into place regulations regarding the amount of THC that hemp-derived products could contain. The petitioners—who make hemp-derived beers and other drinks with THC levels that the judge said rendered them "potent intoxicants"—have argued that the emergency rule violated the State Administrative Procedure Act and the state's Cannabis Law.

Justice Marcelle wrote Thursday that the question here is not whether the state agencies can adopt regulations for hemp-infused products, but whether they followed the correct procedure in enacting the emergency regulations, which require that they "fully articulate in writing" the circumstances that constitute an emergency.

According to the order, the one-and-a-half-page justification given in July does not suffice, as it does not cite evidence or studies substantiating the idea that New Yorkers have been misled or harmed by the products, and its "parade of horribles" about the risk to children lacks any specific facts on which the concerns could be based.

The agencies have submitted evidence in response to the suit, but even considering those filings, which cite regulatory analyses of other states and anecdotes of harm, the judge found that they have "at best only reasonably forecasted the potential for trouble," which is not enough to justify the decision to immediately implement the emergency regulation, rather than waiting for the public comment period to finish.

Justice Marcelle also found that the petitioner companies stand to suffer irreparable injury, as the regulations could force them out of business, or at the least cause a delay that would erase the advantage they had from being the first to market for their products.

Any monetary damages are too speculative to calculate or prove at this point, the judge wrote, so they cannot be adequately compensated by a dollar figure.

The judge added that the companies persuasively argued that the true aim is not to protect public health, but rather to push consumers away from the hemp-derived products the petitioners make, heretofore unregulated, and toward cannabis companies that are licensed — and taxed — by the agencies.

While the balance of equity and who is more harmed by the presence or absence of the injunction is a closer call, Justice Marcelle sided with the companies, citing how without the injunction, workers for the companies will suddenly be without work and likely find difficulty supporting their families.

"The court hoped respondents would have acted with deliberate speed in issuing permanent regulations," the judge wrote. "But they have not done so. Consequently, the court must exercise its discretion."

Gary I. Lerner of Davidoff Hutcher & Citron LLP, representing the companies, said Monday that they are pleased with the ruling.

"Cycling Frog and the other Plaintiffs look forward to engaging with the State to work productively toward the adoption of permanent rules which serve the twin interests of protecting the public, health and safety, while at the same time fostering the growth of the hemp industry in New York as contemplated by the Federal Farm Bill and New York's Cannabis Law," Lerner told Law360.

A spokesperson for the Office of Cannabis Management declined to comment Monday.

The petitioners are represented by Gary I. Lerner and Joseph N. Polito of Davidoff Hutcher & Citron LLP.

The state defendants are represented by Letitia James, Ryan W. Hickey and Alexander Powhida of the New York Attorney General's Office.

The case is North Fork Distribution Inc. et al. v. New York State Cannabis Control Board et al., index number 907325-23, in the New York State Supreme Court, County of Albany.