It was reported out of Albany late on Wednesday, September 6th, that yet another lawsuit has been filed against New York and the state’s Office of Cannabis Management (OCM). This time, it’s a federal suit brought by the anti-cannabis group Cannabis Impact Prevention Coalition (CIPC), and it challenges the legality of the $200 million Cannabis Social Equity Fund that was established last year to support the opening of adult-use retail businesses. Additionally, the suit names Governor Kathy Hochul, state Tax Commissioner Amanda Hiller, and various top OCM officials as defendants, claiming that they “are attempting to orchestrate a marijuana trafficking operation sponsored by the state of New York utilizing taxpayer funds and public employees and resources.”
Why Is The Cannabis Impact Prevention Coalition (CIPC) Suing New York's Office Of Cannabis Management?
This is the second lawsuit that CIPC has filed against New York’s legal market. (The group, represented by New Jersey attorney Dale Evans, is allegedly funded by individual donors and claims to have no ties to corporate or pharmaceutical financial support.) In June, the coalition filed a civil suit in Albany’s Supreme Court that seeks to overturn the Marijuana Regulation and Tax Act (MRTA), which legalized adult-use cannabis in 2021. The plaintiffs’ complaint compares the state government’s assertions about the cannabis industry and the plant’s medical applications to the example of tobacco companies making fraudulent claims about their products.
In the case filed this week, CIPC argues that cannabis stores “remain subject to federal prosecution for violating the federal Controlled Substances Act.” The coalition charges the Dormitory Authority of the State of New York (DASNY), with facilitating the opening of businesses that are by their very nature illegal.
“It is unlawful to knowingly open, lease, rent, maintain, or use property for the manufacturing, storing, or distribution of controlled substances,” the lawsuit states. “DASNY normally finances, designs, and builds health and education infrastructure. Ironically, DASNY would instead become the biggest marijuana trafficking landlord in New York.”
Despite the fact that 38 states and the District of Columbia have legalized some form of cannabis (with 23 of those opting for full adult-use legalization), CIPC continues to argue that the proceeds from the sale of cannabis products in these areas “are the proceeds of marijuana trafficking… The fact that the state collects these proceeds as taxes does not magically cleanse them of their illegality.”
What's Happening With New York's Cannabis Social Equity Fund?
New York’s Social Equity Fund, run through DASNY and overseen by former NBA star turned cannabis entrepreneur Chris Webber and his business partner Lavetta Willis, was established in Spring 2022. However, the fund had reportedly been months behind its deadlines until a recent investment this July by the firm Chicago Atlantic, which pledged up to $150 million, augmenting at least $50 million to finance the opening of Conditional Adult Use Retail Dispensary (CAURD) locations.
As reported by the Olean Times Herald, “The fund is intended to be used to build the retail shops that are being offered to licensees who will sublease them with what state officials have said will be low-interest loans. The build-out of those shops has been handled by the Dormitory Authority, which has faced fierce criticism from industry stakeholders, including for previously withholding information from licensees about the costs associated with the turnkey shops. Social Equity Impact Ventures, which was selected to be the fund’s partner more than 15 months ago, missed its [September] 1 target to secure the $150 million investment without publicly announcing any change in its timeline.”
“Social equity is the cornerstone of New York’s cannabis industry, and here we aim to pair progressive licensing with progressive and innovative capital solutions,” Chicago Atlantic founding partner John Mazarakis and Managing Director Peter Sack said in a statement. “The success of New York’s social equity initiatives and its (conditional) licensees will benefit all industry participants and further support the development of the legal cannabis industry nationwide.”
DASNY and OCM representatives have also proposed making low-interest loans of up to $100,000 readily accessible to CAURD licensees to expedite the process of securing and opening retail locations. DASNY has also pitched an online tracking tool that will help cut down on competition between stores by allowing license holders to select locations that aren’t in close proximity to each other.
Further lawsuits against the OCM, such as the veterans’ lawsuit challenging the CAURD program’s constitutionality, continue to plague the agency.
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