A dozen New York-licensed cannabis dispensaries are taking regulators to court over a screw-up by the state’s Office of Cannabis Management (OCM) related to their storefront locations being too close to schools.

The 12 petitioners filed the complaint on Aug. 15 in the New York Supreme Court in Albany County, against the OCM and the state’s Cannabis Control Board (CCB) over a school proximity correction that the office issued July 28. The correction, which impacts 108 dispensary licensees and 44 applicants with provisional licenses, intends to realign the OCM’s 500-foot measurement guidelines with state law.

Instead of continuing an entrance-to-entrance measurement between dispensaries and schools from the OCM’s erroneous 2022 guidance, the office now plans to measure the buffer zone from the entrance of a cannabis store in a straight line to the nearest property line boundary of a school’s grounds to move into compliance with New York’s cannabis law.

Following the proximity correction issuance, OCM Acting Executive Director Felicia A.B. Reid sent a letter on Aug. 6 to the 152 impacted businesses, clarifying that the 108 licensees may remain open or continue to work toward opening in their current locations as state officials push lawmakers for a legislative fix to grandfather in their locations. The 44 applicants, meanwhile, will need to move locations and will have access to $250,000 each from a $15 million relief fund to lessen their burdens.

Despite the assurance that the 108 licensees can remain put—and even continue to operate while the OCM delays reviewing any license renewals pending the legislative fix—the petitioners are asking the state Supreme Court in Albany to annul the OCM’s revised interpretation of Cannabis Law § 72(6) and declare that their locations remain compliant under a lawful reading of that law as well as the OCM’s 2022 guidance.

The 12 cannabis businesses are also asking that a State Supreme Court judge issue a preliminary and permanent injunction preventing the OCM from taking any enforcement actions against them based on the office’s new interpretation of the law, forcing the OCM to instead keep its previous interpretation that regulators used to review and approve site plans to issue licenses.

“Relying on those approvals, petitioners poured their life savings into launching their businesses,” the complaint states. “They signed leases, completed build-outs, hired employees and opened their doors to the public under the state’s very detailed framework. But now, in a complete about-face, OCM incredulously claims it got the law wrong all along.”

Furthermore, the petitioners claim that the OCM changed its guidance based on a new interpretation of the law without any formal rulemaking process or public notice. They argue that the informal rulemaking violates the State Administrative Procedure Act and that state officials arbitrarily redefined their own regulations.

Seven of the 12 businesses suing the state are either open or have received their final licensure to open, meaning the state has assured them they do not need to move locations and can remain open even with expired licenses—the OCM indicated it cannot approve their license renewals until state lawmakers act. However, some businesses fear that insurance companies and banks may refuse to service them if their licenses have expired, even in an interim phase.

“Petitioners face numerous collateral consequences as a result of OCM’s unlawful reinterpretation of Cannabis Law §72(6),” the complaint states. “Specifically, petitioners are required as part of their leases to be in compliance with all cannabis laws. OCM’s arbitrary and capricious actions have placed them at risk of falling into material breach with their lessors and, if allowed to continue, will cause them irreparable harm.”

These seven businesses include: ConBud (Manhattan), The Cannabis Place (Queens), Summit Canna (Bronx), Hush (Bronx), High Fade (Manhattan), Housing Works Cannabis Co. (Manhattan) and Common Courtesy Dispensary (Queens).

Meanwhile, the other five petitioners in the lawsuit are cannabis business applicants who received provisional licenses that are not yet finalized and will therefore be forced to pack up and change locations. These businesses include: Rezidue, Elise Pelka, Toastree, Monarch NYC and Luxe Leaf Boutique.

According to the lawsuit, while each of the five applicants has incurred significant buildout expenses, Rezidue, Elisa Pelka and Lux Leaf Boutique have completed their buildouts and were ready to begin operating upon a virtual inspection and gaining final licensure.

The petitioners’ construction costs ranged from $500,000 to $1,000,000, falling short of the $250,000 available per applicant in the state’s relief fund, according to the lawsuit.

“Petitioners have each expended nearly and in some cases over $1 million in preoperational expenses, and several million dollars each in post-operational expenses in reliance of OCM’s assurances,” the complaint states. “If OCM’s new and unlawful interpretation is allowed to remain in force, petitioners will also lose hundreds of thousands of dollars in deposits and lease termination penalties that cannot be recouped.

“Additionally, petitioners have all executed personal guarantees on their commercial leases, which would not only bankrupt the businesses, but also the individuals who guaranteed these leases.”

The petitioners argue that these expenses represent irreparable harm, which the court has the authority to prevent.

Other arguments the 12 cannabis businesses made in the lawsuit include:

• Retroactively revoking their license rights without notice or hearing violates due process;
• The OCM violated the equal protection clause of the state’s Constitution by revoking their proximity protections and thereby allowing competing applicants to gain favorable locations (in addition to the 500-foot school buffer zone, dispensaries must adhere to bigger buffer zones between other dispensaries).
• By pre-emptively denying licensees renewals, the OCM has engaged in unlawful “taking” without affording the petitioners due process of the law by way of a fair hearing;
• The plaintiffs’ investments have been rendered valueless by the OCM’s retroactive policy change, amounting to a “regulatory taking” under the New York Constitution; and
• The OCM’s new interpretation of the state’s cannabis law as it relates to school proximity requirements disproportionately harms those who were already disproportionately harmed by the drug war, which violates the state’s Marihuana Taxation and Regulation Act (MRTA) provisions to prioritize the inclusion, participation and sustainability of equity applicants.

“OCM’s reinterpreted rule disproportionately harms these stakeholders and licensees and undermines the very purpose of this law,” the complaint states about the latter bullet point. “Petitioners do not come from generational wealth and therefore cannot sustain such a hit. Their lives would be shattered while the OCM simply says ‘I’m sorry.’”

In particular, 11 of the plaintiffs are conditional adult-use retail dispensary (CAURD) licensees who were prioritized by the state because their businesses were owned by justice-involved individuals who reside in New York.

The 12th plaintiff is a social and economic equity (SEE) licensee, a category reserved for justice-involved individuals, minority- or women-owned businesses, distressed farmers, or service-disabled veteran-owned businesses.

“Petitioners would experience harm unlike anything they have faced before and would be relegated to levels of crippling debt, the likes of which they could never escape,” the complaint states. “The purpose of the MRTA was to undo these past injustices, not to exacerbate them.”

Massachusetts Auditor Diana DiZoglio last week released an audit of the state’s Cannabis Control Commission (CCC), claiming to have uncovered violations and mismanagement issues at the commission, NBC Boston reports.

The audit found that officials “failed to take appropriate steps and institute procedures” to guarantee the administering of cannabis industry license extensions, and that a “lack of supervision and minimal accountability over licensing staff members” helped contribute to the breakdown.

“CCC’s mismanagement of prorated fees for license extensions resulted in procedural inequity, revenue loss, and noncompliance with state regulations.” — Excerpt from the audit summary

The commission said it has “been working closely with the State Auditor’s Office for almost a year and will review the report released today in furtherance of our shared commitment to government improvement. Over the course of the audit period and since, the Commission has hired key leaders, made progress to address many of the issues referenced, and begun to move forward in a constructive way.”

The report was released hours after the commission voted unanimously to reinstate the license of Assured Testing, a testing lab accused of failing to report thousands of contaminated cannabis samples, the report said. The commission issued penalties against the lab, including a $300,000 fine and two years of probation. Additionally, the lab — which has publicly disagreed with the findings but says it will honor the commission’s terms for reinstatement — will have to hire an independent auditor, an internal control manager, and a new interim CEO.

“We are eager to return to what we do best: delivering scientific, evidence-backed testing with industry-leading cannabis expertise,” Assured Testing said in a statement.