New York cannabis officials are expected to announce the recipients of the first recreational marijuana retail licenses on Monday – but certain parts of the state will be off limits to dispensaries for the time being. And the state may have to hold off on issuing nearly half of the 150 dispensary licenses designated for the first round.

That’s because a federal judge issued an injunction last week that temporarily blocked New York from handing out retail licenses in certain parts of the state – including Brooklyn and the Mid-Hudson region encompassing Westchester and other counties just north of New York City. The injunction also applies to the Finger Lakes, Central New York and Western New York. Eleven other regions are not directly affected.

The temporary restraining order was requested by a company called Variscite NY One, which sued the state of New York and its Office of Cannabis Management in late September. Variscite alleged that the state’s cannabis equity program violates the “dormant commerce clause” of the U.S. Constitution, which is meant to protect interstate commerce, by discriminating against out-of-state applicants. The state’s Conditional Adult-Use Retail Dispensary program, or CAURD, is prioritizing people with past drug convictions and their family members for the initial dispensary licenses.

“This injunction will likely delay the issuing of all 150 CAURD licenses,” said Fatima Afia, an attorney with Hiller P.C., which has a cannabis law practice. “The question is, how much of a delay will there be? That's what we don't really know just yet.”

The state is only planning to issue 150 dispensary licenses in the first round — and 63 were designated for areas impacted by the injunction. The number of licenses allocated to each area is based on the number of people who live and commute there. Brooklyn was supposed to have 19 dispensaries, the third most in the state after Manhattan and Long Island. CAURD applicants must rank the top five parts of the state where they want to set up shop in their applications. The injunction applies to the areas Variscite chose.

State cannabis officials have not said how many dispensary licenses will be considered at the Cannabis Control Board meeting scheduled for Monday — or where in the state they will be located. It’s unclear whether any applications that were slated for approval have been put on hold because of the injunction.

Since cannabis officials are initially putting a cap on the number of dispensary licenses issued in each borough of New York City and each region outside of the city, this could make the first round of retail licensing even more competitive.

In a statement, Freeman Klopott, a spokesperson for the Office of Cannabis Management, said the agency is “committed to the Marijuana Regulation and Taxation Act’s goals of including those impacted by the state's enforcement of cannabis prohibition in the market that we are building and we are additionally committed to getting New York's cannabis supply chain fully operational.” He added that he would not comment on pending litigation.

Why some parts of New York are blocked – for now

The company Variscite applied for a dispensary license under the CAURD program, which affords certain perks — such as first access to the market, access to seed funding, and assistance finding and building out a retail space. But the company failed to meet all the criteria required by New York regulators.

The majority owner of the company, Kenneth Gay, was convicted of a marijuana offense in Michigan — not New York, which is a key requirement. And although the company is registered in New York, the owners don’t live here. The CAURD program requires applicants to have a “significant presence” in the state.

But it’s likely that Brooklyn and other impacted areas won’t go unserved by legal dispensaries for long. The ruling only applies to licenses issued under the CAURD program.

New York’s Cannabis Control Board is expected to consider regulations Monday around other types of recreational licenses, including dispensary licenses that will be open to everyone and won’t be subject to the injunction. Medical marijuana companies will also eventually be able to transition to the recreational market.

New Yorkers attend the Cannabis Parade on May 1, 2021.

Scott Lynch / Gothamist

It will likely take a few months for the state to finalize those regulations, launch the next application window and evaluate submissions, however. These expanded licensing regulations will be subject to a 60-day public comment period before applications are released.

The injunction comes at a time when cannabis growers in New York are already concerned about how many dispensaries will open and when, since they have a perishable product they need to sell, said Dan Livingston, executive director of the Cannabis Association of New York, an industry group. State officials have only promised that some undisclosed number of dispensaries will open before the end of the year.

Allan Gandelman, a licensed cannabis grower and manufacturer who is also president of the Cannabis Association of New York, said he is “only slightly concerned” about the injunction, however, because not all of the state is impacted.

Cannabis equity on trial?

New York isn’t the only state where Gay, who owns 51% of Variscite, is seeking to block residency requirements tied to a cannabis equity program in court. He is currently involved in a lawsuit against the city of Sacramento, California, where he applied to sell marijuana through a different company called Peridot Tree, in which he is the majority shareholder.

Gay sought a permit through Sacramento’s Cannabis Opportunity Reinvestment and Equity program, even though he didn’t meet the requirement to be a current or former resident of the city. As in New York, he alleged that the program violates the dormant commerce clause and asked for an injunction.

A federal judge abstained from ruling on that case last month, noting that distributing marijuana is still illegal under federal law. Peridot Tree filed an appeal on Tuesday.

Afia called it “ironic” to invoke a legal principle meant to protect interstate commerce, given that marijuana is not permitted to cross state lines because of its federal status as an illicit drug.

Still, these types of legal challenges have had success in other states, including Maine and Missouri.

Jason Starr, who helped hash out the details of the Marijuana Regulation and Taxation Act as a former council to then-Gov. Andrew Cuomo and was previously offered the role of chief equity officer for the state’s Cannabis Control Board, said he worried that some CAURD applicants would get “stuck in the pipeline” because of the lawsuit.

He lamented that the plaintiffs couldn’t just wait to apply in the next round when they would be eligible.

“Hopefully, there will be pathways for folks in the five affected regions to find a different route into opening,” Starr said.