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Alert: Judge Puts New York Dispensary Licenses on Pause on Dormant Commerce Clause Grounds



By Ramsey Chamie and Daniel Shortt

On November 10, 2022, a federal judge temporarily stopped the Office of Cannabis Management (OCM) from issuing conditional adult-use retail dispensary (CAURD) licenses in certain parts of New York. The reason: the CAURD application contained NY residency requirements that may violate the U.S. Constitution (specifically, a court-created doctrine called the “dormant commerce clause”). A copy of the full decision is availablehere.


OCM plans to issue 150 CAURD licenses to qualifying applicants. A CAURD licensee will be able to operate an adult-use recreational cannabis retail store in the state of New York. The CAURD application window closed in September, but OCM has not issued any CAURD licenses yet.

OCM divided the state of New York into regions and plans to issue a specific number of CAURD licenses in each region. In their applications, CAURD applicants ranked their top 5 regions.


TheCAURD Regulationsinclude New York residency requirements. For example, an applicant must demonstrate “a significant presence in New York State, either individually or by having a principal corporate location in the state.” Also, qualifying CAURD applicant (or their parent, guardian, spouse, child, or dependent) must also have been “convicted of a marihuana-related offense in New York State” before March 31, 2021 (There are other NY-specific CAURD requirements, but we don’t need to go through them all here.)


CAURD applicant Variscite NY One, Inc. is 51% owned by an individual with a cannabis conviction in Michigan (and not New York). Variscite selected as its five preferred regions the Finger Lakes, Central New York, Western New York, Mid-Hudson, and Brooklyn.

In September, Variscite sued the state of New York on grounds that the CAURD rules are unconstitutional. Specifically, Variscite claims that the CAURD rules violate the “dormant commerce clause,” a court-created legal doctrine that is grounded in the Constitution’s Commerce Clause.

In a previousGreen Light Law Blog post, we summarized the dormant commerce clause as follows:

The U.S. Constitution contains a passage, commonly referred to as the “Commerce Clause,” which provides that “Congress shall have Power . . . to regulate Commerce . . . among the several States[.]” The U.S. Supreme Court has long interpreted this clause to include a corollary or “dormant” Commerce Clause which has the effect of prohibiting states from enacting laws inhibiting trade among the states.

In a recent case, Tennessee Wine and Spirits Retailers Association v. Thomas, decided in 2019, SCOTUS invalidated a two-year residency requirement for Tennessee retail liquor stores. In applying the DCC to case at hand, the Court wrote “if a state law discriminates against out-of-state goods or nonresident economic actors, the law can be sustained only on a showing that it is narrowly tailored to advance a legitimate local purpose.” SCOTUS determined that “Tennessee’s 2-year durational-residency requirement plainly favors Tennesseans over nonresidents, and found that the law was not “narrowly tailored” to advance a legitimate local purpose and invalidated Tennessee’s residency requirement as unconstitutional.

Put simply, the Constitution grants the federal government jurisdiction over any interstate commerce and if a state law or regulation prohibits or prevents interstate commerce by favoring its residents over the residents of other states, it violates the Constitution.


In a 29-page decision, the Honorable Gary L. Sharpe of the United States District Court for the Northern District of New York granted Variscite’s motion for a preliminary injunction. Variscite essentially asked the court to stop OCM from issuing CAURD licenses in five geographic areas where it applied, while the lawsuit was pending. Court’s do not issue preliminary injunctions lightly because it requires the court to act before each party has the opportunity to make its case at trial. A plaintiff seeking an injunction must meet several criteria, including their likelihood of success on the merits. As such, the court’s analysis in this case began with the question of whether Variscite was likely to succeed on the merits of its dormant commerce clause argument.

In evaluating a dormant commerce clause challenge, a court first evaluates whether the challenged law discriminates against interstate commerce in favor of intrastate commerce or whether it regulates evenhandedly. The court determined that requiring CAURD applicants to demonstrate a significant presence in New York will have a “discriminatory effect on out-of-state residents.” When a law or regulation has such an effect, it can only survive a legal challenge if it is “narrowly tailored to advance a legitimate local purpose.” It turns out that this was all that was required because, according to the court, OCM “not even attempt” to explain how its rules are narrowly tailored. When asked directly by the court, “defendants offered no cogent response.”

This is surprising. Whether or not you agree with OCM’s CAURD requirements, they should be able to at least develop several arguments as to WHY those regulations are narrowly tailored so not to violate the dormant commerce clause. After establishing a likelihood to succeed on the merits, Variscite succeeded in meeting the other criteria necessary to obtain a preliminary injunction in the geographic areas it applied.


New York regulators have made it a priority to issue CAURD licenses before the end of the year. While this preliminary injunction could be overturned and is limited to five geographic areas, it does not bode well for New York’s timeline. It could also open the door to other challenges to New York’s cannabis residency requirements.

We’ll continue to monitor this case and report as it develops.

You can reach Ramsey Chamie and Daniel Shortt at (917) 764-4896 or

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Investigation / Report: Mexican Drug Trafficking Organizations’ New Marijuana Strategies




Superbly summed up by InSight Crime

They write

In 2010, the RAND Corporation said it was “noncontroversial” to declare that at least 50 percent of the marijuana consumed in the United States was produced in Mexico. At the time, there were but 11 states that had granted some legal access to marijuana, and by all indications, Mexico’s production was booming. In 2009, US authorities along the southwest border seized some 1.5 million kilograms of marijuana, up from about one million kilograms in 2005. Even so, RAND could see the tide was shifting and predicted, correctly it seems, that the coming legalization of marijuana in states like California would significantly cut into Mexican DTO’s earnings.

RAND’s argument was based on two key factors: potency and price. In terms of potency, RAND said, US legal marijuana was about 300 percent more potent on average than Mexican-produced marijuana. And while the price point for this marijuana was as much as 50 percent higher, the potency more than made up for this difference. Even if legalization was restricted to California, RAND said, its impact on Mexican criminal organization’s market share would be significant. “We believe that legalizing marijuana in California would effectively eliminate Mexican DTOs’ revenues from supplying Mexican-grown marijuana to the California market,” RAND researchers wrote, limiting their prediction to the state they’d chosen to study but with obvious implications beyond.

*This article is the last in a four-part investigation, “The End of (Illegal) Marijuana: What It Means for Criminal Dynamics in Mexico,” diving into how the legalization of marijuana in a growing number of US states is impacting organized crime dynamics in Mexico. Read the full investigation here.

In response to these changes, Mexico-based DTOs have shifted their strategies. Below we outline three of them.

Strategy 1: Supply Limited US Market, Expand to Other International Markets

Since 2010, the percentage of the US population with legal access to marijuana has nearly doubled, far beyond what perhaps even the most optimistic, pro-legalization groups expected. Based on RAND’s rough analysis, that would mean the share of the US market supplied by Mexican DTOs smuggling marijuana into the country is currently closer to 25 percent; most likely, it is significantly less. And while news reports, often quoting officials, say Mexican “cartels” are buying up land and growing large amounts of marijuana to distribute in the US, neither the officials nor the news organizations offer any evidence to back up those claims. The DEA did not respond to any of InSight Crime’s requests for comment, and local Fish and Wildlife officials in California said they haven’t found any evidence so far to suggest connections between illegal cannabis cultivation and Mexican drug trafficking organizations.

The reasons for the drop in availability of Mexico-produced marijuana are potency and price, as RAND noted a decade ago, but also availability. Legal supplies, law enforcement says, can and are frequently diverted illegally to those who do not have legal authority to obtain it and to states that retain their restrictions on the sale and use of marijuana. To be sure, marijuana from California is worth more outside the state and can be sold at a premium further east in states like Texas. Local and federal authorities also say there are hundreds of so-called “outlaw grows” in the United States. The problem is particularly acute in places like California, where a recent Los Angeles Times’ investigation uncovered hundreds of unregistered “hoop houses,” which can produce three to five harvests a year. And with over half the US population residing in areas where marijuana is legally available in some form, diversion and illegal grows will remain a central issue.

The same is true as it relates to Mexico-produced marijuana. The data, and interviews with law enforcement and experts, indicates that Mexican DTOs seem to be reacting to the changes in legislation by concentrating their efforts in the corridor where marijuana remains illegal, such as in the southern and Midwest regions of the United States. While surveys of marijuana use over the years have illustrated that close to 18 percent of the US tries marijuana in any given year,  there is no data on cross-state marijuana seizures in the country. However, we can see diversion playing out on an international scale with Mexican-grown marijuana. Marijuana seized by Customs and Border Protection (CBP) agents along the border, for example, has been concentrated in recent years primarily in the Rio Grande Valley and Laredo sectors of eastern Texas. While seizures in California and Arizona, the two traditional corridors, have largely dried up, data shows.

Trafficking marijuana through Texas also makes logistical sense for the DTOs. From key production zones like Durango and Sinaloa, Mexico’s federal Highway 40 serves as a near-direct trafficking route to the state of Texas, which provides a good pathway to states in the north and east that have not yet legalized marijuana. Cutting through the heart of the country, the highway connects the Port of Mazatlán to the city of Reynosa on the US-Mexico border.

Some powerful crime groups, such as a faction of the former Zetas known as the Northeast Cartel, appear to be carving out a role for themselves in what is left of the marijuana trade to the United States. In one recent case, for example, 15 Northeast Cartel members pleaded guilty for their role in smuggling around 12 tons of marijuana into Laredo, just across the border from the group’s base of operations in the northern Mexican state of Tamaulipas. It’s not clear what the destination of the marijuana was, but prosecutors estimated the group would have earned about $1,000 per kilogram, representing over $11 million in potential total profits.

There is also evidence to suggest that Mexican organized crime groups may be trying to find new international marijuana markets. Last year, authorities seized more than 1,700 kilograms of marijuana destined for Chile from a shipping container at the Port of Manzanillo in the state of Colima. Days later, Chile’s armed forces seized more than a ton of marijuana sent from the Port of Lázaro Cárdenas in Michoacán state. Both Pacific coast states are home to a smattering of criminal groups, but it would take a sophisticated operation to organize international shipments of this size.

Strategy 2: Get into Mexico’s Burgeoning, (Almost) Legal Market

Faced with reduced US demand, DTOs in Mexico appear to be looking to capitalize on the local consumer market for marijuana, which is growing. Marijuana is the most consumed illicit substance in Mexico, according to recent surveys from Mexico’s National Commission Against Addictions’ (Comisión Nacional contra las Adicciones – CONADIC). The estimated percentage of users among the general population has steadily increased from 1.2 percent reporting having consumed marijuana during the last year in 2011, to 2.1 percent in 2016. Adolescents are one of the age groups with the sharpest growth, moving from 2.4 percent reporting having consumed marijuana during 2011, to 5.3 percent in 2016.

In large consumer markets like Mexico City, Tijuana, and Guadalajara, marijuana is readily available and easy to access. There, dealers offer “menus” with more than a dozen types of high-end marijuana strains and cannabis derivatives, which appear to be catered to a niche pool of middle- to high-income consumers. In Culiacán, one producer explained to InSight Crime that an ounce of high-quality marijuana that sells for 3,500 Mexican pesos (about $170) in Sinaloa could be sold for double that price in Mexico City. And during field research in cities like Culiacán, InSight Crime observed a proliferation of illegal dispensaries selling marijuana and derivatives like edibles and wax-oil cartridges.

These physical stores emulate dispensary models from the United States and Europe, allowing consumers to see, smell, taste, and choose from a selection of products. Some of these are even marketed as being from US states like California, but local producers told us it was more likely that they were produced in Sinaloa or nearby states. Indeed, recent reports concerning an influx of US-produced marijuana into Mexico appear to be greatly exaggerating the amount coming from abroad. Local dealers, law enforcement, and industry experts told InSight Crime that Mexico’s production could more than account for local consumption and adjust for high-end consumers that are expecting a greater level of potency that comes from US-produced marijuana products.

In fact, several sources consulted in Baja California mentioned having traveled to California to acquire expertise in cultivation and growing techniques, which allowed them to refine their production back in Mexico. In other parts of the country, producers of therapeutic products also mentioned having acquired their knowledge — and seeds — from peers in European countries with a well-developed cannabis market, such as the Netherlands and Spain. Sources noted that extraction capacities and techniques in Mexico had also improved in recent years. And some derivative products are now being produced locally. In May 2022, authorities discovered a shipment of 100 tamarind candies containing cannabis extract at a paquetería (a local postal office) in Guanajuato.

Marijuana produced in Sinaloa, for example, supplies several dispensaries. These are located in Culiacán, including one just meters from the main cathedral downtown. The dispensary has operated from the same location for years without any hassle from authorities, local sources told InSight Crime. Networks connected with the Sinaloa Cartel, primarily the Chapitos, a group led by the sons of former kingpin Joaquín Guzmán Loera, alias “El Chapo,” have a monopoly over these dispensaries, according to numerous interviews. And some of the products sold are even labeled with a ratón (a mouse) in reference to El Chapo’s son, Ovidio Guzmán.

(Credit: Mike Lettieri/InSight Crime)

Despite its hold on business within Sinaloa, it’s unclear if the Sinaloa Cartel is also still moving marijuana to the United States. Local producers told InSight Crime marijuana smuggled out of Sinaloa is primarily moved to larger domestic markets like Mexico City and Guadalajara. At the same time, there are entrepreneurs, activists, and health professionals who are using the concept of a “wellness market” to dodge the social stigma and divert the attention of authorities away from their operations. From oils, creams, and ointments to lip balms, gummies, and vapes, these products are often sold alongside herbal medicines in smoke shops, or even in stores already specializing in cannabis derivatives. The level of involvement of traditional criminal networks in this market, however, appears to be minimal.

(CBD products at a store in Culiacán. Credit: Mike Lettieri/InSight Crime)

Perhaps one of the most notable examples of this new market is Paradise, a company partly owned by former Mexican president Vicente Fox, which sells cannabis products for “health, fun and wellness.” Founded in 2015, the company claims that all their products are legal, produced with their own crops and authorized by COFEPRIS. With a presence in 16 states across the country, this is possibly the largest legally constituted cannabis enterprise in Mexico, but smaller businesses with a more local reach have also started to commercialize similar items.

Even so, the Sinaloa Cartel’s operations in Culiacán suggest larger criminal organizations may be laying the groundwork to profit from a legal marijuana market in Mexico. Through its networks, for example, the group not only has a strategic and logistical advantage having produced marijuana for decades, but it also has the business and political contacts to do so, especially in states like Sinaloa. There could also be other advantages to this strategy, particularly with using the mostly cash-based cannabis and marijuana business to launder money from other illicit earnings. Just as local farmers and politicians are readying themselves for the potential economic advantages of a legal marijuana market, Mexico’s organized crime groups may be well-positioned to secure a piece of the expected profits.

Strategy 3: Move to Synthetics

In 2010, RAND estimated that Mexican criminal organizations were making as much as $2 billion per year selling wholesale marijuana in the United States. Some estimates were far higher, including a 2006 estimate by the White House that said Mexican criminal organizations were making $8.5 billion from marijuana sales in the United States. (This estimate was greatly disputed by RAND.) While that revenue stream has most likely been significantly cut, Mexican DTOs’ shift to the production and export of synthetic drugs appears to have more than made up for this loss in revenue.

Evidence for this comes in various forms. To begin with, consumption of synthetics, in particular methamphetamine and fentanyl, has skyrocketed in recent years. The wholesale methamphetamine market in the United States, for example, once thought to be worth about $13 billion in 2010, may be closer to $40 billion now, according to a 2019 Rand study. Seizures along the US Southwest border, the amount of data samples sent for analysis within the United States, and overdose deaths associated with methamphetamine use bolster these findings.

Similar data is available for illicit fentanyl. The synthetic opioid is increasingly used as a substitute for heroin, laced into fake pharmaceutical pills such as Oxycodone or Percocet, or used as an additive in numerous illicit drugs. The varied uses and small quantities of the drug make estimating its total revenue difficult, but the markup for fentanyl is astounding — sales prices at the distribution point can be as much 2,700 times its price at the production point; and the uptick of seizures along the border, as well as the increase in data samples sent for analysis within the United States and overdose data, indicate that use has gone up at least five-fold in the last five years alone.

As DTOs have shifted to synthetic drugs, they have also become aggressive marketers and developed ingenious ways of promoting increased consumption of these drugs. While it is not clear if this is related to the drop in their marijuana market share in the United States, Mexico’s DTOs have increasingly packaged fentanyl in fake pills, most notably falsified Oxycodone. This is, in part, because of the well-deserved reputation of fentanyl as provoking overdoses. They have also laced other drugs, including cocaine and methamphetamine, with fentanyl, as a means of differentiating their product in saturated markets.

SEE ALSO: Sinaloa State Dominates Fentanyl and Meth Production in Mexico

The DTOs have employed similar tactics in the methamphetamine market. Beginning around 2019, they have begun packaging methamphetamine in fake Adderall pills. The black-market Adderall market is significantly larger than that of methamphetamine, and they may believe this gives them access to an even larger share of users. At the same time, the DTOs have mass-produced methamphetamine and offered it at extreme discounts or sometimes for free. The result is that areas, such as New England, which have little history of methamphetamine use, are seeing spikes in addiction rates and overdoses.

The move to synthetics can also be felt in Mexico. Data from Mexico’s government and civil society-run addiction clinics suggests that methamphetamine consumption is now landing more users in treatment than any other drug, outpacing both alcohol and marijuana. And in 2019, Mexico’s National Statistics and Geography Institute (Instituto Nacional de Estadística y Geografía — INEGI) said the number of methamphetamine addicts had risen 775 percent since 2000. For years there have also been reports that fentanyl has penetrated the local drug supply in border cities like Tijuana, and that it is starting to cause overdose deaths further south in states like Sinaloa. To be sure, activists and health professionals who spoke to InSight Crime believe overdose deaths in Mexico are severely underreported.

Violence associated with synthetics also appears to be rising. The areas of highest use correlate with some of the most violent places in Mexico. These include Tijuana, which is a hub for both synthetic drugs crossing into the United States and drug use. In 2021, Tijuana saw almost 2,000 murder victims, almost six times as many recorded in 2012.

The shift from plant-based to synthetic drugs may present yet another opportunity for positive messaging and educational strategies. The DTOs have long peddled a mythic narrative that their social ascension is about upending the Mexican elites with few costs to the average citizen, especially as it relates to addictive drug use, which Mexicans like to say is a “gringo problem.” However, the rise in addiction and violence associated with synthetic drugs may cut into the DTOs’ legitimacy in ways that their connection to marijuana, which is considered a relatively benign drug, and opioids, which were once largely sold abroad, never could.

*Parker Asmann, Victoria Dittmar, Cecilia Farfán-Méndez, Michael Lettieri, and Marcos Vizcarra contributed reporting to this article.

*This article is the last in a four-part investigation, “The End of (Illegal) Marijuana: What It Means for Criminal Dynamics in Mexico,” diving into how the legalization of marijuana in a growing number of US states is impacting organized crime dynamics in Mexico. Read the full investigation here.

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We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.


reefer181210It turns out not to matter that voters want cannabis reform, or that the MORE Act has passed the House and probably could have passed the Senate by a filibuster-proof majority, or even that Senate Majority Leader Charles Schumer said just a few weeks ago that he was pushing for marijuana reform this year.

On Saturday, Axios broke the news that Schumer would bring the Secure and Fair Enforcement Banking Act (H.R. 1996) to a vote, giving up on comprehensive reform that included expungement of federal marijuana trafficking convictions. The compromise legislation does not legalize marijuana on a federal level, leaving pot as a Schedule I drug, like heroin and LSD.

The MORE Act (H.R. 3617) is dead. The replacement Cannabis Administration and Opportunity Act (S. 4591) – which also included retroactive expungement of federal marijuana convictions – also appears to be dead. The only measure that could include any criminal justice reform is the National Defense Authorization Act (H.R. 8900), which the House may use as a vehicle for drug criminal justice reform.

Instead, Democrats in the Senate will push to liberalize banking access to the cannabis industry. The SAFE Banking Act would provide a “safe harbor” for regulated banks to work with cannabis firms in states where cannabis is legal.

Schumer says he will “more than likely” attach the legislation to a must-pass year-end bill like the NDAA, which gets a vote annually. The House of Representatives attached the EQUAL Act (H.R. 1693) to the NDAA last July 19 with bipartisan support, but no one is talking about the Senate doing the same.

ironyalert220523Ironically, the Schumer package also reportedly includes the Harnessing Opportunities by Pursuing Expungement Act of 2021 (H.R. 6129), known as the HOPE Act. According to a bill summary, the measure “authorizes the DOJ to make grants to states and local governments to reduce the financial and administrative burden of expunging convictions for state cannabis offenses.” In other words, Congress will authorize money to help states expunge marijuana convictions, but it won’t lift a finger to expunge federal convictions.

Yesterday, House lawmakers delayed committee consideration of the NDAA amid disagreements over key issues. Democratic leaders had hoped to see the NDAA advance with marijuana reform provisions attached.

The House Rules Committee was expected to take up the NDAA on Monday, but Chairman Jim McGovern (D-MA) deferred consideration, saying the “package is not ready yet.”

Abandonment of cannabis criminal justice reform by the Senate Democrats – who torpedoed the MORE Act to begin when Sen Cory Booker (D-NJ), Sen Ron Wyden (D-OR) and Schumer introduced the alternative CAOA – came at the end of a week in which the New York Times criticized last month’s Biden mass pardon of people with marijuana simple possession convictions. The Times reported, “And while many advocates welcomed the presidential act of forgiveness, they say far too many people — many of them Black and Latino — are not eligible for the pardons, leaving them with minor marijuana convictions that will continue to get in the way of job prospects, educational opportunities and financing for homes.”

warondrugs211028The Times observed that Biden was a “champion of aggressive drug laws earlier in his career, including the 1994 crime bill that led to mass incarceration,” although “he has more recently embraced leniency for those convicted of minor drug offenses.” Biden has said he does not support legalizing marijuana, “putting him at odds with 80% of self-described Democrats and 68% of Americans, according to a Gallup poll released this month,” The Times said.

The SAFE Banking Act is an incremental change in cannabis laws, being rolled out just as Marijuana Moment editorialized for taking such an approach. “It’s time to acknowledge that incrementalism is not selling out, it is not crumbs, and it is not failure,” the website said last week. “Failure is continuing to lock up our citizens while we quibble over who gets the spoils of a post-prohibition world.”

This leaves the Dept of Health and Human Services study rescheduling marijuana as the best hope for any change leading to sentencing reform. Last month, the National Law Journal reported that a panel of consulted legal experts estimated that marijuana will be rescheduled as a Schedule II or III drug by January 20, 2025.

Axios, Scoop: Senate plots pro-pot move for lame-duck (December 3, 2022)

Guardian, Senate Democrats to reportedly push banking reforms for cannabis industry (December 3, 2022)

Fox Business News, Senate aims to attach major marijuana legislation to end-of-year ‘must-pass’ bills: report (December 3, 2022)

Catholic News Agency, Bishops urge passage of bill that would give same sentences to crack and powder cocaine offenders (August 11, 2022)

Marijuana Moment, Democrats’ Focus On Social Justice Marijuana Bills Has Blocked Achievable Progress On Reform (December 2, 2022)

National Law Journal, Editor’s Roundtable: A New Biden Doctrine? (October 31, 2022)

Marijuana Moment, Fate Of Marijuana Banking Reform Uncertain As Lawmakers Delay Defense Bill Consideration Amid Disagreements (December 5, 2022)


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Marijuana Moment …”Colombian Senate Approves Marijuana Legalization Bill, Bringing Country Closer To Ending Prohibition”




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