Papers considered: 1. Order to Show Cause dated February 2, 2024; Affirmation of Hamutal G. Lieberman, Esq., in Support, dated January 29, 2024 with Exhibit A; Affidavit of Jessica Lindsey on Support, dated January 29, 2024; Affidavit of Shannon Riley in Support, dated January 27, 2024; Affidavit of Alicia Guevara in Support, dated January 29, 2024; Affidavit of Juliana Brown-Deriggs in Support, dated January 27, 2024; Affidavit of Rosy Cheema in Support, dated January 29, 2024; Affidavit of Tanya Hira in Support, dated January29, 2024; and Memorandum of Law in Support. 2. Letter Brief in Opposition to TRO dated January 31, 2024 of Lauren R. Eversly, Esq., AAG. 3. Letter Brief in Support of TRO dated February 1, 2024 of Hamutal G. Lieberman, Esq., Joseph R. Levey, Esq., and Melissa L. Greenberg, Esq. 4. Answer in Special Proceeding, dated February 26, 2024; Affidavit of Damian Fagon in Opposition, dated February 26, 2024, with Exhibits A-J; Affidavit of Jodi Bryon in Opposition, dated February 26, 2024; Affirmation of Lauren R. Eversley, Esq., in Opposition, dated February 26, 2024, with Exhibit A; and Memorandum of Law in Opposition. 5. Reply Memorandum of Law. 6. Letter of Hamutal G. Lieberman, Esq., dated March 21, 2024, with Exhibit A. DECISION/ORDER In this special proceeding brought pursuant to Article 78 of the CPLR, Petitioners, Friendly Flower 1, Inc., Friendly Flower 2, Inc., Rockaway Moonshot, LLC, Hop Stock & Barrel IV, LLC, BK Greenery, LLC, Emeraldz, Inc., and Mariagiovanna, LLC, (collectively “Friendly Flower”) seek judicial review of the process by which Respondents, New York State Cannabis Control Board (“CCB”) and New York State Office of Cannabis Management (“OCB”), created the Retail and Microbusiness Non-Provisional Adult-Use Application Queue and how license applications will be reviewed. BACKGROUND Friendly Flower are applicants for Retail and Microbusiness Non-Provisional Adult-Use licenses which would permit them to open and operate retail cannabis stores authorized by the Cannabis Law. All qualify as Social and Economic Equity, (“SEE”), applicants under the applicable regulations, entitling them to priority. The non-provisional licenses are intended for applicants who are ready to open for retail adult-use marijuana sales. As such, they were required to secure real estate rights and meet other stringent requirements to be among those in the First Application Period (October 4, 2023-November 17, 2023). Respondents have established a randomized lottery system for determining those applicants whose license applications will be first reviewed, referred to as the Queue. The Queue was published on January 12, 2024. Friendly Flower contends that neither OCM nor CCB disclosed the procedures utilized to create the Queue prior to its publication. In a footnote to the published Queue, Respondents disclosed that it had given “Extra Priority and Economic Equity Applicants” three chances per application in the lottery system to earn a place in the Queue. Friendly Flower contends that they agreed to submit applications during the First Application Period pursuant to the policies and procedures articulated prior thereto. They may not have undertaken the significant expense of acquiring real estate rights had they known the rules were subject to change. Thus, they assert Respondents arbitrarily and capriciously created the Queue. Petitioners seek injunctive relief prohibiting the issuance of licenses, requiring the Respondents to provide the policies and procedures utilized to create the Queue which was published on January 12, 2024, requiring Respondents to reissue a new queue from the applicants who submitted during the First Application Period and requiring that Respondents apply the stated policies and procedures to all future queues for adult-use cannabis retail licenses. Under the Cannabis Law, which legalizes adult-use cannabis and regulates the growing, processing, distribution, and sale of cannabis in the State of New York, CCB is vested with discretion to promulgate “any and all necessary rules and regulations governing…the licensing and/or permitting of adult-use cannabis cultivators, processors, cooperatives, microbusinesses, distributors, laboratories, and retailers. Canbs. Law §13(2). CCB created a “social and economic equity plan” (“SEE Plan”), to achieve the restorative justice and social equity goals of the Cannabis Law. Accordingly, the distribution of adult-use licenses, including retail dispensary licenses, prioritize individuals from communities disproportionally impacted (“CDIs”) by the enforcement of cannabis prohibition, minority-owned businesses, women-owned business, distressed farmers, and service-disabled veterans (“SEE applicants”). Canbs. Law §87(1), (2). Granting priority to SEE applicants is intended to “promote diversity in commerce, ownership, and employment, and opportunities for social and economic equity in the adult use industry”. Canbs. Law §87(2). To that end, the Cannabis Law provides that a “goal shall be established to award fifty percent of adult-use cannabis licenses to social and economic applicants and ensure inclusion of” SEE applicants. Certain individuals from CDIs must be afforded extra priority in the application process under the Cannabis Law if (1) they are “a member of a community disproportionally impacted by the enforcement of cannabis prohibition”; (2) have “an income lower than eighty percent of the median income of the county in which the applicant resides”; and (3) “[were] convicted of a marijuana-related offense prior to the effective date of the [Cannabis Law], or had a parent, guardian, child, spouse, or dependent, or was a dependent of an individual who, prior to the effective date of the [Cannabis Law], was convicted of a marijuana-related offense” (“Extra Priority applicants”). Canbs. Law §87(3); 9 NYCRR §121(k). The policy to give priority to these applicants is “based on the recognition that New York’s [prior] marihuana policies have failed to protect the welfare of our communities” and have “thrust thousands of New Yorkers into the criminal justice system for non-violent offenses, denying many the fundamental right to participate in the democratic process of voting and inhibiting otherwise law-abiding citizens’ ability to access housing, student loans, employment opportunities and other vital services”. See, Senate Introducer’s Memorandum in Support, Bill Jacket, L 2021, ch. 92 at 7. The Cannabis Law grants broad discretion to determine how to implement these goals. Cannabis Law §10(2) provides Respondents the “sole discretion to limit, or not to limit, the number of registrations, licenses, and permits of each class to be issued within the state or any political subdivision thereof, in a manner that prioritizes social and economic equity applicants…”. OCM issued its draft Adult Use Regulations in November 2022 (9 NYCRR §120) which addressed how applications may be reviewed and licenses issued and identifying the five SEE categories and Extra Priority applicants. In May 2023, OCM revised the draft regulations, keeping the provisions regarding application review, licensing, and the SEE and Extra Priority provisions. In September 2023, the regulations were adopted as final. The final regulations provided Respondents broad discretion with respect to how applications would be reviewed, including those submitted by SEE and Extra Priority applicants. 9 NYCRR §120.7. The Adult Use Regulations reiterate the statutory requirement that certain CDI members receive extra priority in licensing. 9 NYCRR §120.7(c)(3)(i). Neither the Cannabis Law nor the Regulations require OCM to publish the means of reviewing applications and selecting licenses or the means of providing extra priority to those qualifying applicants prior to the opening or closing of the application window. In September 2023, OCM advised that the application window for applicants seeking a retail dispensary license, with proof of control over a proposed premises from which they intend to operate, would open on October 4, 2023, and close on November 17, 2023. For applications submitted after November 17, 2023, the window closed on December 18, 2023. Respondents received over 1800 applications for the first 250 retail licenses to be issued. On December 7, 2023, OCM utilized a computer program to randomly sequence the first set of applications for the Queue thereby determining the order in which applications would be reviewed. OCM used the randomized Queue rather than reviewing same in the order submitted to prevent inequities in submission, such as access to high-speed internet services or monetary resources to retain lawyers or consultants to complete applications. Extra Priority applicants made up approximately 13 percent of the first retail license applicant pool. The total number of SEE applicants in the first application window could not be known until the window closed and the applications reviewed. Once the number was known, OCM determined that Extra Priority applications would receive two extra chances in the Queue, meaning they had three chances in the Queue. By doing so, Extra Priority applications increased in proportion from approximately 13 percent to 31 percent and decreased the remaining 87 percent of the applications to 69 percent of the pool. The effect of this process was to increase the likelihood that any given Extra Priority applicant would be placed in the first 250 retail positions of the Queue from 2.3 percent to 4.3 percent and decreased the chances for any given non-Extra Priority applicant from 15 percent to 9.4 percent. An applicant’s status does not guarantee it application review or a license. The Queue for the November application window was posted on January 12, 2024 and Friendly Flower sought relief shortly thereafter. Following a hearing held on February 2, 2024, Friendly Flower’s application for a temporary restraining order was denied. DISCUSSION/STANDARD OF REVIEW The Court’s review of an administrative body’s determination is limited to whether the determination had a rational basis and was not arbitrary and capricious. Froelich v. New York State Dept. of Corr. and Cmty Supervision, 179 AD3d 1408, 1409-10 (3d Dept., 2020); Matter of Ward v. City of Long Beach, 20 NY2d 1042, 1043 (2013). A determination is rational where it has some objective factual basis, as opposed to resting entirely on subjective considerations. Gorecki v. New York State Dep’t of Motor Vehicles, 201 AD3d 802, 803 (2d Dept., 2022). Respondents’ determination to utilize a randomized, weighted system to give additional chances to Extra Priority applicants is consistent with the statutory scheme of the Cannabis Law, which attempts to correct prior injustices related to marihuana prohibition. The decision to give the Extra Priority applications three chances in the Queue was based on the number of such applications received in relation to the non-Extra Priority applicants and consistent with the statute’s explicit goals. To the extent Friendly Flower claims a lack of notice or transparency, the Court notes that there was no way for Respondents to know prior to the initial review of submitted applications how many Extra Priority applications would be received and, thus, how much added weight would be necessary to give effect to the Legislature’s intent. During the application submission window, Respondents conducted a state-wide tour presenting twenty in-person and virtual presentations discussing the application and licensing process with potential applicants. Respondents posted a series of Frequently Asked Questions on its website further explaining the process. Additionally, to the extent that Friendly Flower asserts that they might not have submitted applications in the First Application Period had they known that the Extra Priority applicants would be treated differently from other applicants, Respondents made it known ahead of time that not all applications would be reviewed and that applying, even with a secured real estate location, does not guarantee licensure. The Court finds that Respondents’ creation of the Queue and providing three chances in the Queue to Extra Priority applicants were rationally based and consistent with the terms and goals of the Cannabis Law and are not arbitrary and capricious. Friendly Flower, and the public in general, had notice of the application process and its potential pitfalls. Accordingly, it is hereby ORDERED, that the Petition is dismissed. This shall constitute the Decision/Order of the Court. The Court is e-filing the original of this Decision/Order, relieving the parties of their obligations pursuant to CPLR 2220 regarding filing and entry of same, but that does not relieve the parties of their obligations regarding service of same with notice of entry thereon. Dated: May 10, 2024
