Case 1:22-cv-01013-GLS-DJS Document 28 Filed 11/10/22 Page 1 of 29

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF NEW YORK
________________________________
VARISCITE NY ONE, INC.,
1:22-cv-1013
Plaintiff, (GLS/DJS)

v.

STATE OF NEW YORK et al.,

Defendants.
________________________________
APPEARANCES: OF COUNSEL:

FOR THE PLAINTIFF:

Kernkamp Law, APC CHRISTIAN KERNKAMP, ESQ.
1801 Century Park East, 24th Floor
Los Angeles, CA 90067

E. Stewart Jones Hacker Murphy, LLP THOMAS J. HIGGS, ESQ.

28 Second Street - Suite 203
Troy, NY 12180

FOR THE DEFENDANTS:

HON. LETITIA JAMES MATTHEW GALLAGHER
New York State Attorney General AMANDA K. KURYLUK
The Capitol Assistant Attorneys General
Albany, NY 12224

Gary L. Sharpe
Senior District Judge

MEMORANDUM-DECISION AND ORDER

I. Introduction

Plaintiff Variscite NY One, Inc. commenced this action on September

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26, 2022 against the State of New York, the New York State Office of

Cannabis Management (OCM), and the Executive Officer of OCM,

Christopher Alexander, pursuant to 42 U.S.C. § 1983, alleging a violation

of the dormant Commerce Clause. (Compl., Dkt. No. 1.) Now pending is

Variscite’s motion for a preliminary injunction, which seeks an order

“restrain[ing defendants] from issuing any cannabis licenses under the

[conditional adult-use retail dispensary (CAURD)] application program held

from August 25 to September 26, 2022, for the following geographic areas:

Finger Lakes; Central New York; Western New York; Mid-Hudson; and

[Brooklyn].” (Dkt. No. 6 at 2; see Dkt. No. 21 at 4 n.2.1) For the reasons

that follow, Variscite’s motion is granted.2

II. Background

A. Facts

1
Varisicite “erroneously include[d] Manhattan and omit[ted]
Brooklyn in the five geographic areas” for which it is seeking an injunction
in its initial proposed order. (Dkt. No. 21 at 4 n.2.)
2
Variscite additionally requests the court take judicial notice of
certain documents submitted in connection with their motion for a
preliminary injunction. (Dkt. No. 21, Attach. 1; Dkt. No. 27.) Because
those documents need not be considered by the court in connection with
the disposition of the motion as discussed below, the court declines to
take judicial notice of them.
2
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On March 31, 2021, New York enacted the Marihuana Regulation &

Taxation Act, with the short title of “Cannabis Law.” N.Y. CANBS. § 1.

Under the Cannabis Law, a person or entity may be an “applicant” for a

cannabis license if that applicant has “a significant presence in New York

state, either individually or by having a principal corporate location in the

state; is incorporated or otherwise organized under the laws of this state;

or a majority of the ownership are residents of this state.” NY CANBS § 3.

Additionally, pursuant to the Cannabis Law, OCM has the power “[t]o

prescribe the form of applications for [cannabis] licenses and permits

under” the Cannabis Law. N.Y. CANBS. § 11(4).

On August 3, 2022, OCM adopted part 116 of Chapter II of Subtitle B

of Title 9 of the Official Compilation of Codes, Rules and Regulations of the

State of New York (the “Cannabis Regulations”), which, in part, governs

“CAURD licenses and the application process to acquire such licenses. 9

N.Y.C.R.R. § 116.1-.9.

Section 116.4(a) of the Cannabis Regulations, states:

The following minimum requirements must be met to

become an eligible applicant for [a CAURD] license:

(1) an applicant must demonstrate:

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(i) a significant presence in New York State,

either individually or by having a principal
corporate location in the state;
(ii) it is incorporated or otherwise organized
under the laws of New York State; or
(iii) a majority of the ownership of the applicant
are residents of New York State by being
physically present in the state no less than 180
calendar days during the current year or 540
calendar days over the course of three years;

(2) if the applicant is an individual, or an entity with

one or more individuals, at least one individual must:

(i) be justice involved, which means an

individual that:

(a) was convicted of a marihuana-related

offense in New York State prior to the
thirty-first of March two thousand
twenty-one;
(b) had a parent, legal guardian, child,
spouse, or dependent who was convicted
of a marihuana-related offense in New
York State prior to the thirty-first of March
two thousand twenty-one; or
(c) was a dependent of an individual who
was convicted of a marihuana-related
offense in New York State prior to the
thirty-first of March two thousand
twenty-one; and

(ii) provide evidence of the primary residence of

the justice involved individual at the time of
such individual’s arrest or conviction; and

(iii) hold or have held, for a minimum of two

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years, at least ten percent ownership interest in,

and control of, a qualifying business, which
means a business that had net profit for at least
two of the years the business was in operation;
or

(3) if the applicant is a nonprofit organization, or

wholly owned and controlled by one, the nonprofit
organization must:

(i) be recognized as an entity pursuant to

section 501(c)(3) of the Internal Revenue Code;
(ii) intentionally serve justice involved
individuals and communities with historically
high rates of arrest, conviction, incarceration or
other indicators of law enforcement activity for
marihuana-related offenses;
(iii) operate and manage a social enterprise that
had at least two years of positive net assets or
profit as evidenced in the organization’s tax
returns;
(iv) have a history of creating vocational
opportunity for justice involved individuals;
(v) have justice involved individual(s) on its
board or as officers; and
(vi) have at least five full time employees.

Additionally, § 116.4(b) provides the “[a]pplicant [o]wnership and

[c]ontrol [m]inimums” required to acquire a CAURD license, demanding:

(1) At least 51% or more of the applicant shall be

owned, in the aggregate, by:

(i) at least one individual that satisfies the

requirements for an eligible applicant set forth
in sections 116.4(a)(1) and 116.4(a)(2) or entity

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that satisfies the requirements for an eligible

applicant set forth in sections 116.4(a)(1) and
116.4(a)(3) of this Part; and
(ii) any other additional individuals, if any, who
are justice involved; and

(2) At least one individual that satisfies the

requirements for an eligible applicant set forth in
sections 116.4(a)(1) and 116.4(a)(2) or entity that
satisfies the requirements for an eligible applicant set
forth in sections 116.4(a)(1) and 116.4(a)(3) of this
Part shall own at least 30% of the applicant and such
individual or entity shall have sole control of the
applicant or licensee.

Further, Section 116.4(c) outlines the CAURD application evaluation

criteria, stating:

An eligible applicant shall be evaluated based on any

of the following criteria which shall be weighted as
determined by the Office:

(1) if the applicant is an individual, or an entity with

one or more individuals, whether the justice involved
individual was themselves convicted of a
marihuana-related offense as set forth in section
116.4(a)(2)(i)(a) of this Part;

(2) the justice involved individual’s primary residence

at the time of such individual’s arrest or conviction:

(i) relative to areas with historically high rates of

arrest, conviction, or incarceration for
marihuana-related offenses;
(ii) relative to areas with historically low median
income; or

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(iii) was provided by a public housing authority

in New York State or New York City; and

(3) the qualifying business based on:

(i) the number of employees employed by the

business;
(ii) the number of years the business has been
in operation;
(iii) the profitability of the business;
(iv) type of business and whether the business
was a retail business, or sold products or
services directly to the end-consumer;
(v) whether the business had a physical
location; or
(vi) whether the business received or resolved
any violations, fines or fees assessed against
the business by state or federal regulatory
authorities; and
(4) any other factors as determined by the
Office.

Finally, Section 116.4(d) provides:

The office may create regional geographic zones for

the scoring of [CAURD license] applicants.
Applicants may be asked to rank a number of
preferences of regional geographic zones to be
considered for a license. For regional geographical
zones where there are more applicants than available
licenses, the Office may select from eligible
applicants who indicated first preference for the given
region based on weighted scoring of the evaluation
criteria set out above. In the event there is a tie
between two or more candidates or there are more
applicants than available licenses after the evaluation
criteria has been applied, the Office is authorized to

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use a random selection process to identify the final

applicants to recommend to the Board for licensure.

OCM also published a document titled “Conditional Adult-Use Retail

Dispensary (CAURD) Frequently Asked Questions,” in which it explained,

among other things, that “applicants are required to have a significant New

York State presence or to otherwise satisfy the definition of applicant in the

Cannabis Law and may be asked to submit documentation to prove such.”

(Dkt. No. 6, Attach. 19 at 8.) The document further elaborated:

“acceptable documentation [to prove a significant New York presence]

includes:” (1) “Proof of the individual with sole control’s residency in New

York State”; (2) “Checking, savings, retirement, or brokerage statements

showing assets in New York State”; (3) “Tax filings showing assets,

accounts, or property in New York State”; (4) “Deeds, titles, mortgage

documents, or homeowner warranties showing property ownership in New

York State,” or; (5) “Any other proof of New York State presence as

determined by the Office.” (Id. at 8-9.)

Defendants invited applications for CAURD licenses through a “New

York Business Express application website,” and accepted applications

from August 25, 2022 until September 26, 2022. (Compl. ¶ 22; see Dkt.

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No. 6, Attach. 9.) CAURD applicants were permitted to select up to five

geographic regions of New York State for which their application would be

considered, including: Brooklyn; Capital Region; Central New York; Finger

Lakes; Long Island; Manhattan; Mid-Hudson; Mohawk Valley; North

Country; Queens; Southern Tier; Staten Island; the Bronx; and Western

New York. (Compl. ¶ 30; see Dkt. No. 6, Attach. 15.)

Variscite applied for a CAURD license; however, because it “is [fifty-

one percent] owned by an individual who has a cannabis conviction under

Michigan law” and “has no significant connection to New York,”3 Variscite

is ineligible to be selected. (Compl. ¶ 31.) Variscite “satisfies all [other]

requirements of the Cannabis Law and Cannabis Regulations to apply in

the CUARD Application Program.” (Id. ¶¶ 31.) As part of its application,

Veriscite selected the Finger Lakes; Central New York; Western New York;

Mid-Hudson; and Brooklyn as the areas for which its application would be

3
Because Variscite “is a corporation organized under the laws of
the State of New York,” (Compl. ¶ 1), it appears that it would qualify as
having a significant New York State presence under Section 116.4(a)(1)(ii)
of the Cannabis Regulations; however, the CAURD application website
requires “[t]he business principal with sole control over the CAURD
applicant [to] have [a] significant presence in New York State to be eligible
for a CAURD license,” and in order to proceed with the application
process, (Dkt. No. 6, Attach. 10), a requirement that Variscite’s business
principal does not meet, (Compl. ¶ 31).
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considered. (Id. ¶ 33.)

B. Procedural History

Variscite filed its complaint on September 26, 2022. (Compl.)

Shortly thereafter, on October 4, 2022, Variscite moved for a temporary

restraining order (TRO) and preliminary injunction by order to show cause.

(Dkt. No. 6.) Because “the [TRO and preliminary injunction] motion papers

were not provided [to defendants], and . . . , instead, [Variscite] gave notice

only that a motion was filed,” the court treated the motion as “a TRO

without notice.” (Dkt. No. 9.) Accordingly, because Variscite “ha[d] not

satisfied the court that the strict requirements of Rule 65(b) [of the Federal

Rules of Civil Procedure] ha[d] been met,” the court denied the application

for a TRO and set a briefing schedule and motion return regarding the

preliminary injunction. (Dkt. No. 9.) The parties then requested a modified

briefing schedule, (Dkt. No. 12), which was granted, (Dkt. No. 13). The

court held an oral return by video on Variscite’s motion for a preliminary

injunction on November 11, 2022 and reserved its ruling.4

4
At the November 11, 2022 hearing, the court granted Veriscite’s
request to supplement the record, which it did following the hearing. (Dkt.
No. 27.)
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On November 2, 2022, after the pending preliminary injunction

motion was fully briefed, defendants moved to dismiss, (Dkt. No. 22),

raising many of the same arguments they made in their opposition to

Variscite’s preliminary injunction motion, (Dkt. No. 20, Attach. 1), which will

be discussed below, as well as new arguments regarding standing, and

Eleventh Amendment immunity, (Dkt. No. 22, Attach. 1). The standing and

Eleventh Amendment arguments were not made in connection with

defendants’ response to Variscite’s preliminary injunction motion nor were

they raised by defendants during the motion return, and the motion to

dismiss is not yet fully briefed.

III. Standard of Review

When seeking a preliminary injunction, a plaintiff must show:

(1) a likelihood of success on the merits or . . .

sufficiently serious questions going to the merits to
make them a fair ground for litigation and a balance
of hardships tipping decidedly in the plaintiff’s favor;
(2) a likelihood of irreparable injury in the absence of
an injunction; (3) that the balance of hardships tips in
the plaintiff[s]’[] favor; and (4) that the public interest
would not be disserved by the issuance of an
injunction.”

Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887, 895 (2d Cir.

2015) (internal quotation marks and citation omitted). “[A] party need not

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show as high a likelihood of success if it can demonstrate that the balance

of hardships tips decidedly in its favor.” N.Y. Life Ins. Co. v. Singh, No.

14CV5726NGSMG, 2017 WL 10187669, at *1 (E.D.N.Y. July 13, 2017)

(citation omitted).

To obtain an injunction that “alter[s] the status quo by commanding

some positive act,” sometimes referred to as a “mandatory” injunction, the

applicant must show “a clear or substantial likelihood of success on the

merits,” rather than simply a likelihood of success on the merits. See N.Y.

Civil Liberties Union v. N.Y.C. Trans. Auth., 684 F.3d 286, 294 (2d Cir.

2012).

IV. Discussion

A. The Injunctive Relief Sought

As a preliminary matter, the court must determine which standard of

review applies to the injunction sought. Variscite argues that it requests a

“prohibitory” injunction which only “preserves the status quo.” (Dkt. No. 21

at 2.) Defendants contend that the injunction sought by Variscite is

“mandatory,” or “one that “alter[s] the status quo by commanding some

positive act.” (Dkt. No. 20, Attach. 13 at 4.)

As mentioned above, a “mandatory” injunction that “alter[s] the status

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quo by commanding some positive act,” requires a showing of “a clear or

substantial likelihood of success on the merits.” See N.Y. Civil Liberties

Union, 684 F.3d at 294. “Prohibitory injunctions [that] maintain the status

quo pending resolution of the case” require a showing of “a likelihood of

success on the merits.” N. Am. Soccer League, LLC v. U.S. Soccer Fed’n,

Inc., 883 F.3d 32, 36-37 (2d Cir. 2018).

Veriscite seeks a preliminary injunction “restrain[ing defendants] from

issuing any cannabis licenses under the CAURD application program” in

certain geographic areas. (Dkt. No. 6 at 2; see Dkt. No. 21 at 4 n.2.)

Given the relief sought, and the fact that the licensing process has not

begun5 — and according to representations made by defendants’ counsel

during the motion return, will not begin until, at the earliest, November 21,

2022 — Variscite seeks a “prohibitory injunction,” or, rather, one that

“seeks only to maintain the status quo,” and, thus, it need only show a

likelihood of success on the merits. See Mastrovincenzo v. City of New

York, 435 F.3d 78, 90 (2d Cir. 2006) (finding that a requested injunction

preventing the enforcement of a street vending licensing scheme against

5
Even if the licensing process had begun sometime after the filing
of Variscite’s complaint, the injunction would still be classified as
prohibitory. See N. Am. Soccer League, 883 F.3d at 37 n.5.
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certain art vendors was prohibitory, because the injunction would preserve,

rather than alter, the status quo). Defendants’ argument that the injunction

sought is mandatory or status quo-altering is unpersuasive, as they have

provided no justification for their position. (See, e.g., Dkt. No. 20, Attach.

13.) Accordingly, Variscite must show only a likelihood of success on the

merits, rather than a clear or substantial likelihood of success.6

B. Likelihood of Success on the Merits

1. Dormant Commerce Cause Scrutiny

The Commerce Clause of the Constitution provides that “Congress

shall have Power . . . [t]o regulate Commerce . . . among the several

States.” U.S. Const. art. I, § 8, cl. 3. “Although the [Commerce] Clause is

framed as a positive grant of power to Congress, [the Supreme Court]

ha[s] long held that this Clause also prohibits state laws that unduly restrict

interstate commerce.” Tenn. Wine & Spirits Retailers Ass’n v. Thomas,

139 S. Ct. 2449, 2459 (2019) (internal quotation marks and citation

omitted). “This ‘negative’ aspect of the Commerce Clause prevents the

6
While Varisicte need only demonstrate a likelihood of success on
the merits, the court notes that Veriscite has also demonstrated a clear
likelihood of success on the merits and, thus, would satisfy the standard
for a mandatory injunction for the same reasons that it has shown a
likelihood of success.
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States from adopting protectionist measures and thus preserves a national

market for goods and services.” Id. (internal quotation marks and citation

omitted). This interpretation is known as “the dormant Commerce Clause.”

Id.

Here, in order to determine the likelihood of Variscite’s success on

the merits, the court must determine what level of dormant Commerce

Clause scrutiny applies. Variscite argues that the first, more demanding,

level of scrutiny applies because the Cannabis Law and Cannabis

Regulations “directly discriminate against interstate commerce.” (Dkt. No.

6, Attach. 3 at 8-9.) Defendants contend that the second, less demanding,

level of scrutiny applies. (Dkt. No. 20, Attach. 13 at 4-5.) The court agrees

with Veriscite.

“In analyzing a challenged local law under the dormant Commerce

Clause, [the court must] . . . determine whether it clearly discriminates

against interstate commerce in favor of intrastate commerce, or whether it

regulates evenhandedly with only incidental effects on interstate

commerce.” Town of Southold v. Town of East Hampton, 477 F.3d 38, 47

(2d Cir. 2007) (citation omitted); see United Haulers Ass’n v.

Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245, 255 (2d Cir.

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2001) (“Once a court determines that a state regulation affects interstate

commerce, it must next determine whether the regulation ‘discriminates

against interstate commerce’ or regulates even-handedly with incidental

effects on interstate commerce.” (quoting C & A Carbone, Inc. v. Town of

Clarkstown, 511 U.S. 383, 390 (1994)).

“[I]f 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 advanc[e] a legitimate local purpose.” Tenn.

Wine & Spirits, 139 S. Ct. at 2461 (internal quotation marks and citation

omitted); see Town of Southold, 477 F.3d at 47 (“A law that clearly

discriminates against interstate commerce in favor of intrastate commerce

is virtually invalid per se.”). “The term discrimination in this context ‘means

differential treatment of in-state and out-of-state economic interests that

benefits the former and burdens the latter.’” Town of Southold, 477 F.3d at

47 (quoting Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99

(1994)). “A clearly discriminatory law may operate in three ways: (1) by

discriminating against interstate commerce on its face; (2) by harboring a

discriminatory purpose; or (3) by discriminating in its effect.” Id. (citations

omitted); see Vizio, Inc. v. Klee, No. 3:15-cv-00929, 2016 WL 1305116, at

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*6 (D. Conn. Mar. 31, 2016) (citation omitted).

On the other hand, where a law does not clearly discriminate, and

“only incidentally burdens interstate commerce [it] is subject to [a] more

permissive balancing test . . . and will be struck down if the burden

imposed on interstate commerce clearly exceeds the putative local gains.”

Town of Southold, 477 F.3d at 47; see Pike v. Bruce Church, Inc., 397

U.S. 137, 142 (1970) (“Where the statute regulates even-handedly to

effectuate a legitimate local public interest, and its effects on interstate

commerce are only incidental, it will be upheld unless the burden imposed

on such commerce is clearly excessive in relation to the putative local

benefits.”).

Numerous District Courts have ruled on similar regulatory cannabis

licencing schemes, and all applied the heightened level of dormant

Commence Clause scrutiny. See NPG, LLC v. City of Portland, No.

2:20-CV-00208, 2020 WL 4741913, at *2 (D. Me. Aug. 14, 2020) (applying

heightened standard to a licencing scheme where applications were

evaluated on a point scale, with the maximum potential points being thirty-

four, with five points awarded if the applicant was “[a]t least [fifty-one

percent] owned by individual(s) who ha[d] been a Maine resident for at

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least five years,” and with four points awarded to applicants “[o]wned by

individual(s) who have previously been licensed by the State of Maine or a

Maine municipality for non-marijuana related business”); see also Ne.

Patients Grp. v. Maine Dep’t of Admin. & Fin. Servs., 554 F. Supp. 3d 177,

180 (D. Me. 2021) aff’d by 45 F.4th 542 (1st Cir. 2022); Toigo v. Dep’t of

Health & Senior Servs., 549 F. Supp. 3d 985, 989 (W.D. Mo. 2021); Lowe

v. City of Detroit, 544 F. Supp. 3d 804, 807-08 (E.D. Mich. 2021); Finch v.

Treto, No. 22 C 1508, 2022 WL 2073572, at *12 (N.D. Ill. June 9, 2022).

Here, the challenged law and regulations require the CAURD

applicant to demonstrate “a significant presence in New York State,” a

showing that can be met by demonstrating “a majority of the ownership of

the applicant are residents of New York State.” 9 N.Y.C.R.R. § 116.4(a).

Applicants may also meet the “significant presence” criteria by

demonstrating that it is “incorporated or otherwise organized under the

laws of New York State,” id., or by providing documentation demonstrating:

(1) “Proof of the individual with sole control’s residency in New York State”;

(2) “Checking, savings, retirement, or brokerage statements showing

assets in New York State”; (3) “Tax filings showing assets, accounts, or

property in New York State”; (4) “Deeds, titles, mortgage documents, or

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homeowner warranties showing property ownership in New York State,” or;

(5) “Any other proof of New York State presence as determined by [OCM],”

(Dkt. No. 6, Attach. 19 at 8-9). Additionally, and independent from the

“significant presence” requirement, an applicant must be “[a]t least [fifty-

one [percent] or more . . . owned, in the aggregate, by” justice involved

individuals, meaning, “convicted of a marihuana-related offense in New

York State.” 9 N.Y.C.R.R. § 116.4(a)-(b) (emphasis added). Finally, the

applicant must provide proof of the justice involved individual’s residence at

the time of his or her arrest or conviction, and the application evaluation

criteria includes whether the justice involved individual lived-in housing

provided by New York Public Housing Authority. See id. § 116.4(a), (c).

Accordingly, the aforementioned application requirements, especially

when considered in the aggregate, will have a discriminatory effect on out-

of-state residents seeking a CAURD license, and, thus, the heighten level

of dormant commerce clause should be applied. See Town of Southold,

477 F.3d at 47; see also NPG, LLC, 2020 WL 4741913, at *2.

2. Whether the Challenged Laws and Regulations Survive

Heightened Dormant Commerce Clause Scrutiny

Variscite argues that the challenged law and regulation are not

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sufficiently narrowly tailored because a “nondiscriminatory method could

address the supposed collateral consequences of cannabis criminalization

. . . , for example, [defendants] could . . . create job training programs

(which would benefit entire communities, rather than the discriminatory

CAURD Program that benefits just 150 applicants.” (Dkt. No. 21 at 2.) In

their briefing, defendants did not address whether the challenged law and

regulations could survive heightened scrutiny. (See generally Dkt. No. 20,

Attach. 13.) The court agrees with Veriscite.

As mentioned above, a challenged law can survive the heightened

level of dormant Commerce Clause scrutiny “only on a showing that it is

narrowly tailored to advanc[e] a legitimate local purpose.” Tenn. Wine &

Spirits, 139 S. Ct. at 2461 (internal quotation marks and citation omitted).

If the heightened standard applies to a challenged law, the law is “virtually

invalid per se,” see Town of Southold, 477 F.3d at 47; see also NPG, LLC,

2020 WL 4741913, at *11 (“State laws that discriminate against interstate

commerce face a virtually per se rule of invalidity.” (internal quotation

marks and citation omitted)), and courts “generally str[ike] down the statute

without further inquiry,” Tennessee Wine & Spirits, 139 S. Ct. at 2471. The

burden of demonstrating that the challenged law survives the heightened

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level of dormant Commerce Clause scrutiny rests on the defendants. See

Lowe, 544 F. Supp. 3d at 816 (citing Dep’t of Revenue of Ky. v. Davis, 553

U.S. 328, 338 (2008)).

The intent of the Cannabis Law is:

[T]o regulate, control, and tax marihuana, heretofore

known as cannabis, generate significant new
revenue, make substantial investments in
communities and people most impacted by cannabis
criminalization to address the collateral
consequences of such criminalization, prevent access
to cannabis by those under the age of twenty-one
years, reduce the illegal drug market and reduce
violent crime, reduce participation of otherwise
law-abiding citizens in the illicit market, end the
racially disparate impact of existing cannabis laws,
create new industries, protect the environment,
improve the state's resiliency to climate change,
protect the public health, safety and welfare of the
people of the state, increase employment and
strengthen New York’s agriculture sector.

N.Y. CANBS. § 2.

As mentioned above, defendants did not even attempt to make the

requisite “showing that [the challenged laws and regulations are] narrowly

tailored to advanc[e] a legitimate local purpose,” Tenn. Wine & Spirits, 139

S. Ct. at 2461 (internal quotation marks and citation omitted), in their

briefing. (See Dkt. No. 20, Attach. 13.) Additionally, when directly

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questioned by the court as to whether the challenged laws and regulations

could survive the heightened level of scrutiny during the motion return,

defendants offered no cogent response. Defendants have not met their

burden of demonstrating that the Cannabis Law and Cannabis Regulations

are sufficiently “narrowly tailored” to serve a legitimate local purpose. See

Lowe, 544 F. Supp. 3d at 816. Therefore, Variscite is likely to succeed on

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the merits of their claim.7

C. Irreparable Harm

Variscite argues that it will be irreparably harmed, absent an

injunction, because the challenged laws and regulations infringe on its

constitutional rights, which automatically qualifies as irreparable harm, it

7
Defendants’ argument that, “even if the [c]ourt were to find that the
program favors intrastate commerce, there is still no violation of the
[dormant] [C]ommerce [C]lause because of the market participant
exception,” (Dkt. No. 20, Attach. 13 at 10), does not change this outcome.
The market participant “doctrine ‘differentiates between a State’s acting in
its distinctive governmental capacity, and a State’s acting in the more
general capacity of a market participant[, with] only the former [being]
subject[ed] to the limitations of the [dormant] Commerce Clause.’”
Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 93 (2d Cir. 2009) (quoting
New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 277 (1988)). In making
a determination regarding the market participant exception, “a court . . .
must consider in each specific context if the government is acting like a
private business or a governmental entity.” Id. Although defendants
argue that “[t]he CAURD program is a selective, turnkey program targeted
to provide a limited number of entrepreneurs with leased premises and
loans to operate their dispensary,” (Dkt. No. 20, Attach. 13 at 10-11), it is
readily apparent that the State is acting as “a governmental entity” rather
than “a private business” because it appears the State is providing loans
and leases as a way of assisting those to which it grants a licence, rather
than profiting from the licensees, which is consistent with the stated
purpose of the Cannabis Law: to “make substantial investments in
communities and people most impacted by cannabis criminalization to
address the collateral consequences of such criminalization.” N.Y.
CANBS. § 2.

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will “be[] excluded from the New York storefront retail cannabis market,”

and, even if it could join the cannabis market at a later date, “[a]ll

advantages to early entrants in the market, such as access to customers

who have not developed loyalty to other business, will have been claimed.”

(Dkt. No. 6, Attach. 3 at 11-13.) Defendants argue that constitutional injury

alone is insufficient to constitute irreparable injury, “[u]pon review of

[Variscite]’s application . . . it is apparent that due to the high level of

household income for the area in which [Variscite]’s address is located at

the time of conviction (which is based on the same data for all states),

[Variscite] is unable to obtain a sufficiently high score to qualify for [a]

license[],” any business loss can be compensated with monetary damages,

Variscite may apply for a future license which “[OCM] is currently finalizing

regulations for,” and Variscite’s “claim of irreparable harm is remote,

speculative, and tenuous at best as [OCM] has not made a determination

on [its] [a]pplication.” (Dkt. No. 20, Attach. 13 at 11-13.) The court agrees

with Veriscite.

“Irreparable harm is that injury which is so serious that a monetary

award cannot adequately compensate the injured party.” 325 Bleecker,

Inc. v. Local Union No. 747, 500 F. Supp. 2d 110, 123-24 (N.D.N.Y. 2007)

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(citing Citibank N.A. v. Citytrust, 756 F.2d 273, 275 (2d Cir.1985)).

Additionally, such harm cannot be merely remote or speculative. See id.

(citing JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 79 (2d Cir.

1990)).

“In the Second Circuit, it is well-settled that an alleged constitutional

violation constitutes irreparable harm.” Martinez-Brooks v. Easter, 459 F.

Supp. 3d 411, 448 (D. Conn. May 12, 2020) (citations omitted); see Conn.

Dep’t of Envtl. Prot. v. O.S.H.A., 356 F.3d 226, 231 (2d Cir. 2004) (“[W]e

have held that the alleged violation of a constitutional right triggers a

finding of irreparable injury.” (internal quotation marks and citations

omitted)); but see Andre-Rodney v. Hochul, 569 F. Supp. 3d 128, 141-42

(N.D.N.Y. Nov. 2021) (stating that “[a] court will presume that a plaintiff has

established irreparable harm . . . if the claim involves the alleged

deprivation of a constitutional right,” but the plaintiff must also

“convincingly” show that “the constitutional deprivation . . . carries

noncompensable damages” (citations omitted)).

Because Variscite alleges harm of a constitutional nature, such harm

is deemed irreparable. See Conn. Dep’t of Envtl. Prot., 356 F.3d at 231.

Variscite has also demonstrated, beyond the fact that the harm is of a

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constitutional dimension, that it faces irreparable financial harm should

their CAURD application be denied, due to their risk of being excluded, to

some degree, from the market. See Lowe, 544 F. Supp. 3d at 816

(“[P]laintiff has demonstrated that she will suffer irreparable injury absent

an injunction, as she would, at best, be significantly disadvantaged in

applying for a recreational marijuana retail license . . . and, at worst, be

entirely eliminated from consideration for such a license.”); see also Finch,

2022 WL 2073572, at *16 (“If the court declined to grant injunctive relief as

to the [cannabis licensing scheme] . . . [p]laintiffs’ chances of obtaining

[such] licenses will be statistically narrowed.”). Accordingly, Variscite has

demonstrated irreparable harm.

D. Balancing Hardships

Variscite argues that the balance of hardships tips in its favor

because there have been no applications granted or denied yet, and

“[a]pplicants were not required to lease or purchase a property for their

business before the CAURD Application Program, and, in fact, the State

will require selected applicants to lease their business premises from

[d]efendants.” (Dkt. No. 6, Attach. 3 at 13.) Defendants contend that the

balance of hardships is in their favor, because “[n]either [Variscite] nor any

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of the individuals identified on [its] [a]pplication, nor their counsel,

submitted a public comment on behalf of [Variscite] in response to the

publication of the CAURD Regulations in March of this year regarding the

provisions [it] challenge[s] as favoring intrastate commerce,” the State has

already licensed two hundred and sixty-one cannabis cultivators who have

already grown cannabis, which would now face spoilation or diversion into

the illicit market if an injunction is ordered, and delaying the enactment of

the Cannabis Law and Cannabis Regulations will allow the illicit market to

continue to thrive. (Dkt. No. 20, Attach. 13 at 13-15). The court agrees

with Veriscite.

“[T]he balance of hardships inquiry asks which of the two parties

would suffer most grievously if the preliminary injunction motion were

wrongly decided.” Goldman, Sachs & Co. v. Golden Empire Schs. Fin.

Auth., 922 F. Supp. 2d 435, 444 (S.D.N.Y. 2013) (citation omitted).

The balance here tips in favor of Variscite, given that OCM has not

begun issuing licenses, and will not begin issuing licenses until, at the

earliest, November 21, 2022. Additionally, all of defendants’ arguments

are undercut, to some degree, by the fact that Variscite only seeks to

enjoin the application process in five of the thirteen geographical regions,

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(Dkt. No. 6 at 2), and defendants could proceed with the licensing process

in the other eight regions. See NPG, LLC, 2020 WL 4741913, *12 (finding

that the balance of hardships tipped in favor of the plaintiff seeking to

enjoin a cannabis regulatory scheme, in part, because the defendant could

move forward with granting licenses to some degree).

E. Public Interest

The final factor, whether the public interest will be served by granting

the injunction, also weighs in Variscite’s favor, as “[n]o public interest is

served by maintaining an unconstitutional policy when constitutional

alternatives are available to achieve the same goal.” Agudath Israel of Am.

v. Cuomo, 983 F.3d 620, 637 (2d Cir. 2020); see Lowe, 544 F. Supp. 3d at

816 (“[T]he public interest is best served by enjoining the enforcement of

an ordinance that is likely unconstitutional.”). Accordingly, Veriscite has

met the standard for the issuance of a preliminary injunction, and the court

grants its motion.

V. Conclusion

WHEREFORE, for the foregoing reasons, it is hereby

ORDERED that Variscite’s motion for a preliminary injunction (Dkt.

No. 6) is GRANTED; and it is further

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ORDERED that defendants are hereby ENJOINED from issuing any

cannabis licenses under the CAURD application program held from August

25, 2022 to September 26, 2022, for the following geographic areas:

Finger Lakes; Central New York; Western New York; Mid-Hudson; and

Brooklyn during the pendency of this action or until otherwise ordered by

the court; and it is further

ORDERED that the Clerk provide a copy of this Memorandum-

Decision and Order to the parties.

IT IS SO ORDERED.

November 10, 2022

Albany, New York

29