New York Dispensary Licenses Held Up by “Dormant Commerce Clause” … But This Hold Up Could Also Be The Key to Interstate Cannabis Commerce!

On November 10, 2022, a federal judge temporarily stopped New York’s Office of Cannabis Management (OCM) from issuing conditional adult-use retail dispensary (CAURD) licenses in certain parts of the state. This was because of litigation over the application’s state residency requirements.

This case has implications on New York licenses … but even more importantly for the country’s cananbis industry, the outcome of this case could ultimately open the way for interstate cannabis commerce!

But first, for New York state, their retail market is being held up. The state has not yet issued any licenses, but is in process, and plans to soon begin issuing 150 of them. And those license applications include wording that says an applicant must demonstrate “a significant presence in New York State, either individually or by having a principal corporate location in the state.”

Because of this residency requirement, one cannabis company sued the state of New York on grounds that the residency requirements violate the U.S. Constitution’s “dormant commerce clause”. (A copy of the full decision is available here.)

This clause prohibits states from enacting laws which inhibit trade among the states. It grants the federal government jurisdiction over any interstate commerce if a state law or regulation prohibits or prevents interstate commerce by favoring its residents over the residents of other states.

Just a few years back in 2019, the US Supreme Court used this clause to rule that a residency requirement for Tennessee retail liquor stores was unconstitutional.

This recent ruling was just a preliminary injunction, so it could be overturned. It’s also limited to five geographic areas within the state. The state may be able to get around this clause if they are able to explain why their regulations are narrowly tailored to residents in a way that doesn’t violate this constitutional clause. Thus far, they have not done so, but the case is on-going.

The other very important reason to follow this case’s outcome closely, is that the final ruling on this Dormant Commerce Clause’s application to cannabis could potentially open the way for interstate commerce!

If the final ruling does find that this US constitutional ammendment applies to cannabis, then potentially all state cannabis regulations which restrict licensees from purchasing only from instate suppliers could also be unconstitutional.

Industry and expert, David Rabinowitz, wrote about this potential, saying, “…interstate commerce is becoming closer to a reality as court decisions set the table for interstate trade.”

So while our US legislative representatives have been dragging their feet and squabbling between parties over legalization and banking issues, Rabinowitz believes the courts are the way to ultimate cananbis freedom. He writes, “Cannabis progress will happen in the courts, driven by decisions like these.” And he emphasizes his conviction by adding, “Count on it!”