By Brendan J. Lyons
Albany Times Union
ALBANY — Four cannabis shop owners who contend their new businesses could be harmed by competitors who received authorization to open within hundreds of feet of their stores have filed a lawsuit alleging state regulators are violating New York’s “proximity” protections.
The rules — part of New York’s efforts to ensure the success of the nascent retail marijuana industry — are intended to shield retail shop owners from having their sales diluted by nearby cannabis stores that could draw from a limited pool of customers, especially in small communities. Similar rules to protect liquor stores from undue competition have been in place for decades.
Pot regulators have sought to spread out the cannabis stores they have issued licenses to across New York, but also recently have sought to loosen those proximity rules to give the Office of Cannabis Management even more discretion in deciding where stores can be located.
The lawsuit filed Thursday in state Supreme Court is the latest in a series of legal battles that have been waged against state cannabis regulators by stakeholders in the nascent industry. Those cases have included challenges of the state’s rules giving priority to “social equity” license applicants, regulations that placed limitations on marketing for cannabis stores, and the ongoing enforcement efforts against licensed hemp retailers, among other issues.
The petition filed Thursday on behalf of four retail cannabis operators — whose shops recently opened or are about to open in Manhattan and Brooklyn — seeks to hold regulators to the proximity rules that are intended to prevent areas from becoming saturated with cannabis shops. In October and November, the state Cannabis Control Board approved licenses for four other shops that would open within 1,000 feet of the petitioners’ stores.
Gil Santamarina, a Manhattan attorney whose firm is representing the shop owners in their lawsuit, noted in a memo filed in support of the petition that the proximity protections may only be waived in limited circumstances, and only after the Cannabis Control Board determines that an additional retail shop in a protected area would promote “public convenience and advantage.” But that determination also must be based on an analysis of at least seven factors, including impacts on traffic, parking or noise, as well as a “demonstrated need” for another shop.
The lawsuit argues that regulators did not engage in a meaningful analysis of the statutory factors in reaching their decision, and provided no reason when they granted the competitors’ licenses for how those additional shops would promote “public convenience and advantage.”
The rollout of the retail marijuana industry in New York over the past four years has been hampered by setbacks, including the proliferation of unlicensed cannabis stores that sell untaxed products at lower prices than licensed shops. A top complaint of licensed retailers, especially in dense metropolitan areas like New York City, has been that the unlicensed shops in close proximity to their stores have crippled sales.
But now some of the licensed shops have a new challenge — competing with other licensees whose nearby store locations are being approved at a time when New York has sought to hasten the pace of issuing retail cannabis licenses.
In the court case filed Thursday, Santamarina argues that regulators in at least two of those approvals relied on opinions from local community boards for locating the new competing shops — decisions that he said were not based on the factors that are supposed to be considered under New York’s cannabis laws.
“The record strongly indicates that the determinations were made on a whim, without ‘sound basis in reason’ and without regard to the relevant facts,” Santamarina wrote in his memorandum. “The lack of transparency and consistency in (regulators’) decision-making also violates the due process rights of petitioners, who are directly harmed by the determinations. It also erodes confidence in the fairness and integrity of the cannabis regulatory system.”
In some cases, Santamarina noted in his argument, cannabis retail store licensees have received approval letters assuring them that they would receive proximity protection from future competitors.
“Cannabis retail licensees … rely on these proximity protections and the OCM’s proximity protected locations map in selecting locations for their dispensaries and committing to leases with exorbitant rents,” Santamarina wrote. “These statutory protections provide assurances that nearby competition will be limited, justifying paying a premium for rent and taking on other significant financial obligations necessary to establish and operate their businesses.”
Ronald Shen, CEO and majority owner of R&R Remedies, has a cannabis shop slated to open in the coming weeks in a former warehouse on Gardner Avenue in Brooklyn. He said a license for the nearby competing shop was approved in November by state regulators and would be just two blocks from his store, which is in an industrial area with little foot traffic and not along a main thoroughfare.
“The 1,000-foot proximity rule was established for a reason: to provide us (conditional licensees) a fighting chance in this cutthroat industry and an opportunity to earn a living in the city we love,” Shen said. “We are fighting not just for ourselves, but for every licensed retail dispensary owner who has poured their life savings into their business.”
Shen, a New York City native, received his conditional license under state regulations that had prioritized “social equity” applicants, including women, minorities, military veterans and those with past criminal convictions involving marijuana. He is a U.S. Navy veteran, a minority and a justice-involved individual, according to his biography.
State regulators have battled on both sides of the proximity issue. Last year, the state won a court case filed by a cannabis license applicant, Gracious Greens, who had challenged the rule prohibiting the company from trying to open new stores within 1,000 feet of existing shops in New Paltz and Peekskill.
In that case, which was filed in Albany, state Supreme Court Justice Thomas Marcelle dismissed the petition, in part, on the grounds that Gracious Greens had not been “deprived of a constitutionally protected property interest” because it had only applied for licenses to open stores in those locations, but had not received approval at the time. Marcelle noted that the company “has no right to a future cannabis dispensary license.”
Gracious Greens has filed an appeal of that decision.
‘Ignoring protections’
Recreational cannabis shops have to be at least 1,000 feet apart under New York’s regulations. If a storefront is in a municipality with a population of 20,000 or more residents, it must be at least 1,000 feet away from any other cannabis store. If it has less than that population, the stores must be at least 2,000 feet apart.
Retail cannabis store operators who rent their spaces are often being charged high amounts for those leases, in part, because landlords believe the shops if they are successful can pull in millions of dollars in revenue annually. But competition from the illicit market is fierce, many shops are not seeing the same level of business as others, and some operators say success is not guaranteed, especially as the number of licensed stores continues to grow.
“By ignoring proximity protections and granting waivers without due process, communities will be oversaturated and (conditionally licensed retail cannabis) operators will fail,” said Vaughn Jefferson, a majority owner of L.O.R.D.S, a cannabis dispensary that’s operating in Brooklyn and is one of the four petitioners in the lawsuit filed this week.
The other petitioners in the case are Dan Morena, who owns Actualize Dispensary which is scheduled to open later this month at the intersection of 16th Street and 7th Avenue in Manhattan; and Jillian Dragutsky, who owns Astro Management, which is slated to open a cannabis store soon on Atlantic Avenue in Brooklyn.
“We believe in the initial promise of the CAURD program, which is why we’ve invested years of time and thousands of dollars to secure a location and get proximity protection — just to have another licensee get a waiver from the (Cannabis Control Board),” Morena said.
Read more on this story at TimesUnion.com
