More New York Cannabis Program Litigation: First Amendment Challenge to Third-Party Website Rules

On September 18, 2023, a new lawsuit was filed by, inter alia, Leafly Holdings, Inc. (“Leafly”) against the New York State Office of Cannabis Management (“OCM”) and New York State Cannabis Control Board (the “Cannabis Control Board”).

The lawsuit

This legal proceeding involves a First Amendment and other challenges to certain regulations adopted by the Cannabis Control Board. The regulations, known as Resolution 2023-32, introduce new rules under Parts 123 and 124 of the Revised Adult-Use Cannabis Regulations, which significantly restrict the ability of New York dispensaries and consumers to use third-party websites that aggregate information about cannabis products. The petitioners, including Leafly, Stage One Cannabis, LLC (“Stage One Dispensary”), and Rosanna St. John, are seeking to have these regulations invalidated on the grounds that they are arbitrary, capricious, and in violation of both the United States Constitution and the New York Constitution. They are also requesting a temporary halt to the enforcement of these regulations until the legal proceedings are resolved.

The specific provisions being challenged are:

1. The Third-Party Marketing Ban (9 N.Y.C.R.R. §§ 123.10(g)(21) and 124.5(a)), which restricts certain types of marketing by third-party websites.
2. The Pricing Ban (9 N.Y.C.R.R. § 124.1(b)(5)(ii)), which imposes limitations on pricing information.
3. The Third-Party Order Ban (9 N.Y.C.R.R. § 123.10(g)(23)), which restricts the ability to place orders through third-party websites.
4. The Third-Party All-Licensee Listing Mandate (9 N.Y.C.R.R. § 124.1(b)(2)), which requires third-party websites to list all cannabis licensees.
5. The Third-Party Distributor Listing Mandate (9 N.Y.C.R.R. § 124.1(c)(1)-(2)), which mandates the listing of third-party distributors.

The arguments

The petitioners argue that the Third-Party Marketing Ban and the Pricing Ban infringe upon free speech rights protected by the First Amendment of the U.S. Constitution and Article I, § 8 of the New York Constitution by limiting lawful commercial speech. They also claim that all the challenged regulations are arbitrary and capricious because they either conflict with New York’s Cannabis Law, lack a rational basis, or exceed the authority of the Cannabis Control Board.

What the plaintiffs want

Furthermore, the petitioners are requesting a temporary stay on the enforcement of these regulations, asserting that they are likely to succeed in their legal challenge and that they are facing irreparable harm due to the violation of their constitutional rights and potential business losses. They argue that maintaining the status quo is in the best interest of justice, and they urge the court to invalidate these regulations on the grounds of being arbitrary, capricious, irrational, and unconstitutional.

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This First Amendment challenge is just the latest litigation, unfortunately, in a program that has seen a number of misfires and delays. We will continue to monitor this lawsuit, while awaiting answers on fundamental issues that the Cannabis Control Board has inexplicably failed to address. Stay tuned to our New York coverage for more.