By John Schroyer
A bevy of lawsuits has become the new norm in states that legalize medical cannabis and set tight caps on the number of business licenses.
And that is precisely what’s expected to happen in New York, which will award just five such permits to grow, produce and dispense MMJ. The winners are expected to be announced any day now, and legal action likely isn’t far behind.
“Initially, when New York launched its program, everyone was saying it’s a lobbyist’s act, because you had all the lobbyists making a hell of a lot of money off of it,” said Avis Bulbulyan, a consultant whose clients include two of the 43 companies that applied in New York. “Now it’s round two, and it’s the lawyers’ turn. So you’re going to get a lot of lawyers soliciting (clients).”
It’s unclear whether such lawsuits would affect the licensing process in general. In a worst-case scenario, though, they could stall implementation of New York’s MMJ program and lead to other delays, as was the case in Massachusetts.
“It could slow down the entire process, potentially, depending on the nature of the lawsuits,” said Evan Nison, founder of the New York Cannabis Alliance. “There might be some legitimate cases, so it’s hard to say what the overall impact is going to be. It’s very situational and case-by-case.”
At least one New York attorney is already trying to get his name in front of companies that don’t make the cut. R. David Marquez, who owns a small law firm on Long Island, sent letters to all 43 applicants in early July, before the license winners were supposed to be announced.
“Should you need help resolving a legal problem or need a professional opinion regarding the interpretation of the applicable law, please do not hesitate to call upon us,” Marquez wrote.
While some might see that as ambulance chasing, the general consensus is that there will be a lot of disgruntled companies when the Health Department reveals the winners.
Manhattan attorney David Feder, who specializes in cannabis business development, said he’d heard estimates of companies spending $2 million-$3 million just on the application process. That doesn’t even include ordinary business expenses, such as renting space, purchasing production equipment, outfitting grow rooms, and so on.
“I can’t imagine that money is not just going to sit there and stay quiet if they don’t win,” Feder said. “While I’m sure the department is going to do their best to choose the most qualified applicants, I would be surprised if some of the losers didn’t file a lawsuit to try to squeeze themselves in.”
The fact that one lawyer is already soliciting potentially disgruntled clients before licenses have been awarded shows just how much the climate has changed in new MMJ states. In the past, lawsuits surrounding medical marijuana licensing were somewhat rare. Now, they are becoming routine.
“Everything that’s going to happen with regards to cannabis is going to press somebody’s buttons somewhere,” Marquez said. “That garners litigation. There’s no way around it. Somebody’s got to start the ball rolling.”
Some professionals question Marquez’s tactics, but others say it’s basically smart soliciting.
“You send that out to everybody, and you’re always going to get one person that bites,” said cannabis consultant Bulbulyan. “So then when you start thinking about filing a lawsuit, it’s like, ‘Hey, what about that guy who sent us that letter? He might be a good option.’”
The question now is what type of action will some of those companies take?
Marquez said he already has a plan of attack. Once – or if – he garners a few of the companies that failed to win a permit, he’ll start with a Freedom of Information Act request to get more information about the application documentation and the licensing process, then work his way up to a judicial review before filing suit.
But he’ll also look to persuade the New York Health commissioner to expand the number of licenses, instead of supplanting one or more of the license winners.
“I’m not so much looking to unseat anyone unless someone has obtained a license through nefarious means,” Marquez said. “I’m more inclined to be seeking to push the limit, to say, ‘Commissioner, here’s another company equally qualified. Your decision to establish five licenses, instead of six or seven, that part is arbitrary and capricious.’”
“Arbitrary and capricious” is a legal term, Marquez said, that he may very well wind up using to fight the state on which companies deserve to be licensed, because the decisions to award the licenses must have a rational basis. And the New York MMJ law does grant the commissioner the power to increase the number of licenses.
There may be far more legal action than just against the Department of Health, however.
Another New York attorney who asked not to be named suggested that there could be a lot of infighting between major players in the five companies that are named by the state, because there are likely tens of millions – and possibly hundreds of millions – of dollars at stake.
“The winning team winds up frequently fighting within themselves, because when it goes from a potentially valuable company to a massively valuable company, then all those folks who didn’t have solidified agreements going in, then the other people decide to screw them over. That happens,” the attorney said. “Greed is a brutal, brutal thing.”
John Schroyer can be reached at [email protected]