Variscite Ruling Strikes Down New York's Cannabis License Preference

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September 11 2025

Overview

New York's cannabis licensing faces legal challenges. The 2nd U.S. Circuit Court of Appeals ruled that the state's preference for in-state convictions violates the Dormant Commerce Clause (DCC). This decision aligns with a prior 1st Circuit ruling against Maine's residency requirements for cannabis businesses.

Background

New York legalized recreational cannabis in 2021. It created two licensing programs:

• Conditional Adult-Use Retail Dispensary (CAURD): Required significant state presence or residency. Challenged in court, resulting in injunctions.

• Adult-Use Program: Open to all, but prioritized applicants with New York cannabis convictions or low income. This "Extra Priority" rule gave such applicants three review queue positions.

The Variscite Case

In Variscite NY Four, LLC v. New York State Cannabis Control Board, plaintiffs argued the Adult-Use program's preference for New York convictions violated the DCC. The court agreed, finding:

• The policy favored in-state residents, as most New York cannabis offenders are locals.

• This protectionism triggered strict scrutiny, which New York failed.

• The DCC applies to cannabis markets, despite federal illegality.

The court vacated the district court's denial of an injunction and remanded the case.

Implications

The ruling signals that cannabis regulations must comply with the DCC, like other industries. States with similar residency or conviction-based preferences, such as Washington or California, face potential lawsuits. New York and others may need to revise social equity programs to focus on neutral criteria, like income or universal conviction history.

Broader Context

Similar challenges are emerging:

• Maine and Missouri face lawsuits over residency rules.

• Pending appeals in the 1st and 9th Circuits.

• A 4th Circuit ruling upheld Maryland’s university-based equity rule, as it didn’t require residency.

States must brace for increased litigation as courts clarify DCC’s role in cannabis regulation.

Alexander Malyshev and Sarah Ganley are regular contributors on cannabis legal issues for Reuters Legal News and Westlaw Today.