New York medical marijuana operators seek $20 million in licensing fees in court

The New York Medical Cannabis Industry Association (NYMCIA) has filed a lawsuit against the state's Office of Cannabis Management (OCM) and Cannabis Control Board (CCB), challenging a $20 million licensing fee paid to medical cannabis operators Marijuana is imposed on those who want to enter the adult use market. The association contends that this fee is criminal and unconstitutional, arguing that it violates the separation of powers doctrine and constitutes an improper tax disguised as an administrative fee.

Under the Marijuana Regulation and Taxation Act (MRTA) of 2021, medical marijuana operators called Registered Organizations (ROs) were permitted to move into the adult-use market upon payment of a one-time special licensing fee. The MRTA determined that this fee should adequately fund social and economic justice initiatives. However, the NYMCIA contends that the $20 million fee is disproportionately high compared to other states and was implemented without appropriate legislative authority.

The lawsuit also alleges that the fee placed a financial burden on medical operators because only four of the nine ROs were able to make the $5 million initial payment required to convert their licenses. The remaining organizations have either delayed their transition or opted for wholesale-only licenses and foregone retail opportunities. The NYMCIA is seeking a repeal of the fee and a refund of all payments, stressing that the fee has reduced the company's value, which amounts to a government takeover of its business.

This legal action exacerbates the challenges facing New York's cannabis industry, which has experienced a turbulent rollout of its adult-use program. The state's approach aimed to prioritize social equity applicants but encountered delays and litigation, leading to an increase in unlicensed dispensaries. The entry of well-capitalized medical operators into the recreational market is seen by some as a necessary step to stabilize the industry and combat illegal operations, despite the high licensing fees.

As the litigation continues, its outcome could have a significant impact on the structure and accessibility of the New York cannabis market, impacting both existing medical operators and potential new entrants.