Why is a Michigan man blocking New York pharmacies?

Two companies owned by the same man are suing the state of New York and the city of Sacramento. Both lawsuits challenge pharmacy licensing programs that ban out-of-state residents.

Last week, a federal judge temporarily withheld 63 of the 150 adult-use cannabis dispensary licenses entering New York. The state planned to issue the first batch of adult-use dispensary licenses to businesses controlled by individuals with New York cannabis convictions later this month.

But a company owned by a Michigan man has blocked the issuance of nearly half of those licenses in a lawsuit arguing such programs discriminate against out-of-state residents and block interstate commerce.

Both of the plaintiff’s allegations, if true, would be unconstitutional. So a federal judge issued an injunction denying New York the ability to issue licenses in five regions, including Brooklyn and Central New York.

Why are 63 New York pharmacy licenses being delayed?

A company called Variscite NY One, Inc. sought an injunction to prevent the Office of Cannabis Management (OCM) from issuing licenses for conditional adult recreational spending (CAURD) in certain areas of the state.

Ground weed in the shape of New York and a joint.  (Series)Dozens of New York pharmacies are stuck in licensing. (Adobe Stock)

Variscite alleges that the OCM’s pharmacy license application program discriminates against out-of-state operators and blocks inter-state commerce, a direct violation of the Dormant Commerce Clause, which prevents states from favoring their own economies over a healthy national market.

According to the court, plaintiff Variscite meets some of the criteria for applicants for a conditional adult recreational pharmacy (CAURD). A requirement that Variscite meets is the non-violent cannabis conviction of the majority owner. The problem is that the sentencing took place in Michigan, not New York. So the owner, a Michigan man named Kenneth Gay, is ultimately disqualified from the first round of CAURD licenses.

Who owns Variscite?

A Michigan resident Kenneth Gay is the majority owner of Variscite New York One, Inc., which was registered with the State of New York in August. According to court records, Jeffrey Jensen owns the other 49%.

Kenneth Gay and his attorney, Christian Kernkamp, ​​filed a similar lawsuit against the city of Sacramento and its cannabis office in February 2022, this time using a business entity called Peridot Tree.

Neither Variscite nor Peridot Tree appear to be licensed, prominent, or active cannabis operations in California, Michigan, or New York. The plaintiff declined to comment on the case when contacted by Leafly.

Cookies are not associated with this lawsuit

On Thursday (November 17), a LinkedIn post by cannabis attorney David B. Feder sparked rumors that Cookies were behind the lawsuit. Some cannabis news outlets even published the rumours.

Feder uncovered documents linking Variscite co-owner Jeffrey Jensen to a 2018 dispensary application for cookies that was not approved in Pasadena, California. After implying that cookies could fuel the Variscite lawsuit, Feder directed the “net sleuths” on his site to investigate further.

On Friday (November 18), Feder retracted his testimony and publicly apologized for implicating Cookies in the case. Feder said, “Sometimes you have to admit when you’re wrong… After speaking to the people at Cookies and getting clarification and speaking to other people as well, I have to let everyone know: There is no connection between Cookies and this lawsuit. ”

Cookies CEO Berner thanked Feder for the clarification and wrote on Instagram: “Thank you. My apologies too, sometimes things like this get under my skin and I really appreciate you posting the truth. The more we grow, the bigger the goal we are. I really appreciate you clearing that up.”

“As it turns out,” Feder continued in his apology video, “Cookies never did business with this guy.” Feder added that it’s “probably better off if they didn’t, because look who this guy is.” . He doesn’t care about New York’s Social Justice applicants and is freezing the entire program for everyone and banning several regions from issuing CAURD licenses and who knows how far that might go.”

Feder added, “The bottom line is that I was wrong in presenting this information without the proper framework. And I appreciate that the folks at Cookies are coming straight to me to sort this out. This thing went a lot further than I ever expected.”

“I think a lot of people who hate cookies or maybe burners have been looking for something to hang their hat on to show that it really isn’t for people.”

David B. Feder ESQ

When did Variscite v. New York State begin?

The Variscite case was filed on September 26, 2022, the same day the August 25-September 26 application window for CAURD applications closed. A month earlier (31 August), Variscite was first registered with the state. The company was founded less than a week after the launch of the CAURD application portal on August 25th.

When asked about the timeline and intentions of the lawsuit, Variscite’s attorney, Christian Kernkamp, ​​told Leafly via email on November 15: “The plaintiff is not issuing a statement at this time, but we will certainly include you when.” the plaintiff makes a statement in the future.”

Why did the court allow Variscite’s motion to suspend New York licenses?

Last week (Nov. 10), US District Court Judge Gary Sharpe granted Variscite a restraining order. The judge cited cases in Maine, Missouri, Oklahoma and Michigan where similar laws have been successfully challenged on constitutional grounds, including the Dormant Commerce Clause. The court ultimately ruled that the state’s application requirements “will have a discriminatory effect on out-of-state residents seeking a CAURD license.”

On October 5, the court denied an initial request for an injunction that would have stopped some licenses at the time. Thursday’s (Nov. 10) new ruling says the New York Attorney General, arguing on behalf of the OCM and the state, has given no legitimate reason for discriminating against New Yorkers affected by the War on Drugs over non-residents to prefer.

Similar cases in Michigan and Maine also play on the tension that legalization creates between states’ interests in protecting local businesses and the dormant trade clause of the Constitution. The clause prohibits states from interfering in interstate trade in order to favor their own economies over those of other states.

Almost every state with a social justice program that favors residents is the subject of similar litigation, but ultimately it will be up to Congress to ensure federal legalization strikes a balance.

Why is Variscite suing New York State?

Client customer signing contract and discussing business with legal adviser, notary public or court attorney with laptop computer and wooden judge gavel on desk in court office, legal services concept(Adobe Stock)

It’s difficult to say. The company alleges that social justice programs violate the constitutional rights of owner Kenneth Gay. But there’s a lot of subtext to consider.

Gay also owns Peridot Tree, a California company that is currently suing the City of Sacramento on similar terms. Gay people may actually feel discriminated against by programs that favor state residents over foreigners. But many question the plaintiff’s true motives.

What can Variscite gain from delaying licenses?

It is unclear. But speculation abounds. It has been suggested that a special CAURD license could be an option for the plaintiff – not as a reward but as a “shut up and walk away” arrangement. Other, more sinister motives have also been floated without evidence or confirmation.


How cannabis owners can shape social justice

No matter what the plaintiff’s motive, federal law gives his claim some credibility. Still, the federal judge in the Peridot vs. Sacramento case in California decided Thursday (November 17) to abstain from the matter, citing the state’s illegality of cannabis. Gay will now refer this case to the Ninth Circuit Federal Court for further consideration.

Ultimately, ending the federal cannabis ban is the only way to prevent lawsuits like this from becoming a national trend. Otherwise, the Dormant Commerce Clause applied here could be used to bring about the failure of social justice programs in almost all constitutional states.

The true motives of the Variscite/Peridot plaintiff are difficult to ascertain for many reasons. There’s a lot of collateral damage to consider. The other cannabis companies, the wasted resources on filing and legal fees, and a potential backlash from affected companies make this case high-risk, low-reward from the outside.

What’s next in the Variscite vs. New York case?

An attorney representing multiple applicants said affected licenses could be suspended for three to four months in Brooklyn, Finger Lakers and other regions.

Despite the lawsuit, the New York City Bureau of Cannabis Management said it plans to move forward with its CAURD licensing program, calling the Variscite lawsuit a minor setback.

The OCM plans to award the first class of CAURD licensees on Monday, November 21st at a board meeting open to the public.

An official OCM statement on the case to Leafly on Nov. 10 reads:

“We do not comment on pending litigation. The Office of Cannabis Management is committed to the goals of the Marijuana Regulation and Taxation Act to include those affected by government enforcement of cannabis prohibition in the market we are building, and we are additionally committed to improving the cannabis supply chain of Making New York fully functional.”

Freeman Klopott, communications director at OCM

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