By Joanne Cachapero
Variscite’s attorney said the injunction could be over tomorrow, but the state would rather litigate.
In September, a Michigan man filed suit against the state of New York alleging the state’s licensing requirements for cannabis retail businesses discriminate against out-of-state applicants, based on an obscure piece of constitutional interstate commerce legislation called the Dormant Commerce Clause.
The plaintiff in the case is listed as Variscite NY One, Inc., an LLC with an Albany, New York address that was registered with the state one month before the New York’s conditional retail license application deadline. Kenneth Gay, a resident of Battle Creek, Michigan, is listed as majority owner of the company, while Jeffrey Jensen is listed as Variscite’s minority owner.
Pending a decision in the case, Variscite asked for and New York federal Judge Gary Sharpe granted, a temporary injunction on issuing licenses in Finger Lakes, Central New York, Western New York, mid-Hudson and Brooklyn, only ten days before the first round of licenses were scheduled to be issued on November 21. The injunction did not affect license applicants in Manhattan, the Bronx, Queens, Staten Island or Long Island.
On the 21st, the state awarded the first round of 36 Conditional Adult-use Recreational Dispensary (CAURD) licenses – with none in the areas covered by the injunction, which Variscite had identified in the suit as areas where they want to open retail locations. This first round of licenses were slated to go to applicants with prior marijuana convictions as part of New York’s Office of Cannabis Management (OCM) social equity program. Gay, who has a previous marijuana conviction, was disqualified on this criteria because the conviction is on record in Michigan, not New York.
The legal action seems strange and possibly strategic to New York applicants unable to secure preliminary licensing despite submitting qualified applications because of the injunction. Mike Golden, co-owner of The Higher Calling (THC) told Syracuse.com the delay was frustrating because he felt THC would win a license in the first round. Nine hundred applications have been submitted for what will be a total of 175 CAURD licenses.
“I’m very happy for those that were awarded. But there is still all this uncertainty for us right now. It makes it hard to plan, to talk to investors and get things moving. It’s just hard to know what’s going on,” Golden said.
Much uncertainty springs from mystery surrounding Variscite NY One, Inc. and owner Gay. The company has no established background in the cannabis industry in Michigan or New York. There is scant online presence for Variscite or Gay, with no apparent websites or social media profiles.
What is easily found in a Google search, however, is a similar lawsuit brought by another company owned by Gay, against the City of Sacramento’s Cannabis Opportunity Reinvestment and Equity program. The plaintiff in that suit, Peridot Tree, Inc., is owned by Gay, and again asserts that the residency rule for license-holders is unconstitutional.
Filed in February 2022, the Sacramento suit mirrors the New York case. Peridot Tree has no footprint in the cannabis industry in California or Michigan. Gay and Peridot Tree are suing the Sacramento Office of Cannabis Management for discrimination after their license application was disqualified for lack of California residency. On November 17, a federal judge abstained from a decision in the case, citing continued federal illegality of cannabis. Reportedly, Peridot Tree will now pursue a decision in the 9th District Circuit Court of Appeals.
The attorney representing Variscite and Peridot Tree is Christian Kernkamp, who is licensed to practice in both California and New York and whose Kernkamp Law firm has a Century City address.
In September 2020, Kernkamp also represented plaintiffs including ARMLA One, Inc., ARMLA Two, Inc. and Gompers SocialEq, Inc. in a lawsuit against the City of Los Angeles, the Los Angeles Department of Cannabis Regulation and its Executive Director Cat Packer (who stepped down in March 2022).
That suit alleged that licensing rule changes benefited only certain social equity applicants and also that the Department of Cannabis Regulation and Packer had colluded with some applicants to award them licenses, despite deficiencies in their applications. The suit also claimed that ARMLA’s application was disqualified after its location was found to be within 700 feet of a school, while other approved licensees’ locations were also in close proximity to schools or libraries. The suit was withdrawn in August 2021.
When Emerald Media contacted Kernkamp to ask for comment on the Variscite case, he replied and said, “The plaintiff, Variscite, had hoped to avoid enjoining cannabis sales in New York. Variscite made an offer to settle this case at no cost to the State so licensing could proceed, but the State never even gave us the courtesy of a response. The injunction could be over tomorrow, but the State prefers instead to litigate even though the court has already found a ‘clear likelihood’ that the State violated Variscite’s constitutional rights.”
Variscite’s legal challenge may indeed find precedent in cases that have been decided in Michigan and Maine. “The Supreme Court has relied on the ‘Dormant Commerce Clause’ concept to strike down state laws that favor the commercial interests of state residents over those of out-of-state competitors,” said legal blog JDSupra in a post about the Variscite lawsuit.
The New York suit has cited a case in Maine, NPG LLC et al v. Maine Department of Administrative and Financial Services et al, which challenged the residency requirements of the state’s cannabis licensing program. In August 2020, the state and attorneys for plaintiffs filed for the case to be dismissed after the state attorney general declined to defend the residency rule, which was subsequently removed from licensing requirements.
“The defendants have been advised by the Attorney General that the Maine Marijuana Legalization Act’s residency requirement, 28-B M.R.S. sec. 202(2), is subject to significant constitutional challenges and is not likely to withstand such challenges. The Attorney General thus does not intend to defend the Residency Requirement, given the constitutional issues raised in this lawsuit. Accordingly, defendants will not be enforcing the Residency Requirement or any agency rules, regulations or guidance which enforce or implement the Residency Requirement,” a statement from Maine’s Office of Cannabis Policy read, announcing the dismissal.
Speculation on what may be motivating the lawsuits has surfaced as the long-anticipated New York adult-use market roll-out is scrutinized by cannabis industry businesses, executives and experts. Rumors that deep-pocketed multi-state operators (MSOs) might be trying to throw a monkey wrench into the licensing process, but why?
Cannabis trade media outlets reported on industry attorney David Feder, who apparently hinted at an association between global cannabis brand Cookies and Variscite minority owner Jeffery Jensen after Feder discovered paperwork that connected Jensen and a failed dispensary application for a Cookies location in Pasadena. But on November 18, Feder retracted the LinkedIn post that had mentioned Jensen and apologized to Cookies and its CEO Berner for implying any company involvement. Berner responded on Instagram and thanked Feder for the clarification.
When Emerald Media asked Kernkamp for comment on his client’s motivation in filing the New York lawsuit, there was no response. The OCM in New York was not immediately available to comment on the Variscite case. We will continue to make updates as this case progresses.