NY Can’t Discriminate Against Out-of-State Cannabis Operators, says Federal Appellate Court

On August 12, 2025, the US Second Circuit Court of Appeals reversed a lower court’s decision and found that New York’s priority scheme favoring in-state applicants violated the Dormant Commerce Clause of the US Constitution.  The Court explained that the Dormant Commerce Clause prohibits state protectionism unless the US Congress clearly authorizes protectionism.  That is, any regulatory measure designed to benefit in-state economic interests by burdening out-of-state competitors is presumptively unconstitutional. 

Some lower courts have ruled that the Dormant Commerce Clause does not apply to state cannabis laws, because the Controlled Substances Act (CSA) makes all cannabis illegal.  The court however disagreed and ruled that the CSA does not create a clear exemption from the prohibitions against protectionism.

In this case the plaintiffs argued that NY’s cannabis application process discriminated against them because to qualify for priority review, the applicant (or a close family member) must have been convicted of a cannabis related offense under NY law.  The Court viewed that as clearly favoring New York residents and therefore violative of the Dormant Commerce Clause.

The plaintiffs in the case had sought an injunction barring the state from reviewing applicants in the “December Queue”.  The Court’s ruling means that a lower court will now have to consider whether to grant that injunction and prevent NY from reviewing December Queue applications.  The Court left open the possibility that the November Queue also could be enjoined if the plaintiffs could demonstrate with sufficient facts that the process for the November Queue was also intended to benefit New Yorkers, and in particular CAURD applicants.

This decision is significant as it is the second federal court of appeals to find that the Dormant Commerce Clause prohibits states from discriminating against out-of-state operators in the cannabis market.  It is also significant because a lower court may now issue another injunction further delaying the review of New York cannabis applications that were submitted in late 2023.

The case is Varascite NY Four, LLC. v. NY State Cannabis Control Board, 23-384-cv (2d Circuit, 2025)