New York City persuaded U.S. District Judge J. Paul Oetken to dismiss a lawsuit led by Moon Rocket Inc. and 27 other businesses that claimed when the sheriff shuttered their unlicensed cannabis operations, they were denied due process.
When New York decriminalized cannabis ahead of legalizing the sale of marijuana for adult recreational use, a delay in the program’s launch created an opportunity for unlicensed operators to proliferate. However, once licensed stores began to open, they complained about having to compete against illegal operators, which weren’t subject to heavy taxation or signage rules. The unlicensed shops sold cheaper, untested products and had bright, promotional store signs, cutting into the sales of licensed stores.
The state responded by giving cannabis regulators more power to shut unlicensed stores down. That authorized the city sheriff to close stores operating without a license. The shuttered operators were given five days to address the sheriff’s actions before the New York City Office of Administrative Trials and Hearings, or OATH.
Twenty-seven businesses in the lawsuit attended hearings before OATH to challenge their closures. In 17 cases, the OATH hearing officer sustained the summons, imposed a fine and recommended that the sealing order continue. The court opinion stated, “In five cases, the OATH hearing officer sustained the summons, but recommended that the sealing order be lifted due to deficient service of the sealing order or the sheriff’s failure to establish an imminent threat. In four cases, the OATH hearing officer dismissed the summons for defective service but recommended that the sealing order remain in place. In one case, the OATH hearing officer dismissed the summons and recommended lifting the sealing order, but the sheriff kept the sealing in place.”
The judge acknowledged that closing the stores deprived the business of the ability to earn any revenue. Yet, on the other hand, he said the city’s interest in protecting public health and safety by containing the unlicensed sale of cannabis was also compelling.
The judge also pointed out that the businesses had the opportunity to have a hearing, which resulted in some operators’ sealing orders being lifted. Still, operators pushed back, saying the sheriff disagreed with some of the OATH decisions by refusing to remove the seals and had too much power in this circumstance. According to the opinion, the judge stated that if the operators didn’t like the judgment, they were able to challenge the decision under Article 78. With this process, two operators were able to get their decisions reversed.
Thus, the judge found that the unlicensed operators did have the ability to be heard and the ability to challenge the results if they didn’t agree with them. And he granted the city’s request to dismiss the case.
