Last week, the New York State Supreme Court for the County of Albany approved a Petition submitted by LeaflyHoldings, Inc. and co-petitioners (“Leafly”), staying cannabis marketing regulations that were recently enacted by the Office of Cannabis Management (the “OCM”). As our readers are aware, the Marihuana Regulation & Taxation Act (“MRTA”) was enacted in 2021, legalizing adult-use cannabis in New York State. The OCM was established under the MRTA to implement a regulatory framework for cannabis use and marketing in the State of New York. In the course of fulfilling its duties, the OCM promulgates much of its proposed rulemaking before it adopts new regulations. The Petition alleges that Leafly submitted comments on new cannabis marketing rules proposed by the OCM, but that their concerns were ignored, and the new rules adopted without change. As a result, Leafly alleged, its cannabis marketing operations were unfairly and unconstitutionally harmed.
The Leafly Petition
On December 14, 2022, the OCM published its first draft of proposed adult-use recreational cannabis sales regulations, sections of which include marketing. Over the course of several rounds of public comment, Leafly voiced its concerns regardingthe potential impact of the regulations on the marketing of cannabis in the State. The OCM did not respond. On September 12, 2023, the OCM adopted Parts 118 through 121, 123 through 125, and 131 of Chapter II of Subtitle B of Title 9 of the Official Compilation of Codes, Rules and Regulations of the State ofNew York (“N.Y.C.R.R.”).
Leafly is a Delaware Corporation headquartered in Seattle Washington. According to its Petition, it “provides a platform for consumers to research and make informed purchasing decisions regarding cannabis.” Since the passage of the MRTA, Leafly has invested over $300,000 and 500 hours of time to “correct, strengthen, and grow New York’s cannabis industry.” In its Petition, Leafly alleged that the newly-adopted regulations would render its cannabis marketing business unviable. For example, N.Y.C.R.R. §123.10(g)(21) prevents licensed retail dispensaries from paying for any kind of “promotion” on a third-party website. N.Y.C.R.R. §124.1(b)(2) prohibits retailers from entering into any contract with third-party platforms that do not “list all licensees authorized for the retail sale of such cannabis products” when “advertising or listing a cannabis product.”According to the Petition, the OCM’s new regulations conflict with the very core of Leafly’s business model. Leafly operates in a manner similar to third-party restaurant reservation aggregator OpenTable, but for legal marijuana dispensaries. Dispensaries pay Leafly to appear on its website. Consumers acquire local dispensary information and place orders with these dispensaries through Leafly. If legal dispensaries cannot pay Leafly to market or “promote” their cannabis products, consumers will stop relying on Leafly to obtain information about legal dispensaries. Vice versa, if consumers stop relying on Leafly to obtain cannabis-related information, dispensaries will stop marketing on its website. Consequently, Leafly petitioned the Court alleging six causes of action, including Freedom of Speech violations, and allegations that the new mandates areunconstitutionally vague. The Court agreed with Leafly and stayed the challenged regulations.
Why Does the Leafly Petition Matter to Your Cannabis Marketing Business
It is no secret that New York State agencies have had a difficult time with regulating cannabis use dating back to its legalization. Readers may be surprised to know that, to date, only about 23 dispensaries have been licensed by the Cannabis Control Board (“CCB”). Meanwhile, every New York City block seems to have a few storefronts marketing cannabis products. Despite this paradox, legitimate cannabis sale and marketing companies should have faith, as Leafly does, that the CCB and OCM will come around. If they do, it is the legally compliant businesses that will be in pole position to bestcapitalize on the MRTA.
It is important to note that Leafly is the only third-party platform that the Court-ordered stay expressly applies to. Other New York businesses involved in cannabis marketing, from those offering paid advertising services, to others that display retailer product pricing, will need to evaluate the OCM’s newly-enacted rules for themselves. Businesses should consult with experienced marijuana marketing attorneys to ensure that their advertising efforts comply with both state and federal regulations as they exist today.
If you are interested in learning more about this topic or require legal assistance in connection with advertising marijuana and/or other cannabis-related products, please e-mail us at: email@example.com, or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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