“Variscite Ruling Reshapes New York Cannabis Licensing: What It Means for CAURD and Adult-Use Applicants”

August 12, 2025, the U.S. Court of Appeals for the Second Circuit revived a challenge brought by Variscite NY Four and Variscite NY Five to New York’s adult-use licensing framework. The court held that New York’s “Extra Priority” rule—giving applicants triple chances in the queue only if they (or close relatives) had a New York marijuana conviction before March 31, 2021—likely violates the Dormant Commerce Clause because it operates as a proxy for favoring in-state residents over out-of-state competitors. The court vacated the district court’s denial of a preliminary injunction and sent the case back for further proceedings, signaling that the rule “cannot stand” under traditional Dormant Commerce Clause principles. ww3.ca2.uscourts.gov

Importantly, the panel also sorted out who Variscite can challenge. The court said Variscite does not have standing to stop the issuance of CAURD licenses (those 2022–2023 “conditional” retail licenses), because Variscite never applied to that program. But Variscite does have standing to challenge (1) the December 2023 adult-use pool’s ordering via the Extra Priority rule, and (2) the November 2023 pool to the extent the whole pool was favored over the December pool. In short: CAURD is not directly at issue on remand; the focus is the later adult-use queues and the New York-conviction preference. ww3.ca2.uscourts.gov

The Second Circuit also emphasized the real-world On stakes. Since New York has said it would review all 1,799 November-pool dispensary and microbusiness applications before turning to December—and that December’s license counts might shrink—queue position is an economic benefit that matters. That made Extra Priority’s in-state conviction requirement especially problematic, in the court’s view. (New York even offered refunds to some December applicants due to the shifting landscape.) ww3.ca2.uscourts.gov

Complicating things further, a separate state-court injunction from December 2024 (the Organic Blooms case) has, at times, constrained the processing of certain provisional December-pool applications. The Second Circuit noted that backdrop but still reached the federal constitutional question, underscoring how likely harm could materialize if courts waited. ww3.ca2.uscourts.gov

What this means for CAURD licensees

• Direct exposure is limited. Because the appellate court found Variscite lacks standing to enjoin CAURD, existing CAURD licenses are not immediately threatened by this case. That said, the opinion adds yet another federal appellate marker that residency-style preferences are vulnerable. Programs or renewals that hinge on New York-specific pasts (or other in-state proxies) are increasingly risky. ww3.ca2.uscourts.gov

• Operational continuity remains the default. The case targets the adult-use prioritization rules, not already-issued CAURD licenses. Any immediate operational disruption for CAURD would have to come from other litigation or agency action, not Variscite Four/Five. (Earlier CAURD litigation—Variscite NY One in 2022—was resolved and does not reopen here.) ww3.ca2.uscourts.govCourtListener

What this means for adult-use applicants still in processing

• Expect rule changes. On remand, the district court will reassess injunctive relief with the appellate guidance that Extra Priority likely discriminates against interstate commerce. New York will almost certainly need to retool any priority criteria that depend on a New York-specific conviction to avoid a residency proxy. ww3.ca2.uscourts.gov

• Queue reshuffling is on the table. If Extra Priority falls, the state may need to reorder or re-lotter parts of the December (and potentially November) pools, or craft neutral, non-residency-based social-equity priorities. Any such fix would aim to preserve social-equity goals (impacted communities, income thresholds, justice involvement) without tying benefits to New York-only convictions. Justia

• Knock-on timing impacts. Even if processing continues, agencies may pause slices of the queue while they adjust rules. The Second Circuit flagged that New York had already changed course mid-stream (e.g., expanding November reviews and offering December refunds), which underscores how fluid timelines could remain. ww3.ca2.uscourts.gov

Practical takeaways for CAURD and adult-use stakeholders

1. Document non-discriminatory eligibility. Keep your file current on qualifications that are residency-neutral (e.g., income, justice involvement regardless of state, community impact). That positions you well if criteria are revised. ww3.ca2.uscourts.gov

2. Monitor OCM rulemaking and guidance. Expect clarifications or emergency rule adjustments to strip out New York-only conviction language and possibly to explain how the queues will be normalized. (OCM has been actively issuing guidance on other topics this summer, showing a willingness to course-correct.) Cannabis Business Times

3. Plan for contingencies. If you’re a December-pool applicant whose Extra Priority placement drove your strategy (lease commitments, capital timing), model scenarios where your queue position changes—or where a lottery or uniform scoring replaces the challenged preference. ww3.ca2.uscourts.gov

4. Expect more litigation. The decision deepens a national trend: courts are skeptical of cannabis licensing schemes that favor in-state histories over out-of-state participants. That pressure will continue to shape how New York (and other states) structure equity priorities. JD Supra

Bottom line: The Second Circuit’s Variscite ruling doesn’t yank CAURD licenses, but it strongly signals that New York-specific conviction preferences are unconstitutional. The most likely near-term impact is policy surgery by the state: removing New York-only conviction requirements, revisiting queue mechanics, and issuing guidance about how affected adult-use applications will be processed—while leaving existing CAURD operations largely intact unless other cases intervene. ww3.ca2.uscourts.gov

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