New York court nixes cannabis ad rules
In a setback for New York’s adult-use cannabis regulators, the Supreme Court of Albany County on Monday struck down several key marketing restrictions for licensed businesses.
The case, brought by Leafly Holdings Inc. (Nasdaq: LFLY) and other petitioners, challenged regulations implemented by the New York State Office of Cannabis Management and the New York State Cannabis Control Board.
“Given the absence of any evidence of the process by which these regulations were developed and approved, this Court must find that the conclusions were arbitrary and capricious and that there is no sound and substantial basis in the record to support Respondents actions,” Justice Kevin R. Bryant wrote in his decision.
The judge also declared other cannabis provisions unlawful in his ruling/
The rules in question severely limited cannabis retailers’ ability to advertise and promote their products through third-party platforms, including a ban on paid marketing and the sharing of accurate pricing information. Operators argued that loosened restrictions would make them more competitive against illicit outfits.
Leafly, a well-known online platform that connects consumers with licensed cannabis dispensaries, argued that the regulations violated its right to free speech under the New York State Constitution and were overly vague. The company also claimed that the rules made it harder for consumers to access information about legal dispensaries and make informed purchasing decisions.
In his decision, Bryant agreed with the petitioners, saying that state regulators failed to provide sufficient evidence to justify the restrictions. The court found that the regulators relied on conclusory statements and post hoc rationalizations to support the rules, rather than presenting a solid evidentiary basis for their implementation.
As a result, the court declared the challenged regulations unlawful and void, deeming them arbitrary and capricious. It also held that the rules constituted impermissible restrictions on the petitioners’ right to free speech and were unconstitutionally vague.
While the court granted the petitioners’ request to nullify the problematic regulations, it denied their request for the cost of their lawyers to be covered.
The decision is expected to add to the laundry list of implications for New York’s nascent adult-use cannabis industry, as regulators will need to reevaluate their approach to advertising and promotion rules.
Gov. Kathy Hochul recently called out social media companies Google and Yelp for listing and promoting unlicensed cannabis stores on their platforms.
Representatives for the New York State Office of Cannabis Management and the New York State Cannabis Control Board did not immediately respond to requests for comment on the court’s decision.
