CANNABIS IMPACT PREVENTION COALITION LLC v. NEW YORK STATE CANNABIS CONTROL BOARD (2026)

MEMORANDUM AND ORDER

Calendar Date:  September 9, 2026

Appeal from a judgment of the Supreme Court (Peter Lynch, J.), entered February 21, 2025 in Albany County, which, among other things, granted defendants' motions to dismiss the complaint.

Under federal law, marihuana continues to be classified as a Schedule I controlled substance such that, with limited exception, it is unlawful for any person to knowingly or intentionally manufacture, distribute, dispense or possess it (see 21 USC §§ 812[a], [b][1];  Schedule I[c][10];  841[a][1];  844[a];  see generally Gonzales v. Raich, 545 U.S. 1, 10–15 [2005] ).  Nevertheless, in line with a majority of states that now permit the medical and/or recreational use of marihuana, in March 2021 the Legislature passed the Marihuana Regulation and Taxation Act (hereinafter MRTA) creating the Cannabis Law (see L 2021, ch 92, § 2) – thereby legalizing adult-use marihuana in this state.  To oversee and implement the new law, defendant Cannabis Control Board (hereinafter CCB) was created to promulgate rules and regulations for the cannabis industry, with defendant Office of Cannabis Management (hereinafter OCM) regulating the cannabis marketplace (see Cannabis Law §§ 7, 8, 10, 11).  Concomitantly, the State Finance Law was amended to create the “New York state cannabis revenue fund” into which taxes collected pursuant to the Cannabis Law would be placed, along with any other moneys transferred to the fund by law (see State Finance Law § 99–ii[2] ).  As is relevant here, in 2022, the Legislature authorized defendant Dormitory Authority of the State of New York (hereinafter DASNY) to select a private debt or equity fund to finance capital and related costs associated with establishing conditional adult-use cannabis retail dispensaries (hereinafter CAURDs), and defendant New York Social Equity Cannabis Investment Fund (hereinafter the Fund) was selected for that purpose (see State Finance Law § 99–ii[3][d];  Public Authorities Law § 1678[32] ).  DASNY and its subsidiary – defendant Social Equity Servicing Corporation (hereinafter SESC) – thereafter utilized financing provided through the Fund to acquire premises by lease or sublease, as well as to prepare designs and construct or improve premises for use as CAURDs (see Public Authorities Law § 1678[30], [31] ).

Plaintiffs – consisting of individual taxpayers and organizations – commenced the underlying action pursuant to State Finance Law § 123–b, seeking an order permanently enjoining the use of state funds to pay for capital and related costs associated with creating and outfitting CAURD dispensaries operated by social-equity licensees under the Cannabis Law. Plaintiffs further sought a declaration that such use of state funds is in violation of the Controlled Substances Act (see 21 USC § 801 et seq. [hereinafter CSA] ), among other federal laws.  In lieu of an answer, defendants – namely, CCB, OCM, the chairperson of CCB, the executive director of OCM and the acting commissioner of Taxation and Finance, as well as DASNY, the Fund and SESC – moved to dismiss the complaint on the grounds that plaintiffs lacked standing, the claims were barred by the statute of limitations and the doctrine of laches, and that plaintiffs had failed to state a cause of action.  Supreme Court granted the motions to dismiss upon concluding that – although plaintiffs had established standing and the action was not time-barred – the challenged expenditure of monies from the Fund pursuant to State Finance Law § 99–ii did not conflict with the CSA and is not preempted by federal law.  Plaintiffs appeal.

“The federal preemption doctrine has its roots in the Supremacy Clause of the United States Constitution, and federal preemption of state laws generally can occur in three ways:  where Congress has expressly preempted state law, where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or where federal law conflicts with state law” (American Catalog Mailers Assn. v Department of Taxation & Fin., 249 AD3d 1298, 1299 [3d Dept 2026] [internal quotation marks and citations omitted];  see Matter of Quigley v. Village of E. Aurora, 193 AD3d 207, 2010–211 [3d Dept 2021], lv denied 37 NY3d 908 [2021] ).  At issue here, “[u]nder the principles of conflict preemption, a positive conflict exists when compliance with both federal and state law is a physical impossibility, or where the state law at issue stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” (Matter of Cannabis Impact Prevention Coalition, LLC v Hochul, 252 AD3d 235, 237 [3d Dept 2026] [internal quotation marks and citations omitted];  see Sutton 58 Assoc.  LLC v. Pilevsky, 36 NY3d 297, 306 [2020], cert dismissed _ U.S. _, 142 S Ct 53 [2021] ).

In challenging Supreme Court's dismissal of the complaint, plaintiffs' primary contention is that federal law preempts MRTA – and thus its broader statutory scheme, including the use of state funds for the benefit of CAURDs under State Finance Law § 99–ii(3)(d) – because the cultivation, manufacture, distribution and possession of recreational marihuana within the state are in direct conflict with the CSA's purpose and objective to proscribe the intrastate distribution and manufacture of marihuana.  We have, however, rejected a similar argument in Matter of Cannabis Impact Prevention Coalition, LLC v Hochul (252 AD3d at 239–241).  In that matter, this Court considered certain regulations within MRTA's broader framework – specifically, regulations governing how medical and adult-use marihuana could be labeled, advertised and marketed – and concluded that they neither created an impossibility nor obstructed Congress' purposes under the CSA (see id.).  In so holding, this Court found that, upon application of a conflict preemption analysis, any claimed impossibility between federal and state law as to marihuana constituted “merely hypothetical or potential conflicts” because “neither MRTA nor the challenged regulations pose any requirements on an individual or entity to manufacture, distribute or possess marihuana,” and MRTA expressly preserves the applicability and enforcement of federal law, as well as regulates the cannabis market in furtherance of objectives that include reducing illicit marihuana trafficking and protecting public health and safety (id. at 239).  We find these conclusions to be applicable to the instant matter as well, as the same preemption analysis controls.

Plaintiffs here challenge the use of state funds through State Finance Law § 99–ii(3)(d) to provide affirmative financial support for the development of state-licensed marihuana dispensaries, arguing that such state action is in contravention of the federal CSA. Significantly, however, similar to our findings in Matter of Cannabis Impact Prevention Coalition, LLC v Hochul (252 AD3d at 239), that funding does not require any person to engage in conduct prohibited by the CSA nor does it confer immunity from federal law or impair the federal government's ability to prosecute the manufacture, possession or distribution of marihuana should it choose to do so.  The federal government's application of the CSA further bolsters this conclusion, as “a majority of states now allow medical and/or recreational use of marihuana, and, over the past 20 years, the federal government has come to tolerate such local use, including by prohibiting federal funds from being used to prosecute individuals who comply with state laws authorizing same” (Matter of Buenos Hill Inc. v Saratoga Springs Planning Bd., 240 AD3d 990, 990–991 [3d Dept 2025] [internal quotation marks, brackets and citation omitted], appeal dismissed 44 NY3d 1015 [2025] ).  Accordingly, although the state's financing scheme is ultimately designed to facilitate the licensed distribution of marihuana within the state, plaintiffs have failed to demonstrate that the challenged legal framework under MRTA results in the actual obstruction or physical impossibility of the relevant federal law necessary to establish conflict preemption (see Matter of Cannabis Impact Prevention Coalition, LLC v Hochul, 252 AD3d at 240–241).  We thus conclude that Supreme Court properly dismissed the complaint.

Plaintiffs' remaining contentions have been considered and found to be without merit.  In view of our determination, defendants' alternative arguments in favor of affirmance have been rendered academic.

Garry, P.J., Aarons, Pritzker and McShan, JJ., concur.

ORDERED that the judgment is affirmed, without costs.

Mackey, J.