New York’s already troubled rollout of the Marihuana Regulation and Taxation Act (“MRTA”) has hit yet another snag. In a ruling late last week, Albany County Supreme Court Justice Kevin R. Bryant invalidated several provisions of the cannabis regulations promulgated by the New York Cannabis Control Board. The final ruling actually scaled back the judge’s own ruling of a day prior, which initially tossed out the entire regulatory scheme.
The online cannabis retailer Leafly filed an Article 78 proceeding against the New York State Office of Cannabis Management, the Cannabis Control Board and the heads of those agencies, arguing that the regulations promulgated to carry out the MRTA were arbitrary and capricious and violated constitutional free speech protections. Specifically, Leafly argued that the regulations banning paid marketing or the advertising of prices and offerings on third-party platforms improperly prohibited Leafly from engaging in lawful commercial speech without advancing a substantial government interest.
On April 3, 2024, Justice Bryant issued a Decision and Order granting the petition and invalidating the entire regulatory scheme of the MRTA as “unlawful and void as arbitrary and capricious.”
The following day, April 4, Justice Bryant issued an Amended Decision and Order that invalidated only the challenged provisions of the regulations relating to third-party platforms.
Specifically, Justice Bryant nullified portions of the “Third-Party Marketing Ban,” which was intended to prohibit cannabis licensees from marketing, promoting or fulfilling orders of their products through a third-party platform or marketplace (such as Leafly). The Order also invalidated the “Third-Party Order Ban,” which prohibited licensees from contracting with a third party for cultivation, processing, distribution or sales of cannabis or cannabis products, as well as the “Pricing Ban,” which had required licensees to only enter into agreements with online third-party platforms that redirected users to the licensee’s website before the products’ prices were displayed. The Court also struck down the “Third-Party All-Licensee Listing Mandate,” which would have required licensees to only enter into agreements with third-party platforms or marketplaces that listed all licensees authorized for the retail sale of cannabis products, and the “Third-Party Distributor Listing Mandate,” which had prohibited licensees from listing their products on a third-party platform or marketplace that restricted information about and did not permit direct negotiation with licensed cannabis distributors.
With regard to the challenged regulations, Justice Bryant held that the various bans were arbitrary and capricious because the state cannabis agencies failed to demonstrate that they considered sufficient (or any) evidence before promulgating their rules. As such, the agencies’ determinations were not entitled to deference from the Court as there was no rational basis in the record for their actions. The judge found that the agencies’ attempts to provide support for the regulations through the case filings was an improper “post hoc rationalization” of their decisions. With regard to Leafly’s free speech challenge, Justice Bryant sidestepped the question of what degree of scrutiny to apply to the bans, finding that the regulations were unconstitutional under any standard of review given the “complete lack of justification” presented by the state agencies in defense of the regulations at issue.
On its face, the ruling invalidates certain restrictions on the use by cannabis operators of third-party platforms to facilitate marketing and sales activities, but its implications are farther reaching. Justice Bryant’s ruling highlights significant substantive and procedural deficiencies underlying the cannabis agencies’ rulemakings. Justice Bryant may have limited the scope of this particular ruling, but the opinion’s description of the flawed and incomplete regulatory process followed by the state agencies here and the legal consequences that necessarily follow has created a clear roadmap for future challenges to New York’s cannabis regulations.
Chicago Cubs Partner with CBD Beverage Company Under New MLB Sponsorship Rules
On April 7, 2023, the Chicago Cubs announced a partnership with MYND DRINKS, a Chicago-based cannabis beverage company. This historic partnership recognizes the Cubs as the first Major League Baseball (MLB) team to collaborate on a business venture with a cannabis company.
Background
Back in December 2019, MLB modified its list of abusive drugs by removing cannabis to implement a more treatment-based approach. The league’s updated drug policy allows players to use natural cannabinoids for medical purposes, such as to help relieve pain, improve quality of sleep, and manage stress or anxiety.
A couple years later, on June 22, 2022, MLB announced a landmark decision to approve CBD sponsorships. However, the sponsorships must satisfy two requirements:
- CBD companies must receive the NSF Certified for Sport® designation, a certification designed to:
- favor products infused with CBD, a non-psychoactive compound found within the hemp plant, and
- disfavor products infused with psychoactive levels of THC, which pose a risk of drug-induced sensations to consumers, and
- MLB teams must receive approval from the Commissioner’s office.
MYND DRINKS produces 100% plant-based, CBD-infused, sparkling beverages. The three beverage flavors—Lemon Ginger, Elderberry Passionfruit, and Orange Mango—each satisfied MLB’s safety measures to obtain NSF certification. The CBD company promotes wellness and recovery, and aspires to change the world “one MYND at a time.”
Partnership & Opportunities
The partnership between the Cubs and MYND DRINKS includes, among other things, on-field signage at Wrigley Field stadium, certain in-game features, and international marketing rights in the United Kingdom.
Furthermore, MLB’s Chief Revenue Officer stated that the league is open to featuring jersey patch sponsorships for the 2023 season. Since opening day, on March 31, 2023, a handful of MLB teams debuted sponsorships with a company logo adorned on the sleeve of players’ jerseys. Cannabis companies are permitted to participate in such deals as well. However, a company interested in this arrangement must “have a brand that represents sports.” CBD brands supporting wellness and recovery, like MYND DRINKS, will likely receive a green light from the league’s administration.
Cannabis Market Trends
Market competition is intensifying due to the increasing therapeutic properties of cannabis and continuing legalization of markets. As a result, there has been a rise in demand for cannabis-infused beverages, edibles, and other related products. The global cannabis market was valued at about $13 billion in 2022 and is projected to grow at a compound annual growth rate of 22% to reach over $66 billion by the end of the decade. Cannabis companies are thus eager to establish a position in this rapidly expanding market.
Therefore, this CBD partnership will be revolutionary for MLB and other professional sports leagues across the globe.
Read the full text of the article on Law360.