Fiorello Pharmaceuticals, Inc. Jerome T. Levy, Esq. Duane Morris LLP 1540 Broadway New York, New York

Transcription

1 f~~~~ `; ~ ~ `<if `~<'~ ` SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ALBANY NEW YORK MEDICAL CANNABIS INDUSTRY ASSOCIATION, INC., Plaintiff-Petitioner, -against- NEW YORK STATE DEPARTMENT OF HEALTH, and HOWARD A. ZUCKER, M.D., J.D., in his official capacity as the Commissioner of the New York State Department of Health, Defendants-Respondents, -and- -x Index No RJI No ST8714 DECISION, ORDER and JUDGMENT Citiva Medical LLC, Fiorello Pharmaceuticals, Inc., NYCANNA, LLC, Palliatech NY, LLC, and Valley Agriceuticals, Intervenors. (Supreme Court, Albany County, Article 78 Term) APPEARANCES: For PLAINTIFF-PETITIONER Jennifer Kavney Harvey, Esq. Couch White, LLP P.O. Box Broadway Albany, New York For DEFENDANTS-RESPONDENTS Eric T. Schneiderman, Attorney General C. Harris Dague, Special Counsel Office of the Attorney General The Capitol, Justice Building 4th Floor Albany, New York For INTERVENORS NYCANNA,LLC Brian J. Butler and Brendan M. Sheehan, Esqs. Bond Schoeneck &King, PLLC One Lincoln Center, 110 West Fayette Street Syracuse, NY Palliatech NY, LLC Frank D. D'Angelo, Esq. Loeb &Loeb LLP 345 Park Avenue New York, New York Fiorello Pharmaceuticals, Inc. Jerome T. Levy, Esq. Duane Morris LLP 1540 Broadway New York, New York Valley Agriceuticals Matthew I. Khoury, Esq. Colin R. Hagan, Esq. (admitted pro hac vice)' Schlansky Law Group, LLP 1 Winnisimmet Street Chelsea, MA ~ Mr. Khoury's motion seeking admission of Mr. Hagan pro hac vice was granted at the commencement of the proceedings on this matter on September 12, 2017.

2 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 2 APPEARANCES (cont'd): Ctiva Medical LLC Yonatan Y. racobs, Esq. Sher Tremonte ~LLP 90 Broad Street, 23rd Floor New York, New York Hon. W. Brooks DeBow, Acting JSC: In 2014, the Legislature enacted the Compassionate Care Act (CCA), which legalized the medical use of marihuana in New York under a highly regulated scheme that involves the certification of patients, the training and registration of physicians, and the registration of entities, known as registered organizations (ROs), that are "organized for the purpose of acquiring, possessing, manufacturing, selling, delivering, transporting, distributing or dispensing marihuana for certified medical use" within the state (Public Health Law 3364 [ 1 ]). Plaintiff/Petitioner is an association of five for-profit entities that are ROsauthorized bydefendants/respondents (hereinafter "the DOH" or "the commissioner") pursuant to provisions of the CCA to manufacture and dispense medical marihuana. Following an application process in 2015 that included 43 applicants, a weighted scoring process resulted in plaintiff/petitioner's members being ranked numbers one through five out of the 43 applicants and they were subsequently registered as ROs authorized to manufacture and dispense medical marihuana subject to regulation by defendants/respondents (see Public Health Law 3364, 3365). Each of plaintiff/petitioner's five members thus held a 20% share of the medical marihuana market in New York. In 2016 and 2017, defendants/respondents took certain steps towaxd the registration of five more ROs, and five more ROs were registered during the pendency of this litigation. Plaintiff/Petitioner argues that the CCA limits the number of

3 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 3 ROs that can manufacture medical marihuana, and that any ROs over the asserted statutory cap of five must benon-manufacturing ROs whose authority to participate in the medical marihuana market is limited to aspects of the supply chain other than manufacturing of medical marijuana. Prior motion practice on this matter resulted in a decision that, among other things, granted intervenor status to the five entities that were registered during the pendency of this matter, and dismissed all causes of action in the complaint/petition except for the first cause of action which asserts that defendants/respondents acted in excess of the authority delegated to them by the Legislature in PHL 3365 (9) by increasing the number of ROs to ten, notwithstanding the asserted statutory cap of five (see NY Medical Cannabis Ind. Assn, Inc. v New York State Dept. of Health, Sup Ct, Albany County, Oct. 2, 2017, DeBow, AJSC, Index No ). In accordance with the Court's prior decision, intervenors have filed verified answers and objections in point of law, to which plaintiff/petitioner has replied. For the reasons that follow, the Court concludes that plaintiff/ petitioner has not demonstrated that defendants/respondents' issuance of five additional ROs that allow manufacturing was an ultra wires act, and thus, the complaint/petition will be denied. The parties do not dispute that Public Health Law 3365 (9) limits the number of manufacturing ROs to five. As framed by the parties, the issue to be decided on the sole remaining cause of action in this combined hybrid declaratory judgment/article 78 proceeding is whether that statutory cap of five ROs is a permanent or temporary restriction of the commissioner's discretion to register ROs. The dispute in statutory interpretation arises from clearly contradictory language as between the first and third sentences of the relevant provision of the Public Health Law: "The commissioner shall register not more than five registered organizations that manufacture medical marihuana with no more than

4 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 4 four dispensing sites wholly owned and operated by such registered organization. The commissioner shall ensure that such registered organizations and dispensing sites are geographically distributed across the state. The commission may register additional registered organizations." (PHL 3365 [9) [emphasis added)). The provision contains no express temporal limitation, nor does the third sentence authorizing the commissioner to register additional ROs express any distinction between types of ROs (i.e. manufacturing or dispensing ROs)that may be registered, and the absence of any such definitive text has created the instant dispute. Neither party points to any other express language in the CCA that clears up the obvious ambiguity created by the inclusion of both an express mandatory limitation of five ROs and an express grant of discretion to register additional ROs. The parties both argue that the facial language of the statute is an unambiguous statement of legislative intent in support oftheir interpretation. On the one hand, plaintiff/petitioner contends that the first sentence of Public Health Law 3365 (9), in which the Commissioner is limited to registration of "not more than five registered organizations that manufacture medical marihuana" controls, and that the phrase "additional registered organizations" in the third sentence is limited to the registration of additional manufacturing ROs in the event that the Commissioner registers less than five, or registration of "replacement" ROs if one or more of the manufacturing ROs ceases to operate, or registration of additional ROs that are "non-manufacturing" (see Public Health Law 3364 [1] [defining registered organizations' purposes as "acquiring, possessing, manufacturing, selling, delivering, transporting, distributing or dispensing marijuana" (emphasis added)]). On the other hand, defendants/respondents contend that the third sentence of Public Health Law 3365 (9) by which the commissioner is authorized to register "additional" or more than five ROs without

5 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 5 limitation plainly controls because the cap of five is addressed to only the "initial" five ROs. Both parties' arguments are unpersuasive for the reasons that follow. While each of these interpretations and arguments is reasonable, each is also flawed because plaintiff/petitioner's position would require the Court to conclude that the Legislature meant to include the word "non-manufacturing" in the third sentence, while defendants/respondents' position would require the Court to include the word "initial" in the first sentence. Thus, a facial or plain reading of the statute to determine legislative intent is not possible. To be sure, the use of the word "additional" in the third sentence implies that there could be more than five new ROs not limited to replacement of manufacturing ROs that ceased to operate 'or whose registrations were terminated, but that implication is insufficient to resolve the ambiguity. While the first sentence specifically addresses "manufacturing" ROs, the third sentence is more general because it does not identify the scope of the activities the additional ROs would be authorized to engage in, and thus, it is unclear from the text whether it authorized the commissioner to register additional ROs for ~ purpose. Accordingly, the Court must look beyond the text of Public Health Law 3365 (9) to determine the Legislature's intention as to whether the cap on the number of ROs was intended to be permanent or temporary. The parties contend that the statute when read as a whole with its pertinent provisions harmonized supports their statutory construction. Plaintiff/Petitioner contends that the legislation must be interpreted to give effect to every provision and to avoid rendering superfluous another provision, and it asserts that the broad reading of the third sentence renders the.statutory cap superfluous. Defendants/respondents argue that the three sentences in Public Health Law 3365 (9) should be read in sequence to mean that the commissioner shall initially register five ROs, then

6 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 6 ensure that the initial five ROs are adequately geographically distributed throughout the state, and then register additional ROs as needed. Defendants/Respondents further argue that other provisions in the CCA grant the commissioner considerable discretion, and that interpreting Public Health Law 3365 (9) to give the commissioner discretion to add five more ROs without limitation is consistent with the overall statutory scheme. However, the Court finds unpersuasive the parties arguments for the following reasons. Plaintiff/Petitioner's argument that the third sentence in Public Health Law 3365 (9) would render the statutory cap superfluous is unconvincing because it is certainly reasonable to conclude that the Legislature intended merely for the first five ROs to be the initial entrants in the medical marihuana market followed by additional manufacturing ROs in the event that supply did not meet demand. Conversely, defendant/respondent's argument that the three sentences in Public Health Law 3365 (9) should be read in progression is similarly unpersuasive because it is also reasonable to conclude that the statute meant to provide for a permanent cap on manufacturing ROs that could be increased only by further legislative action, and that after a review of the geographic distribution of the ROs and dispensaries, the commissioner's authority was limited to registration of only nonmanufacturing ROs to address unmet demand in underserved areas. Further, the fact that the Legislature gave the commissioner broad discretion with respect to other matters in administration of the CCA does not ipso facto establish that it intended to do so here. Nor is the ambiguity in Public Health Law ~ 3365 (9) resolved by intervenors'. reference to the laws of 2015, which, they assert, envisioned a two step phase-in of an initial "emergency program" involving expedited RO registration followed by a "full medical marihuana program" (see Joint Intervenors' Memorandum of Law, at 17, uotin L.2015 c. 416, 1; see also Public Health Law 3365-a). First, this statement

7 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 7 of legislative intent post-dated the 2014 enactment of the CCA, and second, its references to two phases of registration for ROs does not address the temporal scope of the statutory cap. Defendants/Respondents further argue that plaintiff/petitioner's asserted permanent cap of five ROs would allow afive-member monopoly ofthe marihuana marketplace, which is inconsistent with the CCA, would defy common sense and the public interest, and would lead to an absurd and unreasonable result. The Court does not agree because the medical marihuana industry, although potentially large, is highly regulated and there may be good reason to limit competition, as is done in other highly regulated industries. Thus, imposition of a permanent cap of five manufacturing ROs is not necessarily inconsistent with the overall purpose of the CCA, common sense or the public interest. On the other hand, both a free market and potentially large demand for medical marihuana may inform the need for a greater number of manufacturing ROs than the five originally registered, and it is similarly not inconsistent with the CCA (which was intended to supply a potentially large market of certified patients), or common sense or the public interest to authorize the commissioner to register additional ROs to manufacture medical marihuana Finally, looking to the legislative history of the CCA as documented in the sponsors' memoranda and prior and post-enactment iterations of Public Health Law 3365 (9) provide little guidance. The Assembly sponsor's memorandum in support of the CCA provides, in relevant part that: "The Commissioner would be able to register up to five organizations that each operate four dispensaries, and would be able to allow additional registered organizations and dispensaries" (Dague Affirmation, Exhibit 2, at 16). This statement offers no clarity as to whether the statutory cap of five manufacturing ROs was intended to be permanent or temporary. Similarly silent on that question is the joint letter in support of the CCA from the Assembly and Senate sponsors to the

8 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 8 Governor's Counsel (see id., Exhibit 3). While proposed bills both before and after the passage of the CCA included varying limitations on the number of ROs to be registered both as a matter of discretion and as a matter of statutory mandate, the progression of these proposed bills does not, without more, clarify the Legislature's intent as to the permanency of the cap of five, nor does it necessarily signify that the enacted version was intended to impose a permanent cap. The only mention in the documents that have been submitted by the parties that potentially speaks to the legislative intent regarding the statutory cap of five ROs is found in the transcript of the Assembly floor debate on June 19, 2014, in the colloquy between Assemblymember Walter and Assemblymember Gottfried, the sponsor of the bill: "MR. WALTER: Is there any provisions [sic] in here to expand the number of registered organizations from the initial five? "MR. GOTTFRIED: Yes. The Commissioner of Health would have authority to increase the number of registered organizations if he finds] that there's a need for that. "MR. WALTER: Is there any sort of a time limit on that or if the demand is overwhelming within the first couple of years, can he just go ahead and do that? "MR. GOTTFRIED: He could do that whenever he wants." (id., Exhibit 4, at 314 [emphasis added]). In this colloquy, the sponsor of the bill acknowledged the that the commissioner had unbridled discretion to register additional ROs in the event the market for medical marihuana demanded more product, which could be done by increasing supply through additional manufacturer Ros. However, even this colloquy is not a conclusive demonstration of

9 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 9 legislative intent, as increased demand could potentially be met without an increase in the number of manufacturing ROs, but rather by an increase in dispensaries where demand was not being met. In sum, despite the clearly inconsistent provisions in Public Health Law 3365 (9), plaintiff/petitioner has not demonstrated that the plain language of that provision or the provisions of the CCA as a whole, or other legislative history demonstrates a legislative intent to permanently cap the number of medical marihuana ROs at five. Thus, plaintiff/petitioner has not demonstrated that the conduct ofdefendants/respondents in registering more than five ROs was an ultra vires act. Accordingly, it is ORDERED and ADJUDGED, that the complaint/petition bearing Albany County Index Number is DENIED. This constitutes the decision, order and judgment of the Court. The original decision, order and judgment is being sent to the attorney for defendants/respondents. A copy of the decision, order and judgment and the supporting motion papers have been delivered to the County Clerk for placement in the file. The signing of this decision and order, and delivery of a copy of it, shall not constitute entry or filing under CPLR Counsel is not relieved from the applicable provisions of that rule respecting filing, entry and notice of entry. ENTER. Dated: Saratoga Springs, New York December 28, 2017 W. Brooks DeBov~- Acting Supreme Court Justice

10 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 10 Papers Considered: (1) Summons and Verified Complaint and Article 78 Petition, dated and verified Apri127, 2017, with Exhibit A; (2) Memorandum of Law in Support of Petitioner's Request for a Temporary Restraining Order, dated Apri127, 2017; (3) Affidavit of Amy Peckham, sworn to Apri126, 2017, with Exhibit 1; (4) Affidavit of Joseph Stevens, sworn to April 26, 2017, with Exhibits 1-3; (5) Affirmation of Karl Sleight, Esq., dated Apri127, 2017, with Exhibits 1-33; (6) Verified Answer, dated May 26, 2017; (7) Affirmation of C. Harris Dague, Special Counsel, signed May 26, 2017, with Exhibits 1-4; (8) Affidavit of Nicole Quackenbush, sworn to May 26, 2017,with Exhibits 1-6; (9) Memorandum of Law in Opposition to the Article 78 Petition and in Support of Respondents' Motion for Summary Judgment on the Declaratory Judgment Claims, dated May 26, 2017; (10) Plaintiff-Petitioner's Memorandum of Law in Opposition to Defendants-Respondents' Motion for Summary Judgment, dated June 12, 2017; (11) Supplemental Affidavit of Nicole Quackenbush in further Support of Respondents' Answer and in Opposition to the Verified Petition and Complaint, sworn to June 15, 2017, with Exhibit 7; (12) Supplemental Affidavit of C. Harris Dague, Special Counsel, in further Support of Respondents' Return in Opposition to the Petition and in Support of Respondents' Motion for Summary Judgment Pursuant to CPLR 3212, dated June 15, 2017, with Exhibits 1-3; (13) Reply Memorandum of Law in Further Support of Respondents' Motion for Summary Judgment on the Declaratory Judgment Claims, dated June 15, 2017, with Appendix 1; (14) Verified Reply of Plaintiff-Petitioner, signed June 15, 2017; (15} Attorney Affirmation of Jennifer Kavney Harvey, Esq., dated June 15, 2017, with Exhibits A-I; (16) Plaintiff-Petitioner's Reply Memorandum of Law in Further Support of Plaintiff-Petitioner's Article 78 Proceeding and Request for Corollary Injunctive Relief, dated June 15, 2017; (17) Notice of Cross-Motion, dated August 28, 2017; (18) Intervenors' Joint Memorandum of Law in Support of Their Cross-Motion to Dismiss and Respondents' Opposition to Petitioner's Article 78 Petition, and in Opposition to Petitioner's Motion for a Preliminary Injunction, dated August 28, 2017; (19) Affirmation of Brian Butler, Esq., dated August 28, 2017, with Exhibits A-K; (20) Attorney Affirmation of Jennifer Kavney Harvey, Esq., dated September 11, 2017, with Exhibit A (including sub-exhibits) and Exhibits B-J; (21) Verified Answer and Objections in Point of Law of Intervenor NYCANNA, LLC, dated and verified October 11, 2017; (22) Verified Answer and Objections in Point of Law of Intervenor Fiorello Pharmaceuticals, Inc., dated and verified October 11, 2017; (23) Verified Answer and Objections in Point of Law of Intervenor Palliatech NY, LLC, dated and verified October 11, 2017;

11 NY Medical Cannabis Ind. Assn., Inc. v NYSDOH and Zucker page 11 (24} Verified Answer and Objections in Point of Law of Intervenor Citiva Medical, LLC, dated and verified October 11, 2017; (25) Verified Answer and Objections in Point of Law of Intervenor Valley Agriceuticals, (26) Verified Reply to Verified Answer of Intervenor NYCANNA, LLC, (27) Verified Reply to Verified Answer of Intervenor Fiorello Pharmaceuticals, Inc., (28) Verified Reply to Verified Answer of Intervenor Palliatech NY, LLC, (29) Verified Reply to Verified Answer of Intervenor Citiva Medical, LLC, (30) Verified Reply to Verified Answer of Intervenor Valley Agriceuticals, (31) Attorney Affirmation of Jennifer Kavney Harvey, Esq., dated October 20, 2017, with Exhibit A; (32) Plaintiff-Petitioner's Reply Memorandum of Law to Intervenors' Answers in Further Support of Plaintiff-Petitioner's Verified Complaint-Petition, dated October 20, 2017.