A recent New York State lawsuit is raising concerns that large medical cannabis operators may be receiving preferential ranking ahead of smaller local firms when new licenses are being granted. New York-based Hudson Health Extracts has claimed to the Albany County Supreme Court that it would have earned a place among the top five applicants were it not for the “arbitrary, capricious and irrational decisions” of the New York State Department of Health.

In 2015, Hudson Health filed for a medical cannabis license, and received a ranking of 13th among 43 applicants — with a financial standing score of “average.” To be awarded a license, it would have had to rank in the top five. So did their credentials fall short of those presented by the larger firms? Not exactly …

• Hudson Health had substantial experience; its principal had also founded medical cannabis businesses in Connecticut and Minnesota.
• The company was backed with $18.6 million of capital, and had already spent over $1 million on real estate expenses for manufacturing operations and dispensaries.
• It had completed a research partnership agreement with Montefiore Medical Center in the Bronx.

New York State courts took their time to adjudicate Hudson Health’s initial complaint, finally ruling in 2019 that the decision not to grant a license was correct. This led to the current appeal, which may have legs due to a number of cited inconsistencies:

• Hudson Health’s $18.6 million of capital was scored “equivalent to the zero dollars or negative balance sheets submitted by other applicants.”
• The scoring process was not consistently applied, with regulators changing the way they weighted certain factors.
• Analysis shows that the six companies that spent the most on lobbying in New York state all won medical licenses — including one company without capital headed by a 26-year-old with no previous experience.

This is a closely-watched proceeding as a win by Hudson Health could shake up state licensing procedures across the country, certainly slowing down future plans. However, it doesn’t negate the advantages that multi-state operators can indeed claim over single-state operators, such as multiple cultivation facilities, major technology investments and in most instances a longer track record. Perhaps the closest parallel is the beer industry, which once shifted from local breweries to the big nationally-advertised brands, and has recently swung back to craft beers and brewpubs offering higher quality — the growing cannabis market certainly has enough room for both.