Cannabis: New industry, new exposure

Sept. 28, 2023
Financial consequences for start-up businesses can be crippling

Typically, when businesses are in their infancy, management, often hampered by financial constraints, does not seek experienced employment law counsel and, instead, operates based on perceived principles of good faith and fairness, along with a limited understanding of the regulatory environment. The emerging cannabis industry is no exception. Licensees, confronted with overwhelming, abundant and immediate obligations, and user-focused on things like securing financing, establishing operating guidelines, executing real estate transactions and complying with enormous regulatory compliance obligations, often forget the world outside of cannabis. 

Nowhere has this become more apparent than here in New York. With the emergence of a newly regulated adult-use cannabis market, populated (at least initially) by Conditional Adult-Use Retail Dispensary (CAURD) licensees, these mainly first-time cannabis business owners have been tasked with handling every aspect of opening a business in one of the most regulated industries on an extremely limited budget. In addition, they are now expected to start delivering cannabis products from a warehouse facility while simultaneously working on identifying a suitable brick-and-mortar retail location along with complying with all local permitting and other requirements under the Marijuana Regulation & Taxation Act (MRTA). Add to this the need to fast-track sales and generate capital for business operations. While cannabis legalization has provided a historic opportunity, it is surely not without significant inherent pitfalls. 

New Business Bring Unknown Challenges

Newly established dispensaries, justifiably, view websites as essential to business development. However, in a case filed on January 17, 2023, in the United States District Court for the Eastern District of New York entitled, Bunting v. Housing Works Cannabis, LLC, a plaintiff has charged that defendant’s website is not fully accessible to blind and low vision individuals in violation of the Americans with Disabilities Act as well as the New York State and City civil rights laws. A website serving as an adjuvant to a brick-and-mortar operation has been deemed a public accommodation by many jurists, notwithstanding the absence of a precedential decision in the 2nd Circuit.

Notably, this lawsuit was filed before all the paint had even dried at Housing Works, a mere 20 days after its grand opening. In the recent past, literally, thousands of lawsuits have been commenced by blind and low-vision plaintiffs alleging that websites did not afford them accessibility to goods and services and alleging willful, intentional discrimination. These suits have sought not only mere remediation but monetary damages as well. It is not uncommon for a single plaintiff to bring tens or even hundreds of “copy-cat” suits.

The financial consequences for start-up businesses can be crippling and, further, defending these actions diverts management from critical business development activities. Capital that would otherwise be directed toward growth will be diverted to litigation, defense and settlement. Until the United States establishes a consistent, clearly articulated standard for website accessibility, one can only wonder how social equity, in an industry designed to achieve such a model, can be served.

Perhaps we should see the timing of Bunting v. Housing Works as fortuitous in that the case was brought when all CAURD licensees could learn how to avoid falling victim to this type of lawsuit and the opportunistic lawyers who bring them. Unfortunately, despite the handwriting on the wall, there are likely to be early licensees who will not properly recognize the risk and heed the warning.

Note: This article originally appeared on the Falcon, Rappaport, Berkman, LLP firm’s website.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship.  This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm.  Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

About the authors: The Hon. Ruth Bogatyrow Kraft  chairs FRB’s Labor & Employment Practice Group. She has many years of experience in advising business organizations on all aspects of employment and labor law, including wage/hour disputes, misclassification, employment policies and procedures, and compliance with federal and state laws. Her practice is comprehensive, encompassing business strategy as well as litigation before governmental bodies and in the courts. She has successfully litigated and settled multi-million dollar employment class action suits, including prevailing wage, misclassification and unpaid overtime matters in the federal and state court systems, representing employers of all sizes and in a variety of industries.

After a long career on the bench, most recently at the New York State Department of Labor, Ruth practiced in and chaired the employment law group at a multi-state law firm. She began her career as an associate at one of the distinguished law firms in the country prior to joining the faculty of New York University, where she was recognized for excellence in the teaching of law, business ethics and medicine. She has maintained a specialized interest in healthcare organizations throughout her career.

Ruth had the great privilege of studying law at the Yale Law School under the preeminent luminaries of 20th-century jurisprudence. Her doctoral thesis on informed consent is in the permanent collection of the Sterling Memorial Library of Yale University and formed part of seminal research in the field of medical law.

Ruth has lectured on employment law and corporate social responsibility to business, professional and academic groups throughout the United States and abroad, including to visiting jurists from the People’s Republic of China, the Long Island Tax Professionals Symposium, the American and New York State Societies for Healthcare Risk Management, the National Conference of CPA Practitioners and the National Association of Mortgage Field Services.

Ruth is past president and a member of the executive board of the New York State Association of the Administrative Law Judiciary and President-Elect of the Judges’ and Lawyers’ Chapter of Hadassah, receiving that organization’s national leadership award. Active in the legal community, she is a board member of the Jewish Lawyers’ Association, which conferred its Hon. Paul Widlitz Award on her for distinguished service on the bench.

Andrew P. Cooper, Esq., leads Falcon, Rappaport & Berkman’s Healthcare and Cannabis Practice Groups and contributes to the Commercial Litigation Practice Group. He has dedicated his career to delivering exceptional legal services and to handling high-stakes litigation for a diverse clientele.

With over 30 years of experience in the area, Andrew’s healthcare practice includes representing various cross-sections of healthcare providers including physician groups, hospitals, physician/hospital organizations, independent practice associations, diagnostic and treatment centers, office-based and ambulatory surgery centers, effectively acting as general counsel in all aspects of business operations including transactions, employment, human resources, and litigation matters.

Andrew’s cannabis practice includes a full range of legal and consultative services in all areas of cannabis law. These include licensure preparation, applications, and strategy, business planning, industry segmentation, establishing partnerships and joint ventures, branding and intellectual property, real estate, regulatory compliance matters, and industry advocacy. He works with healthcare professionals, canna-business entrepreneurs, municipalities, caregivers, patients, and others in handling all aspects of the emerging cannabis industry. Andrew has assisted clients in obtaining licenses in numerous states in both competitive and non-competitive licensure processes.