New York marijuana operators sue state to halt inversion, launch tracking

A trade group representing large marijuana companies in New York filed a complaint in state Supreme Court on Wednesday over the continued illegal “inversion” of illicit market and out-of-state product into legal stores.

By failing to timely impose track-and-trace requirements, the state Office of Cannabis Management and Cannabis Control Board “have allowed a prolific supply of illicit and unregulated cannabis to enter the licensed New York cannabis market,” the New York Medical Cannabis Industry Association (NYMCIA) alleged.

First reported by the Albany Times Union, the lawsuit is the latest instance of operators in the $1.8 billion market expressing displeasure with state regulators over what’s perceived as lax enforcement of illicit activity.

The complaint asks a judge to require regulators to:

• Create rules and an enforcement plan to crack down on inversion and diversion.
• Revoke permits for any company “found to have” engaged in the practices and refer them to the attorney general for possible prosecution.
• Launch long-delayed seed-to-sale tracking by the end of the year.

“The importance of a functioning seed-to-sale program cannot be overstated when it comes to preserving market integrity, patient access, and public safety,” NYMCIA said in a statement provided by a spokesperson.

“All participants in New York’s cannabis programs need protections and predictability – both of which have been sorely lacking since the adult-use rollout began in 2022.

“The purpose of this litigation is to hold the state accountable and to compel it to finally meet its legal obligations.”

Fewer than 30% of New York marijuana operators are profitable, suit alleges

The lawsuit names as defendants Felicia B. Reid, OCM’s acting executive director, and Jessica Garcia, chair of the CCB.

NYMCIA represents the marijuana multistate operators (MSOs) who hold the 13 permits for vertically integrated medical marijuana operations in the state, called registered organizations (ROs).

These companies “have invested millions of dollars in capital, often borrowed at premium interest rates,” the lawsuit alleges.

But fewer than 30% of cannabis businesses are profitable – and that’s largely because of regulators’ inability to halt inversion, it adds.

Regulators “have done nothing to stop the importation of illicit cannabis products that are manufactured and/or cultivated outside of New York State,” the complaint alleges.

Marijuana MSOs’ longstanding grievances with New York marijuana regulators

These companies also have longstanding grievances with New York lawmakers and cannabis regulators over the state’s choice to delay the launch of adult-use marijuana sales – and to give marijuana social-equity applicants first dibs at the market.

Those choices – and the botched rollout of legal retail sales in the state – also helped encourage New York’s notorious illicit market, the lawsuit alleges.

More recently, regulators have cracked down on companies engaging in alleged diversion, including the April quarantine of $10 million worth of vaporizers, pre-rolls and other products – some sold under major brands such as Stiiizy and mfused – allegedly connected to a licensed processor and distributor called Omnium.

Regulators moved to revoke Omnium’s license last month for its alleged role in an inversion scheme.

Still no marijuana track and trace in New York

However, the state has been glacially slow to impose track-and-trace.

Plans to finally launch seed-to-sale tracking in August were abandoned at the eleventh hour amid a merger deal between Metrc and Biotrack, the country’s two largest providers of tracking software.

Exactly when OCM plans to require operators to use Metrc software is still ambiguous, with a launch date of early 2026 floated earlier this fall.