With lawsuit holding up pot sales in Western New York, many wonder: What's next?

Local cannabis cultivators, processors and hopeful retailers had expected the first recreational dispensaries to open by the end of the year. But Variscite NY One, a Michigan company denied first-round licensing because of its out-of-state location, filed a lawsuit that led to an injunction pausing sales here and in four other regions.

That has led to widespread frustration among those being temporarily left out of the newly legalized market, as well as a scramble to sell pot to retailers in the unaffected regions.

At the same time, the state's last-minute rule changes are complicating things further. After initially saying retailers would have to rent dispensary locations built out by the Dormitory Authority of the State of New York, it has reversed course, saying retailers can select their own locations with approval.

That last-minute switch to having to secure and build out those locations could be considered a way to fast track the legalization process – if it didn't take so much time and money to do it, would-be retailers say.

To add to the uncertainty of changing rules, hopeful Western New York retailers still don't even know when or whether they will learn if they will be one of the few selected to receive a Conditional Adult-Use Retail Dispensary license to open.

And as the cannabis operators in the state wait in limbo, they watch as sales are already well underway on tribal lands, where dozens of pot stores do brisk business in a legal gray area, including on Native American territories across Western New York.

"We've been promised that there will be a market. So we all took the chance and invested the money," said Paal Elfstrum, CEO of Wheatfield Gardens in North Tonawanda, which owns both cultivator and processing licenses. "We're all anxiously awaiting the first doors to open so that we can begin selling what we've put our heart and soul and money into over the last eight or nine months."

Elfstrum remembers how he felt when he got word that pot sales would be put on hold.

"I was just sad for all the energetic entrepreneurs that were crouched at the starting line, ready to go with a business plan and lining up everything and now it's just held up in court," he said.

Wheatfield Gardens is now preserving its own and other cultivators' cannabis by processing it into things like edibles and oil for cannabis pen cartridges, which has become one of the most popular ways to use marijuana in the legal market.

It is also making things like "pre-roll" cannabis cigarettes, which travel well and which Elfstrum thinks will be successful in what New York City is predicting will be a thriving delivery business. He hadn't planned to sell to New York City, and acknowledges it will cost more to ship product there, but he had to pivot when Western New York got blocked out of sales.

"It's upsetting because it's one person holding up an entire industry and hundreds if not thousands of good-paying jobs that people would love to be part of," he said. "It's kind of upsetting that all it takes is one carefully written legal challenge to put the brakes on so much economic development that could be occurring as we speak."

So what's next with the lawsuit?

The state has filed notice that it will appeal to the U.S. Court of Appeals for the Second Circuit, and filed a motion to limit the junction's scope to just the Finger Lakes region, according to Patrick Hines, a partner at the Buffalo law firm Hodgson Russ.

The five affected regions on pause were those Variscite listed in its application as its preferred places to do business: Brooklyn, Finger Lakes, Central New York, Western New York and Mid-Hudson. The state is asking the injunction be limited to the Finger Lakes region – the company's first pick – or to stay the enforcement of the injunction pending the appeal. Variscite has opposed that, and the court has not yet decided the motion. The state's motion to dismiss the case also is still pending.

"The State argues that Variscite lacks standing to bring its claims, in part because its application would have been denied regardless of the challenged aspects of the CAURD program," he said. "Variscite argues that it has standing because it was excluded from the process entirely by the challenged aspects of the CAURD program."

There are several ways the court case could shake out, Hines said, including the way Western New Yorkers in the cannabis business are hoping for: the case could be dismissed, allowing for CAURD licenses to be issued statewide. Second most favorable for Western New York, the court could limit the scope of the injunction to the Finger Lakes region.

Meanwhile, there is no legal redress for cultivators or processors who are held up.

"This is a matter of the constitutionality of state law, and it is the state’s fight to have," Hines said.

Variscite is also pursuing a similar lawsuit against the City of Los Angeles, challenging the social equity provisions of  L.A.'s cannabis retail program, which required a California cannabis conviction.

The court in that case recently decided that Variscite lacked standing for reasons very similar to the arguments New York State is making. It decided that Variscite was not likely to be successful on its Dormant Commerce Clause, which the company says prohibits states from showing favoritism to businesses.

Gov. Kathy Hochul expressed frustration about the delays last week at a stop in Niagara Falls.

"It's very disappointing that we're barred by a court case that is pending right now," she said.

The legal sale of cannabis is something she fast-tracked once she got into office last August, after it had faced delays during the Cuomo administration.

"We worked very quickly to really stand up an entire new industry that is going to become a catalyst for opportunity for our farmers, to create retail opportunities, to give people who've been involved in the criminal justice program a second chance using their skills as business people," she said.

Great opportunities await, she said, as do customers.

"But we'll get there," she said.