Marijuana plants are seen at a secured growing facility in Washington county, N.Y., May 12, 2023. A New York judge blocked the state’s retail marijuana licensing program, Friday, Aug. 18, 2023, dealing a devastating blow to the fledgling marketplace after a group of veterans sued over rules that allowed people with drug convictions to open the first dispensaries. (AP Photo/Hans Pennink, File)

ALBANY, N.Y. (AP) — A New York judge blocked the state’s retail marijuana licensing program on Friday, dealing a devastating blow to the fledgling marketplace after a group of veterans sued over rules that allowed people with drug convictions to open the first dispensaries.

New York Supreme Court Justice Kevin Bryant blocked the state from processing or issuing marijuana dispensary licenses with an injunction that faulted regulators for creating a program that is at odds with the state law that legalized the drug.

The order represents a severe setback for the state’s legal marijuana industry, which has been defined by a slow licensing rollout, a glut of excess marijuana crops and legal challenges that have allowed an illicit market to boom.

The veterans’ lawsuit argues that state marijuana regulators improperly limited the initial round of licenses to people with prior marijuana convictions, rather than a wider group of so-called social equity applicants included in the original law. The judge last week temporarily blocked the state’s program as legal arguments in the case played out, with Friday’s order extending the shut down.

In a statement, a representative for the veterans said state regulators’ failure to follow the law have kept licenses out of the hands of veterans and other minority groups who were supposed to be prioritized.

“From the beginning, our fight has always been for equal access to this new and growing industry,” the statement said, adding “We look forward to working with the State and the Court to open the program to all eligible applicants.”

Lawyers for the state have warned the judge that any halting of the licensing program would financially harm those who have already begun spending money to establish businesses under provisional licenses. The state Office of Cannabis Management did not immediately have a comment on the order Friday.

Bryant, in his order, wrote that potential financial woes are the fault of state regulators who were undeniably aware of legal problems with the licensing rules.

Still, the judge did grant an exemption to his order for licensees who met all the state’s requirements before Aug. 7 and is allowing applicants who are seeking an exemption to present their case before the court on a case-by-case basis. He has also ordered for state regulators to convene and begin finalizing marijuana licensing rules.

The order follows a vote in May in which state regulators eventually settled a federal lawsuit that blocked them from issuing licenses in the Finger Lakes region after a Michigan company alleged that New York’s licensing system unconstitutionally favors New Yorkers over out-of-state residents.

The legal challenges and slow rollout of licenses have led to complaints from farmers who grow marijuana that there aren’t enough legal sellers to handle their crops. Regulators last month approved the sale of marijuana at festivals in an attempt to address those complaints.

At the same time, authorities have been working to shut down illegal marijuana shops that have cropped up all over the state, particularly in New York City, as unlicensed sellers fill the legal vacuum.