New York Cannabis Businesses File Lawsuit Over School Proximity Rule Change

Twelve Licensed and Provisional Operators Take Action Against Regulators

A dozen licensed cannabis dispensaries and provisional operators in New York have filed a lawsuit against the state’s Office of Cannabis Management (OCM) and the Cannabis Control Board (CCB). The complaint, lodged in the New York Supreme Court in Albany County on August 15, challenges a recent correction to the state’s cannabis dispensary school proximity rules.

The petitioners, including ConBud, Housing Works Cannabis Co., and several provisional applicants, argue that the OCM made sweeping regulatory changes without following the state’s required rulemaking process. At stake are millions of dollars in investments, completed storefront buildouts, and the viability of businesses that were approved and licensed under prior state guidance.

The Shift in School Proximity Rules

In July 2025, the OCM issued a correction affecting 108 licensed dispensaries and 44 applicants with provisional licenses. The revision changes how the state measures the required 500-foot distance between cannabis dispensaries and schools.

Previously, under 2022 guidance, the measurement was calculated from the entrance of a dispensary to the entrance of a school. Under the new correction, the OCM requires a straight-line measurement from a dispensary’s entrance to the nearest school property line.

According to regulators, the change aligns the agency’s interpretation with the state’s cannabis law. However, businesses argue that this abrupt about-face undermines approvals already granted and places compliant operators at immediate risk.

OCM Response and Temporary Relief

Following the correction, OCM Acting Executive Director Felicia A.B. Reid issued a letter to the 152 affected operators on August 6. The letter stated that the 108 licensed dispensaries could remain open or continue preparing to open in their current locations while state officials seek a legislative fix to grandfather in existing sites.

Meanwhile, the 44 provisional applicants must relocate to meet the new proximity requirements. To ease the financial burden, the state announced a $15 million relief fund, offering up to $250,000 per applicant to cover relocation costs.

Despite these assurances, petitioners claim that the correction introduces immediate risks. Insurance providers, banks, and landlords may view their licenses as invalid or expired, leaving businesses exposed to potential lease breaches, financing issues, and operational interruptions.

Petitioners Argue Irreparable Harm

The lawsuit highlights that many businesses relied on OCM approvals to secure leases, fund costly buildouts, hire staff, and begin operations. By retroactively altering its interpretation of Cannabis Law §72(6), petitioners argue, the OCM has jeopardized years of investment.

According to the complaint, construction costs for some petitioners ranged from $500,000 to $1,000,000—significantly higher than the $250,000 in relief funding available. Several dispensaries, including Rezidue, Lux Leaf Boutique, and Elisa Pelka, had already completed buildouts and were prepared to launch pending final inspections.

Petitioners contend that the OCM’s actions could bankrupt not only their businesses but also the individuals who personally guaranteed leases. In some cases, businesses risk losing deposits, facing termination penalties, and falling into default with property owners.

Businesses Seeking Injunction Against Enforcement

In addition to asking the court to annul the OCM’s revised interpretation, the petitioners request a preliminary and permanent injunction to prevent enforcement under the new rules.

The lawsuit asserts that:

• Retroactive changes without notice or hearing violate due process.
  
• The OCM’s actions represent an unlawful regulatory taking under the New York Constitution.
  
• The reinterpretation violates the State Administrative Procedure Act by bypassing formal rulemaking.
  
• Equal protection rights were violated by placing affected businesses at a disadvantage to competitors.
  
• The policy change disproportionately harms equity applicants, undermining the goals of the Marihuana Taxation and Regulation Act (MRTA).
  

Equity Licensees at the Center of the Conflict

The lawsuit emphasizes that nearly all of the plaintiffs are equity-focused license holders. Eleven of the twelve are conditional adult-use retail dispensary (CAURD) licensees who qualified because they were justice-involved individuals. The twelfth plaintiff is a social and economic equity (SEE) licensee, a category that prioritizes applicants from historically marginalized groups.

The MRTA, which legalized cannabis in New York, was designed to prioritize these groups in the licensing process. Petitioners argue that the OCM’s reversal undermines the very foundation of the law by disproportionately harming those it was intended to help.

“Petitioners do not come from generational wealth and therefore cannot sustain such a hit,” the lawsuit states. “Their lives would be shattered while the OCM simply says ‘I’m sorry.’”

Named Petitioners in the Lawsuit

Seven of the twelve businesses suing the state are already open or hold final licensure. These include:

• ConBud (Manhattan)
  
• The Cannabis Place (Queens)
  
• Summit Canna (Bronx)
  
• Hush (Bronx)
  
• High Fade (Manhattan)
  
• Housing Works Cannabis Co. (Manhattan)
  
• Common Courtesy Dispensary (Queens)
  

The remaining five are provisional licensees who must relocate:

• Rezidue
  
• Elisa Pelka
  
• Toastree
  
• Monarch NYC
  
• Luxe Leaf Boutique
  

For these applicants, relocation not only threatens their financial stability but also delays their entry into New York’s competitive cannabis market.

The Broader Implications for the Cannabis Market

The lawsuit underscores the fragile nature of New York’s cannabis rollout. After a slow and litigious start, regulators have faced repeated challenges in balancing equity goals with market realities. The proximity correction is the latest in a series of regulatory hurdles that have complicated business planning and market stability.

Industry analysts warn that sudden policy reversals erode trust in the licensing process, discourage outside investment, and harm the reputation of New York’s cannabis market nationally.

If the court sides with the petitioners, it could force the OCM to reinstate its 2022 interpretation and protect existing businesses. If not, the ruling could set a precedent that regulators can reinterpret laws without formal processes, raising concerns for operators across the state.

What Comes Next

The case now moves forward in the New York Supreme Court, where the petitioners hope for swift judicial intervention to prevent enforcement of the new rules. A favorable ruling could secure the futures of dozens of dispensaries and reaffirm the MRTA’s intent to support equity operators.

Until then, uncertainty hangs over more than 150 cannabis businesses caught in the regulatory crossfire. While state officials pursue a legislative fix, operators remain vulnerable to legal, financial, and operational risks that threaten to derail New York’s ambitious cannabis program.