New York’s legal cannabis industry—long touted as a national model for equity and opportunity—has found itself in the middle of a legal and regulatory storm after a costly mistake by state regulators. On August 15, 2025, a coalition of marijuana dispensary owners filed a lawsuit against New York State, alleging that a misinterpretation of the law by cannabis officials has jeopardized their businesses and investments, and threatens to undo years of work building an inclusive industry.
The heart of the dispute lies in how state regulators measured the legally required distance between dispensaries and schools. For nearly three years, officials at the Office of Cannabis Management (OCM) measured the mandated 500-foot buffer from the entrance of a dispensary to the entrance of a school. But as the OCM recently admitted, the law actually requires the distance to be measured from the dispensary’s entrance to the school’s property line—a subtle but significant difference that now puts more than 152 licensed dispensaries in violation of state law, according to The Associated Press and The New York Times.
For many affected business owners, the revelation was nothing short of a bombshell. Investors had poured millions of dollars into storefronts, with some dispensaries already open and others in the final stages of construction. The lawsuit, filed by about a dozen organizations and companies—including Conbud, Rezidue, and the Housing Works Cannabis Company—seeks to block the state from enforcing the corrected proximity rule and to have the businesses deemed compliant under the previous interpretation. Plaintiffs argue that the state is “rewriting the rules midstream, stripping licensees of their rights and investments and derailing New York’s promise of an equitable cannabis industry.”
Seven of the twelve plaintiffs are fully licensed businesses, while the other five hold provisional licenses and have already invested heavily in building out their locations. The suit was filed in State Supreme Court in Albany against Felicia Reid, the interim executive director of the OCM, the agency itself, and the state’s Cannabis Control Board.
The miscalculation, which came to light after a review ordered by Ms. Reid, has prompted apologies from the agency but little comfort for those now in limbo. “We want more clarity, and that’s why we brought this lawsuit,” said Matthew Bernardo, president of Housing Works, the first organization to open a recreational cannabis dispensary in New York after legalization in 2021. He warned that for the state to retroactively deem dispensaries noncompliant “would be a fatal blow to legal cannabis.”
The regulatory error has far-reaching consequences. According to state officials, about 60 dispensaries were licensed and opened under the incorrect measurement system, with another 40 holding licenses but not yet operational. Nearly 50 other businesses have applied for licenses and are awaiting final approval. In total, more than 152 dispensaries—many concentrated in New York City’s five boroughs—could be forced to relocate or even shutter, as reported by The New York Times.
Governor Kathy Hochul did not mince words when addressing the issue, calling the miscalculation “a major screw-up” at a recent news conference. A spokeswoman for the governor’s office said Hochul would work with lawmakers “to ensure these hardworking businesses are able to continue to operate without interruption.” The OCM has expressed hope that a legislative amendment, expected to be considered in 2026, will allow affected dispensaries to remain in their current locations. However, with the state Legislature not scheduled to reconvene until next year, uncertainty looms large for business owners and employees alike.
In the interim, the OCM has set up a fund that offers up to $250,000 to help applicants relocate if necessary. Dispensaries that are already open have been told they can continue to operate—even with expired licenses—provided they have applied for renewal. Yet, as Jorge Luis Vasquez Jr., a lawyer for the plaintiffs, pointed out, dispensary owners had relied on guidance from two state agencies and followed the rules as they were understood at the time.
The stakes are particularly high for those who were supposed to benefit most from New York’s much-publicized social equity provisions. According to Mr. Vasquez, 89 percent of the 152 affected dispensaries are owned by women, people of color, veterans, or individuals previously impacted by marijuana laws. The state’s policy had prioritized these groups in an effort to right the wrongs of past drug enforcement. “You promised social equity, a leg up to have profits in the future,” Mr. Bernardo said, referring to the state’s commitment. “You’re going to turn that opportunity into a lifetime of debt. Talk about bringing the community backwards.”
The lawsuit details the sweeping investments and commitments made by dispensary owners—many of whom “poured their life savings into launching their businesses.” They signed leases, hired staff, and opened to the public under what they believed was a clear and detailed regulatory framework. Now, they face the prospect of losing everything due to an error beyond their control.
Regulators’ misstep is just the latest in a series of challenges for New York’s recreational marijuana industry. Since legalization in 2021, the rollout has been marred by delays, lawsuits, and a proliferation of illegal dispensaries. The market, which currently boasts around 450 licensed cannabis shops, has been slow to mature. And yet, despite these hurdles, the industry is projected to make $1 billion in sales in 2025—a testament to both the demand for legal cannabis and the resilience of those who have fought to build the market, as noted by The New York Times.
While the OCM and Governor Hochul’s office have both expressed a willingness to find a legislative solution, plaintiffs argue that such promises offer little immediate relief. The uncertainty has left business owners, employees, and investors in a state of anxiety, unsure whether their shops will survive the current crisis. The cannabis office, for its part, has declined to comment on the pending litigation.
As the legal battle unfolds, the fate of more than 150 dispensaries—and the livelihoods of those who own and work in them—hangs in the balance. The case will test not only the state’s commitment to regulatory fairness but also its promises of social equity and economic opportunity in the cannabis sector. For now, New York’s cannabis entrepreneurs can only wait, hope, and prepare for whatever comes next.
Amid the turmoil, the story of New York’s cannabis industry remains one of ambition, risk, and resilience. Whether lawmakers and regulators can deliver a solution that honors the investments and ideals of those who answered the call for a legal, equitable cannabis market remains to be seen.
