Recently, New York’s Office of Cannabis Management (OCM) kicked off a crisis that Crain’s New York Business has called “one of the biggest cannabis regulatory mishaps in the history of the modern industry.” This crisis, which pertains to dispensaries’ proximity to schools, may drive dozens to hundreds of dispensaries out of business.
“We have about 40-something applicants to date that have been impacted, and then over 100 licensees to date that have been impacted,” Rudick Law Group Associate Attorney Fatima Afia said during an episode of the podcast Joint Session. “Those numbers are probably going to increase,” she predicted, “exponentially.”
Rudick Law Group is committed to leveraging its legal advisory and policy development services to ensure the best possible outcomes for individually affected businesses and the entire New York cannabis market. Keep reading to understand the proximity relocation crisis and its potential impact on New York’s licensed dispensaries.
Note: This is an ongoing situation. For the most up-to-date information, follow Fatima Afia on LinkedIn.
What is the proximity relocation disaster in New York’s cannabis market?
On Monday, July 28, 2025, the OCM announced that it had incorrectly measured the 500 feet of distance required between dispensaries and schools as per the Marihuana Regulation and Taxation Act (MRTA). Although the agency had been measuring this distance from each facility’s entrance, it said it should have been measuring the distance from the nearest point of a school ground’s property line to the dispensary’s entrance, taking into account the definition of “school grounds” as that term is defined under New York’s Education Law.
Given this reframing, many dispensaries now violate OCM’s distance rules — assuming the OCM’s announcement is to be taken at face value. New York State Senator Liz Krueger and Crystal Peoples-Stokes, Majority Leader of the New York State Assembly, who are architects of the MRTA, have both cast doubt that OCM has made any errors, implying that this crisis is manufactured.
Whether or not the OCM has indeed made an error, it is acting as though it has and is thus enforcing its new interpretation of the school proximity rule retroactively and proactively. Unless new legislation is introduced, affected businesses will be unable to obtain or renew licenses at their current locations.
To a layperson, it might “sound like it's just semantics and it's just a couple of changes in words,” Afia said during her Joint Session appearance, “but it really does open up a lot of dispensaries…to not being in compliance because of that difference in interpretation.”
Not only has the method of measuring now changed, but so has the scope of buildings subject to the 500-foot buffer. Indeed, in at least some of its notices to impacted licensees and applicants, OCM has noted that another regulatory provision which applied the 500-foot buffer to buildings “exclusively used” as a school is similarly void as in conflict with the MRTA. That means that buildings used as a school and something else (a community facility, for example) are now also subject to the 500-foot buffer. That is an abrupt and significant expansion in the scope of the applicability of the school proximity rule.
Which dispensaries are affected by the proximity relocation disaster?
Currently, several dozen cannabis businesses in New York City, particularly in Manhattan and northern Brooklyn, are affected by the proximity relocation disaster. So too are many cannabis businesses in Westchester County, the Hudson Valley, the Albany area, Rochester, and select other parts of New York State.
Most of the affected business owners are Social and Economic Equity (“SEE”) applicants whose license applications were prioritized by the OCM due to the disproportionate harm caused to these groups by the war on drugs. Historically, diversity in the cannabis industry has been lacking. New York, one of the worst offenders in the War on Drugs, sought to legalize adult-use cannabis for the central purpose of uplifting marginalized communities.
Yet, “[t]he vast majority [of impacted applicants and licensees - about 89% or so] are SEEs [social and economic equity program participants] and CAURDs [conditional adult-use retail dispensaries],” Afia said in a LinkedIn post. “[It’s p]retty horrific to prop up programs intended to help those most vulnerable and those most impacted by the war on drugs and then pull the rug from underneath them just as they're getting their footing.”
Which businesses may eventually be affected by the proximity relocation disaster?
Afia said during her Joint Session appearance that the number of affected businesses will almost certainly grow.
“I wouldn't be surprised if, in the coming days, [OCM] continue[s] to elaborate on this new interpretation [and says], if you look at the ‘school grounds’ definition in the education law, it doesn't just include schools, not just primary and secondary schools. It also includes preschools. It also includes nurseries.
“Many [dispensaries] were not including nurseries in their calculations when they were checking for proximity protection,” Afia continued. “They were checking exclusively for schools. … [If OCM is] being really strict about [its] interpretation of the MRTA, [but] if you look at the definition of school grounds, it includes nurseries and preschools.”
What are the legal ramifications of the proximity relocation disaster?
To say that OCM’s proximity calculation errors could be the death knell of many affected businesses would be an understatement.
For starters, affected businesses that are not yet licensed but have “proximity protection” would need to move to new locations that comply with OCM’s new interpretation of the MRTA’s proximity rule. However, doing so is easier said than done.
To the extent that there are available retail spaces in New York City, open spaces are highly competitive, and most don’t comply with the proximity rule (particularly now that it has been expanded in scope). Landlords are known to charge high rents and other outrageous fees in a highly-volatile industry such as cannabis. It all spells out a potentially disastrous future for affected businesses.
As early as September 2025, OCM may launch an Applicant Relief Fund through which affected businesses may be able to apply for $250,000 relocation grants. However, many affected businesses have pointed out that this amount of money is not nearly enough to cover out-of-pocket costs already incurred in securing their current locations, as well as their relocation costs.
Even those who have been licensed already are in a state of legal “limbo.” They are permitted to stay put for now and can continue to operate (or work toward operating, in some cases), but they will not be renewed for licensure unless and until a legislative change is made.
In an interview with Spectrum News, OCM deputy executive director and acting executive director Felicia Reid said that a grace period will be introduced. During this period, affected businesses can remain open, even without licensure, until state lawmakers draft, present, and vote on legislation, as permitted under the State Administrative Procedure Act, provided that the impacted licensees are otherwise in compliance with the law and in good standing with OCM. Impacted licensees will therefore have legal protection from OCM as lawmakers decide upon a legislative fix to “grandfather” them into their current locations.
However, there are practical, real-world implications for businesses operating with an expired license that OCM’s “blessing” may not, by itself, solve. For starters, cannabis growers and processors may not be able to or want to sell items to unlicensed dispensaries. This closed-off sales avenue, therefore, impacts the entire supply chain in New York. Other real-world consequences of operating with an expired license is that landlords, banks, and insurance companies may not want to do business with affected businesses.
Given their uncertain and scary prospects, affected businesses are incensed. Several of them have joined a trade group called “F**ked by OCM” and begun using the hashtag #OCMattack across social media. The trade group’s demands have already shaped the New York government’s response. Members have noted that school proximity has never been a major problem during the existence of New York’s legal cannabis market to date.
How are OCM and the New York state legislature responding?
State legislative efforts
On Monday, August 4, 2025, State Senator Luis R. Sepúlveda introduced a bill that would grandfather in all licensees approved for an “initial license” before July 28, 2025. These licensees must be otherwise compliant and in good standing with OCM.
“It's unclear [from the wording of this bill] if ‘initial license’ means your preliminary license approval (i.e., the initial approval you get before getting your official license to operate) or your official license to operate even if you're not actually open and operating yet,” Afia said in a LinkedIn post.
OCM’s position, according to its most recent notice sent to impacted licensees on August 6, 2025, appears to be that any legislative fix would “grandfather” in all licensees (whether operating or still awaiting their final approval to operate). But the scope of any legislative fix is up to lawmakers in Albany, and details on any fix are still TBD.
“But,” she continued, “what is clear [from this initial bill proposal] is that applicants with proximity protection would not get grandfathered in, nor does this amend the MRTA language concerning the 500-foot buffer so that the previous door-to-door measurement is enshrined in the law onward (both of which have been thrown out there as alternative legislative fixes to this mess).”
A major, highly concerning obstacle to any legislative efforts is that New York state lawmakers are on recess until January 2026. Afia said that a special session could potentially, but not definitely, be called to pass Senator Sepúlveda’s bill before the current recess ends.
This bill follows New York Governor Kathy Hochul’s insistence on legislative intervention; Hochul has also expressed anger at OCM. However, the governor’s office necessarily knew about and approved regulatory changes made in 2023 that led to the apparently invalid proximity measurement standard.
In any case, state officials have said that they will not force dispensaries to move before lawmakers act, though it remains to be seen whether this promise holds true.
Current and future litigation
There are likely to be numerous lawsuits commenced regarding the school proximity crisis. Afia predicts that there will be a flurry of lawsuits filed over the coming weeks, if an emergency legislative session is not called, and that OCM may be unable to defend against many of these lawsuits. In fact, she noted, OCM has a history of lacking meaningful defense when previously sued even on claims that lacked legal merit (which would not be the case here).
Afia suggests that affected businesses — and anyone who cares about New York’s cannabis market — continue to make noise about the situation until OCM and the New York state legislature fix this mess. Although there are many strategic tools that can be utilized on this front, litigation may take a leading role, at least in the near future, to exert maximum pressure on lawmakers to enact a meaningful solution to this situation.
Reach out to Rudick Law Group with questions
Our all-women team at Rudick Law Group boasts unrivaled legal expertise within the cannabis industry, particularly in regulatory matters, compliance, and New York State cannabis regulatory compliance. At the same time, through the bridges we’ve built — and continue to build — with policymakers, we spearhead policy development and reform, as well as social equity and inclusion initiatives. Please reach out to us at info@rudicklawgroup.com or contact our cannabis law firm if you have any questions.
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