Uproar after New York marijuana regulators’ reversal on schools

More unwelcome drama roiled New York’s $1.5 billion marijuana industry when state regulators this week informed more than 150 retail operators and applicants that they’re too close to a school, a violation of state law.

But critics point out the July 28 directive from Office of Cannabis Management Director Felicia Reid contradicts an earlier, deliberate OCM decision to tweak proximity rules – a choice that was made in part because locating a marijuana store in dense New York City would prove extremely difficult without it.

Like many other states, New York imposes strict zoning requirements on marijuana stores as part of a philosophy that legal cannabis must be kept away from adolescents and children.

State law forbids a cannabis retail outlet “on the same road” as a school or within 500 feet of a school’s property line.

The measurement is from the nearest property line of the store to the school’s nearest property line – even if that property line is a fence and the school entrance is farther away.

Marijuana regulators’ shifting guidance on school proximity

That was the requirement in the state’s initial guidance, released in Dec. 2022 – the same month a nonprofit, Housing Works, recorded the state’s first legal sale.

However, state regulators later “revised” how the 500-foot barrier is determined after receiving public comment.

Much of it was from would-be operators, who said a property-line measurement would make finding a suitable location too difficult.

In compromise regulations released later in 2023, OCM says the boundary is to measured instead via “a straight line from the center of the nearest entrance” of the cannabis store to “the center of the nearest entrance of the nearest building occupied exclusively as a school, on the school grounds.”

“This was a big thing,” recalled Robert DiPisa, an attorney who chairs the Cannabis Law Group at Cole Schotz, a regional law firm with offices in New York and New Jersey.

“People were up in arms over the measurement issue, pushing for a better measuring tool,” he told MJBizDaily on Wednesday.

But in a July 28 memo first reported by The New York Times, Reid acknowledged that tweak violated the law and should never have been made.

“These provisions should never have applied to OCM location assessments as an agency of New York State,” reads an OCM missive to affected operators posted online by City and State. “(M)oreover, wherever a regulation conflicts with statute, the statute reigns.”

OCM did not comment further to MJBizDaily.

What’s next for marijuana retail too close to schools

According to a memo posted online, the proximity snafu affects 44 applicants still awaiting a license and 108 licensees, not all of whom are operational.

Thirty-eight of the licensees are in New York City, as are 89 of the current licensees, with the rest scattered around the state.

The applicants “will be required to find new locations before moving ahead,” according to OCM’s memo.

To do that, applicants can receive up to $250,000 in state assistance find a new location or to pay for buildout or other “capital improvements” at a new location.

Existing licensees may be in an even tougher spot.

Both Gov. Kathy Hochul and OCM “will be proposing and aggressively pursuing” passing a new law that would legalize their locations.

However, “passage… is not a guarantee,” OCM’s memo said. And in the meantime, the state Cannabis Control Board “cannot renew licenses” of any retailer who is out of compliance.

In a statement, Damian Fagon, director of the Bronx Cannabis Hub and a former top official at OCM, called the reversal “a stunning betrayal of public trust that will cause immediate damage to the very people the OCM was established to support.”

“It effectively punishes licensees who followed the state’s own guidance,” the statement added in part. “As one of our cohort members told us (Tuesday), ‘This will break us. We cannot afford to move to another location.’”

Claim: Marijuana regulators were warned in 2024

In Albany, incredulous lawmakers said they learned of the situation only on Monday, but that Hochul and OCM supposedly knew for months.

However, one attorney – infamous in New York State for bringing a lawsuit blamed for delaying the market’s launch – says he brought the proximity question to regulators’ attention as early as March 2024.

In an email chain shared with MJBizDaily, Jeffrey Jensen identified to OCM a retail location operated by a marijuana multistate operator that was within 500 feet of a school.

That location of Cresco Labs’ Sunnyside is temporarily closed, but it was permitted despite being 500 feet of the grounds, not the entrance.

Jensen says he pointed out the discrepancy between the statute and OCM practice.

A Los Angeles-based lawyer who challenged the state marijuana social-equity program’s residency requirements on constitutional grounds, Jensen says he received no response from OCM after alerting them to the discrepancy.

Jensen was searching for a location for Variscite One, the dispensary license awarded as part of a settlement with OCM.

Variscite One later sold its shares to another operator after being unable to find a suitable location, MJBizDaily reported.

Location crisis comes amid market saturation worries

OCM’s missive to businesses and applicants informing them their locations are out of compliance followed regulators’ public concerns over market saturation – and many applicants’ frustrations over the slow pace of license approvals.

There are currently 436 cannabis stores open in New York State.

During an application window that closed in December 2023, regulators received more than 4,500 applications for either a retail permit or for a microbusiness license, which allow for sales.

And more than 3,000 of these have yet to be reviewed, regulators said during a Cannabis Control Board meeting on Friday.

That’s a bottleneck that might not be cleared until 2033. What’s more, the market in New York can only support about 1,700 stores, OCM said.

“This is the point in terms of store count where New York could start to see … closures, price collapse, and equity failure,” Kevin Brennan, an OCM market analyst, said during the meeting.

However, he added, not every applicant is approved – and only 76.3% of approved licensees open for business.

That number could decline further if suitable real estate is harder to find.

Said DiPisa: “There are fewer viable properties now.”

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.