This story has been updated.
Key points:
- Vertically integrated medical cannabis operators in New York State owe up to $15 million each in fees meant to paid as a condition of also serving the adult-use market.
- The operators say the fee is too steep and must be reduced or eliminated. Three out of 10 “registered organizations” have gone out of business.
- Medical cannabis sales in the state are plummeting and dispensaries are closing.
- But adult-use operators say the promised fees were meant to provide startup capital and curb the illicit market and need to be paid.
New York’s surviving medical cannabis operators want to get out of paying a $15 million “conversion fee” that’s supposed to be required to enter the state’s rapidly growing adult-use marijuana market.
Four major multistate operators with vertically integrated medical licenses, called “registered organizations” (RO), have submitted partial payments and are serving to adult-use customers. However, they are pleading for a break, claiming that current market conditions render the fee – set at a time when cannabis company valuations were at an all-time high and before medical cannabis customers fled to adult-use – far too high to be feasible.
But state law still requires the fee, which was also supposed to go toward a $200 million fund officials promised to small cannabis operators for startup costs. That money never materialized – and to give the MSOs relief now would be unfair, small operators say.
“Most of us were left to fight for the same expensive real estate as the MSOs, but with none of the state funding we were promised,” Osbert Orduña, founder and CEO of The Cannabis Place, a retailer with a location in Queens, told MJBizDaily.
A spokesperson for the New York Medical Cannabis Association, which represents the MSOs with medical licenses in Albany, declined to comment for this story.
A spokesperson for the state Office of Cannabis Management also declined to comment on the record.
Did the New York State budget give medical cannabis relief?
Overall medical cannabis sales have declined dramatically in New York, from $162.1 million in 2023 to $139.1 million in 2024. Through November 2025, medical cannabis sales for that year stood at $95.5 million, according to OCM’s annual report. Total sales for 2025 exceeded $1.7 billion.
There are only 28 operational dispensaries in the state, compared to 667 adult-use cannabis stores, according to recent OCM data.
Nevertheless, lawmakers appear reluctant to give the MSOs a break, offering no relief from either the fee or the medical cannabis excise tax in the state budget that Gov. Kathy Hochul unveiled last week.
That’s left the situation to devolve into a protracted stalemate between regulators and the medical license-holders, three of which have chosen to shut down in New York rather than entertain paying millions they claim they do not have.
In the meantime, the MSOs’ failure to meet their obligations is hurting the legal market in other ways, according to Orduña.
“We are told there aren’t enough ‘resources’ to shut down the thousands of illicit shops,” he said. “Those resources were supposed to come from the RO fees.”
How does medical cannabis work in New York State?
New York’s medical cannabis program launched in 2016 with just five operators. The state added five more a year later.
These 10 companies were the only legal operators in business when New York legalized adult-use cannabis in 2021. But under that framework, medical operators were not allowed first-mover status in the state’s adult-use market. That opportunity was promised to small operators.
Initially required to wait three years, medical companies were allowed to enter one year after adult-use sales began in December 2022.
First set at $20 million before it was cut to $15 million last year, the New York fee is still the highest barrier to entry seen in the national industry so far.
Maryland charged medical operators a maximum of $2 million. Fees in Delaware were in the low six figures. Other states charged medical operators no fee at all to start serving the adult-use market.
According to Office of Cannabis Management records, major companies with RO permits that operate dispensaries are:
- Citiva Medical, acquired by Florida-based MSO iAnthus Capital Holdings in 2018 for a reported $18 million
- Chicago-based Cresco Labs, which operates under the Sunnyside brand
- Curaleaf Holdings
- Etain, operated by MSO Fluent, which reportedly closed its dispensaries in Manhattan and Kingston on May 1
- Green Thumb Industries, which acquired Fiorello Pharmaceuticals for $60 million in 2019
- Acreage Holdings, which has “temporarily closed” all of its Botanist-branded dispensing locations, according to OCM
- PharmaCann, which defaulted on leases in the state in 2024
- Vireo Health, which announced the purchase of Fluent at the end of April
Two of the original 10 have since shut down, though their failures can’t be attributed entirely to New York:
- The Cannabist Co., formerly known as Columbia Care, which filed for Chapter 15 bankruptcy earlier this year
- MedMen, which entered New York via acquisition in 2017 before the company fell apart in 2024
Have New York MSOs paid their required entry fees?
The cash is due in four installments tied to business milestones:
- $3 million when an operator receives dual-license status
- $4 million within six months of opening a second adult-use location alongside an existing medical dispensary
- Two final payments of $4 million each when the RO records $100 million and $200 million in adult-use sales.
Four operators – Curaleaf, Green Thumb Industries, PharmaCann and Fluent – are servicing adult-use customers after paying $5 million, according to a source familiar with the matter who requested anonymity. They’re in discussions with state regulators over a remaining $2 million balance on those installment payments, the source added.
An OCM spokesperson declined to comment on the status of the fees.
According to recent OCM data, the per-store sales average for medical dispensaries is 18% lower than that of adult-use stores.
Representatives for the MSOs told MJBizDaily the fees are contributing to an “alarming deterioration of the medical program” in New York.
“You can’t get blood from a stone,” Don Williams, chair of the New York Medical Cannabis Industry Association (NYMCIA) and vice president of government relations at Curaleaf Holdings, told MJBizDaily in response to written questions.
Williams called for the state to reduce or eliminate the remaining milestone payments, claiming that market conditions since legalization have made the full $15 million impossible to meet.
“The reality is that despite a persistent view that so-called ‘big cannabis’ has deep pockets, the ROs are financially unable to meet this threshold,” he added.
Did medical cannabis collapse in New York State?
In its annual report, OCM acknowledged medical cannabis’ collapse and promised to do better, but was vague on specifics. The rapid rise of legal sales in the state is “driven almost entirely by growth in the adult-use market,” OCM’s report observed.
“We must improve patient access to the medical program and remain committed to working towards that in 2026,” state Cannabis Control Board Chair Jessica Garcia wrote in the report’s introduction.
NYMCIA filed a lawsuit in December 2024 challenging the original $20 million fee as unconstitutional. A lower court dismissed the lawsuit, but an appeal remains pending, records show.
Many small operators believe the fee should remain.
“The conversion fee is a steep price, and given the current trajectory of the industry, it’s fair for companies to question if those numbers still align with today’s reality,” said Damien Cornwell, president of the Cannabis Association of New York (CANY), which represents small operators.
“But the larger issue is, what happens when we break the foundational blueprint of New York’s rollout?
“By design, these fees were specifically earmarked to support equity entrepreneurs, strengthen the supply chain, and sustain our entire ecosystem,” he added. “New York can’t afford to keep shifting the goalposts while leaving smaller operators holding the bag.”
Chris Roberts contributed to this report.
