What Happened: OCM’s Compliance Error Explained
On Monday, July 28th, the Acting Executive Director of the New York Office of Cannabis Management (OCM), Felicia Reid, Esq., wrote to 152 cannabis businesses, including 105 licensees (approximately 60 of which are operational) and 47 applicants, to explain that their dispensary locations, which the OCM had previously approved, were actually in violation of the school proximity restrictions in the state cannabis law. Many of these locations are in New York City, where, as we know, real estate is expensive and difficult to come by.
Director Reid explained in letters to the affected cannabis businesses that the OCM recently discovered that the manner in which it had been assessing whether an adult-use retail location meets the distance requirements relative to schools is actually NOT in compliance with the state cannabis law. In short, a plain reading of the applicable statute compels the conclusion that a cannabis retail dispensary cannot be within 500 feet of a school’s property line. Since 2022, and in conflict with the statute, the OCM has assessed locations based on whether a dispensary is on the same road and within 500 feet of the entrance of a building occupied exclusively as a school. However, whether the dispensary is on the same road and whether the school is in a building occupied exclusively as a school appears to have been borrowed from portions of the OCM’s regulations regarding cannabis-related rule making by municipalities. As such, these provisions should never have been applied to OCM location assessments, as an agency of New York State (NYS). Further, wherever a regulation conflicts with a statute, as is the case here, the statute reigns. The OCM wrote to the impacted cannabis businesses and informed them that they will ultimately be required to find a new retail dispensary location.
Impact on Active vs. Pending Licenses
Director Reid explained that for any applications still pending review and recommendation for licensure, the OCM will assess dispensary locations under the standard of the statute. In an effort to minimize the blow to affected applicants, Director Reid further explained that the Governor’s Office, the OCM, and Empire State Development have coordinated to provide up to $15M for applicants who previously received communication from the OCM that their locations were compliant but are now not, given the OCM’s correction to comply with the statute. Under the program, impacted applicants may seek coverage, up to $250,000, of certain expenses related to finding a new location, and/or location acquisition or capital improvements made to their original location. The OCM said they would contact impacted applicants with additional information on how to access the program. To be clear, however, participation in the program does not preclude an applicant from needing to find or secure another location that is compliant with the statute.
Director Reid also clarified that if an impacted applicant’s application is complete and the only outstanding issue is having a proposed location that does not comply with the statute, the OCM can issue the applicant a provisional license to be able to submit a new location for consideration; and, if the impacted applicant already has a provisional license, the OCM will work to extend the provisional period.
What Licensees Should Do Next
Meanwhile, operational retail dispensaries will need to change locations before renewing their licenses. For all pending and future application reviews, including renewals, the OCM will assess locations under the standard of the statute. So while licensees are not presently required to change the locations of their businesses, their locations will become an issue at the time of license renewal. To reiterate, the OCM will not use the past standard of review to consider a license upon renewal.
Will There Be Legislative Relief?
In an effort to minimize the blow to affected licensees, Director Reid explained that Governor Hochul and the OCM are hoping that the state legislature will pass legislation that would grandfather in retail dispensaries that were approved prior to the correction, ultimately permitting these licensees to remain at their present licensed location. However, while the Governor’s Office and the OCM can actively advocate for legislative redress, passage of proposed legislation is ultimately the prerogative of the NYS Legislature and is not a guarantee.
The OCM’s mistake will likely prove to be an extremely costly one for hundreds of cannabis businesses that seemingly did everything right.
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