Many cannabis retailers in New York were recently blindsided by a clarification of the state’s proximity laws, literally drawing new lines around where dispensaries can and cannot operate.
In July 2025, it became apparent that the Office of Cannabis Management (OCM) had misinterpreted the state buffer zone by a significant margin (source). According to the rule of law, cannabis dispensaries cannot operate within 500 feet of a school. The definition includes K-12 schools and licensed daycare and after-school facilities.
The issue stems from an OCM miscalculation, which initially measured the distance between the dispensary’s and the school’s entrance, when the boundary should have been the school’s property line.
As a result, some 152 licensed dispensaries and licensee applications are non-compliant. They must relocate or risk losing their licenses, along with all the investments they’ve made in licensing, buildouts, storefronts, marketing, and other business-building activities.
One would think that, because licenses were state-approved, licensees would have some recourse. Unfortunately, this isn’t the case. If your dispensary is located near any type of school, as defined by the state, a set of regulations may be enforced.
Understandably, this revelation has stirred up chaos in the cannabis community. Appropriate real estate is already scarce. Local cannabis laws vary by community, and finding a good location that accommodates dispensaries is a feat in itself. Now, many established and prospective licensees are back to square one.
Established businesses have spent tens of thousands (or more) obtaining licenses, developing their brand, and building a clientele. Now they’re faced with the prospect of having to pack it in unless they can find another location within the grace period.
The Devil is in the Details
So, how did the OCM, the overseeing body and supposed authority of New York’s cannabis industry, make such a glaring mistake?
Historically (which is not such a long time considering New York only legalized recreational-use cannabis in 2021), the OCM measured proximity from entrance to entrance, and often only believed it to be an issue if a dispensary was on the same street as a school. The law, however, measures the buffer to the school’s property line, regardless of whether it’s on the same street.
The majority of affected dispensaries are located in New York City, but overall, there are 108 operational dispensaries and 44 pending licensees affected across the state. Diving deeper, most affected licensees are economic and social equity licenses, smaller operators that can’t strategically afford to pull up roots and move, even if a new location is readily available.
Though the state has established a $15 million relief program for license applicants, funding is not available to existing licensees. Regulators have vowed to seek a legislative solution, but as with all things governmental, it might be a long time before we see any forward movement or reparations.
Meanwhile, the risk is beyond the pale. Without legislative change, the OCM will not renew licenses for non-compliant locations. Bottom line: existing licenses are at risk, and there isn’t much operators can do but prepare for the worst-case scenario.
What Operators Need to Know: Advice from Industry Experts
The city and the OCM are saying all the right things. They are trying to make it right, and in the meantime, are advising that dispensaries can continue to operate without an active license while they reorganize.
However, according to cannabis CPAs, cannabis sector bankers, and insurance brokers, following this advice might not be a viable strategy. We canvassed some of the top experts in each niche, and here’s what they had to say:
1. The Banking Freeze
“A lapsed license is a major compliance red flag,” explains Peter Su, a cannabis banking specialist. “The entire account relationship is predicated on the business operating legally under state law. In fact, I am not even speaking hypothetically – you might remember that the initial licenses in NYS were issued as “conditional”, well, when the initial wave of renewals came up and the renewals process was languishing, there were many accounts all around the state that were frozen, closed, etc. We are setting ourselves up for a repeat of that.”
· Immediate Impact: Banks are bound by Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) obligations. An expired license means the business is, technically, operating illegally.
· Likely Outcome: Banks will typically freeze or even close accounts upon license expiration. If a renewal isn’t provided promptly, they will issue a closure notice, often within 15-30 days.
2. The Insurance Void
“Most policies require an active cannabis license to even purchase a policy”, says Stephanie Bozzuto. The license number is usually listed on the application, binder, or declarations page and a digital copy of the cannabis license is required to bind coverage.
If the license lapses, insurers often consider the business out of compliance, which can be grounds for:
· Immediate cancellation
· Denial of claims that occur during the lapse period
If a loss occurs while your license is expired (fire, theft, liability claim, etc.), the carrier can deny coverage on the basis that the business was not legally operating.
Some insurers may still honor claims if you can show renewal was pending (for example, if you had already filed paperwork and the state just hadn’t processed it yet), but that’s the exception, not the rule.
Many landlords, lenders, and investors require proof of both an active cannabis license and valid insurance. If either lapses, you could be in breach of lease, loan covenants, or investor agreements.
3. The Accounting and Operational Collapse
“The business faces an immediate cessation of revenue, mandatory destruction or transfer of inventory, and the termination of banking and payment processing. Leases and loans go into default.”, outlines the grim financial aftermath of a license loss, Kate Dymedenko, a cannabis CPA.
However, there is one perverse silver lining: the dreaded IRS code 280E. “Once the license is gone and the business is no longer ‘trafficking’ in a controlled substance, 280E no longer applies,” the CPA notes. “Winding-down costs, such as legal fees and rent, become deductible. It’s small consolation for a failing business, but a significant technical point for the final tax return.”
What NY Dispensary Operators Should Do Immediately
For New York dispensary operators, proactive assessment is critical. Waiting for a state-level solution is not a strategy.
1. Conduct a Proximity Audit: Immediately determine your location’s proximity to any K-12 school, licensed daycare, or after-school facility using the property line measurement, not the entrance.
2. Engage Specialized Counsel: Consult with a cannabis attorney to interpret the law accurately, explore potential appeals, and understand your legal rights and obligations.
3. Communicate with Partners: Proactively speak with your bank, insurer, and landlord. Understand their specific policies regarding license lapses and what documentation they may require.
4. Prepare for the Worst: Begin scenario planning. If relocation is not feasible, develop a wind-down plan to manage the dissolution of the business in an orderly and compliant manner.
Conclusion
The revised proximity laws have created more than a real estate problem; they have exposed the fundamental fragility of a cannabis business‘s operational footing. The license is the keystone holding the entire structure together. Without a secure and active license, the support systems of banking, insurance, and finance will inevitably collapse, making business continuity impossible. For affected operators, the time to act is now.
