Licensed, Then Screwed, Now Suing

_{Filed Under: State Licensed Sabotage}

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The slow-motion trainwreck of New York’s cannabis rollout just smashed into the courthouse. On August 15, a group of licensed dispensaries filed a lawsuit in Albany Supreme Court, demanding protection after being told they were approved under the wrong zoning rules. These are not hypothetical businesses. These are open stores. Leased, staffed, stocked, and now suing the same agency that told them it was safe to build.

The suit asks a judge to stop regulators from enforcing a bureaucratic screwup that threatens to wipe out at least 152 businesses, including 108 licensed dispensaries and 44 applicants, most of them justice-involved and social equity businesses. These operators were already sold a mess. Now they are being handed an eviction notice dressed up as “clarification.”

At the heart of the chaos is the Office of Cannabis Management, a regulatory body that admitted in late July 2025 it had been measuring school buffer zones incorrectly since the beginning of the program. State law requires dispensaries to be at least 500 feet from the school property line, not entrance to entrance, per Cannabis Law §72(6) and Education Law §409(2). OCM confirms it had been applying a door-to-door standard and has now corrected its method to a straight-line measurement from the dispensary entrance to the nearest point on the school property line.

Acting Director Felicia A. B. Reid directed a review of agency practices that culminated in the July correction.

Sixty are already open and operating, with another 40 licensed but not yet open, and nearly 50 more awaiting final approval. In New York City, 89 licensees and 38 applicants are on the list.

The state stood up a $15 million program with grants up to $250,000 for impacted applicants. Licensed operators still need Albany to pass a fix.

So the operators are fighting back.

The lawsuit argues that these dispensaries followed every rule they were given. They cleared background checks. They signed leases. They passed inspection. They opened their doors to the public. They were told by the state that their locations were compliant. The idea that they should now have to move or close isn’t just unfair. It is legally and financially suicidal.

According to the filing, regulators should be barred from punishing businesses for following the agency’s own written guidance. The suit asks for a declaration that the current locations are valid under the law and that no enforcement action can be taken.

OCM has refused to comment on the suit directly. But they are not denying the facts. They admit the agency misread the law. They admit the guidance was flawed. They admit businesses were approved based on that guidance. They just don’t want to be held accountable for it.

Instead, the state is stalling for time. Dispensaries affected by the mismeasurement are being allowed to continue operating with expired licenses, but only if they applied for renewal. There is no guarantee those renewals will be approved. Lawmakers do not reconvene until January 2026. That’s half a year of regulatory purgatory in an industry where six weeks of uncertainty can kill a brand.

Sen. Liz Krueger said officials knew about the problem months earlier and should have asked for a fix before adjournment. She plans to push legislation in January.

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Assemblyman Ed Ra said, “It’s just been problem after problem… the fact they couldn’t do that properly.”

This latest scandal follows a laundry list of disasters, delayed lotteries, overrun timelines, and a gray market that is openly bleeding the legal system dry. But this one cuts deeper. Because this time the state admits it messed up, and still expects the smallest operators in the system to carry the consequences.

At the center of it all are dispensary owners like Jillian Dragutsky, co-owner of Yerba Buena Cannabis Co. in NYC. “How do you grow your business not knowing where you’re going to be a few months from now?” she told reporters. She is not alone. Behind every license are teams of real people, employees, vendors, growers, and builders. All left hanging because someone in Albany could not measure a buffer zone.

The lawsuit does not just defend property rights. It defends the credibility of the entire equity program. Many of the affected licensees are justice-involved applicants, people who were criminalized under prohibition and promised a real shot at legal ownership under the new law. Instead, they are now being told to relocate or die. That is not equity. That is a bait and switch.

And let’s be clear. The fifteen-million-dollar “relocation fund” is a joke. Two hundred fifty thousand dollars does not go far when you are locked into a ten-year commercial lease in SoHo. It does not cover contractor estimates, staff retention, lost revenue, or the legal hell of breaking a lease early in New York real estate court. That money is not salvation. It is hush money, disguised as help.

The bigger question is why this happened in the first place. A lawyer alerted OCM to the measurement flaw well before the public notice, and industry sources say staff flagged problems internally. That is not transparency. That is a systemic failure.

New York has spent three years stumbling toward a legal cannabis system. This lawsuit could be the moment that finally forces accountability. If the judge rules in favor of the dispensaries, the state will be boxed in. They will have to recognize that guidance is not optional. Those rules apply in both directions. That licensees are not sacrificial pawns in some bureaucratic game of PR chess.

If the court sides with the state, New York’s entire equity program becomes radioactive. No one will trust the system. No one will invest. No one will believe the rules matter if the regulators can break them without consequence.

This is not about keeping weed away from schools. That is a straw man. Every one of these dispensaries was approved under state-issued guidance. Everyone cleared the review. The shops exist because OCM said yes. And now the same agency is trying to walk away from its own approvals.

If lawmakers want to fix this, they need to act now. Not in 2026. Not after another round of lobbying. Not after more businesses implode. Introduce a bill to grandfather existing locations. Guarantee license renewals. Make the guidance retroactively binding. And fire anyone responsible for this mess before another dispensary gets burned.

The people who went legit followed the rules. If that still gets you punished in New York, the entire concept of regulation is a scam.

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