The Office of Cannabis Management (OCM) said it will likely have to limit possible approvals for applicants who have already been waiting about a year-and-a-half for review.
“Given consumer demand and staying very much on top of the illicit market, we can support, likely on the retail side, between 1,600 to 2,000 open retail dispensaries,” said OCM Acting Executive Director Felicia Reid during the May 20 meeting of the Cannabis Control Board (CCB).
During the meeting, the CCB approved 52 new licenses. They included 18 retailers, 17 processors, 12 microbusinesses, four distributors and one cultivator. Those approvals brought the state’s total to 1,726 adult-use licenses.
This threshold for retail was invoked while discussing the total number of active licenses. At the time of the meeting, there were 377 retail licenses, 274 Conditional Adult Use Retail Dispensary final licenses, and 195 provisional retail licenses.
OCM limited its first round of adult-use retail licenses to candidates with prior cannabis convictions in the state. The state then began accepting applications from the general public in two phases. The first deadline for retail and microbusiness licenses was Nov. 3, 2023. A second cohort of retail and microbusiness, as well as all other license types, were accepted until Dec. 4, 2023.
The November group included 1,603 applications, according to OCM data. Of those, 619 were granted final licenses, 203 have provisional licenses, 441 are still under review, and 340 have been denied.
The December group includes 4,666 applications, of which 2,706 are for retail. Applicants were required to secure property at the time, meaning they have been paying mortgages or rent since then.
Meanwhile, sales per store have been dropping each month, as new store openings outpace the continued growth in total sales.
Retail sales in April hit an average of $327,000 per store, down from $563,000 last November. During that time, the total number of stores jumped from 254 to 357. With margins already shrinking, OCM is looking to control the speed of growth before market saturation leads to store closures.
Court order further complicates approval delay
Making the situation more complicated, the state learned last month that it would have to review even more retail applicants when a New York Supreme Court judge invalidated 70 previous license denials.
When the OCM began reviewing applications from the November cohort, it issued a resolution on June 11, 2024, allowing for only one license per owner or majority owner. Applications with duplicate owners were automatically recommended for denial.
One of those licenses belonged to David and Maria Nicponski, who sued the state in the Albany Supreme Court after their second application was denied, along with 69 other applicants.
Last month, the Judge Gerald Connolly ruled against the CCB, in DNP-Z Inc. v. New York State Cannabis Control Board et. al., on procedural grounds, because the state board relied upon a rule that was not properly implemented under the State Administration Procedure Act (SAPA).
“Respondents did not comply with any of SAPA’s procedural requirements before adopting this rule and applying it to deny DNP-Z’s license application. Accordingly, that decision must be annulled,” wrote Connolly in his 12-page order.
SAPA rules require a formal process whereby a proposed rule by the state agency must be vetted by the public for at least 60 days before it can be approved as a permanent regulation.
OCM prepared to address these denied applicants during its May meeting.
“Due to recent litigation on the one-license policy, the board may have to revisit applications that were closed for this reason and continue processing them,” said OCM Chief Operating Officer Patrick McKeage.
Aside from new licenses, the ruling also makes it possible for existing operators to buy out the competition, to some extent.
“It could accelerate M&A activity,” said Francis Gorman, attorney at Harris Beach Murtha PLLC.
He noted that this acceleration could be somewhat limited though, because of the state’s cross-tier rule, which forbids operators with any stake in the supply side, inside or outside New York, from taking part in the retail side. For example, a cultivator in Connecticut is not allowed to be a retailer in New York. The state also limits retail ownership to three dispensary licenses.
