Court Decision a Potential Game-Changer for NYS Cannabis Industry

In a significant legal development, the New York State Supreme Court has ruled that the Cannabis Control Board (CCB) and the Office of Cannabis Management (OCM) improperly denied a dispensary license to DNP-Z, Inc., based on a policy not properly promulgated under the State Administrative Procedure Act (SAPA).

Background of the Case

DNP-Z, Inc., owned by individuals who also control another licensed cannabis entity, DNP-Y, Inc., applied for a retail dispensary license in November 2023. The application was denied in June 2024, citing a policy that prohibited the issuance of more than one license per majority owner. This policy, adopted in May 2024, was not subjected to the formal rulemaking process required by SAPA, which includes public notice, comment periods, and impact analyses

Court's Findings

The heart of the case involved a rule that limited each majority owner to a single cannabis dispensary license. DNP-Z, Inc. was denied a license under this “one-license-per-majority-owner” policy. The problem? That policy wasn’t officially enacted through New York’s required rulemaking process, which is governed by SAPA.

Under SAPA, state agencies must publish proposed rules, allow for public comment, and follow other procedural steps before adopting new regulations. In this instance, the state relied on internal guidance documents, not properly promulgated rules, to deny DNP-Z’s application.

The court ruled this was improper. Agencies, New York State Supreme Court Justice Gerald W. Connolly emphasized, cannot enforce substantial restrictions on license eligibility without going through the formal rulemaking process. In other words: if it walks, talks, and acts like a rule, it must be treated like one.

The recent ruling has put the brakes on how cannabis licenses are denied in the state — sending a strong message to regulators that shortcuts won’t cut it when it comes to rulemaking. In DNP-Z, Inc. v. New York State Cannabis Control Board et al. (Index No. 908870-24), the court found that the CCB and OCM improperly denied a retail dispensary license based on internal guidance that was never formally adopted as a rule, that CCB's policy constituted a "rule" under SAPA, and that the Board failed to comply with the necessary procedural requirements before enforcing it. As a result, the denial of DNP-Z's license application was annulled, and the matter was remitted for a new determination based on valid procedures.

Implications for the Cannabis Industry

For applicants and municipalities alike, this decision could reshape how cannabis licensing works in New York — and underscores the importance of regulatory transparency and adherence to established procedures in this fast-growing industry.

For cannabis entrepreneurs, this decision is a game-changer. It clarifies that significant eligibility criteria can’t be imposed in a vacuum or enforced through unpublished policies. Regulators must play by the rules — and follow SAPA — if they want their policies to hold up in court.

For municipalities navigating cannabis-related zoning and land use decisions, the ruling is also significant. Local governments must coordinate with state licensing decisions, and clarity around what constitutes a valid, enforceable rule can help avoid unnecessary delays or denials for applicants working through local approvals.

How Legal Counsel Can Assist

This is not just a procedural issue — it’s a broader question of fairness and transparency. In a complex regulatory landscape like New York’s emerging cannabis market, predictability and due process matter. Businesses are investing time and money into compliance and deserve to know the standards they're being judged against.

This ruling serves as a cautionary tale for state agencies: attempting to enforce policy through informal guidance, without public input or official procedures, won’t withstand judicial scrutiny.

Navigating New York's cannabis regulatory framework is complex and evolving. Experienced legal counsel can provide guidance on compliance, assist with license applications, and represent clients in legal challenges.

If you have questions about cannabis law, are navigating the cannabis licensing process, or are facing challenges with regulatory compliance, reach out to our team to learn how we can help. For more information about cannabis law in New York State, please contact Jacob H. Zoghlin at 585-258-2834 or jzoghlin@underbergkessler.com at Underberg & Kessler LLP.