Floodgates Are Open For Dispensary Applications, But Headaches Persist For NYC Cannabis Retail

A party was kicking off on a Lower East Side street corner Thursday evening. Passersby stopped to take photos as others lit up joints and nodded along to legendary New York City DJ Funkmaster Flex, who was spinning hip-hop classics as a line was already wrapped around the corner retail space at Orchard and Delancey streets.

Among the crowds, Coss Marte, CEO and founder of Con Bud, the licensed retail cannabis dispensary opening that day, couldn’t take more than two steps without people stopping him to congratulate him. 

“It's been a roller coaster ride,” Marte told Bisnow. “I feel like a whole weight lifted off my shoulders.”

But it has been an uphill battle for Marte, who was awarded a cannabis retail license in April, and all the other operators of legal recreational cannabis dispensaries in New York.

Con Bud is one of just 27 licensed dispensaries now open across the state, more than 2.5 years after recreational adult cannabis use was legalized.

New York state legalized recreational marijuana in March 2021, with Gov. Kathy Hochul setting a target for 20 open stores by the end of 2022 and 20 openings per month in 2023. But the first store opening took place on Dec. 29, 2022, and licensees have complained since that the state’s Office of Cannabis Management has been slow to approve proposed store locations.

Following an August injunction that halted New York’s cannabis retail industry in its tracks, the OCM has issued new guidance and opened a license application window to all companies that wish to apply. 

The new window for applications has sent deal-makers into overdrive, without as much clarity as tenants and landlords are asking for, Ripco Director of Cannabis Real Estate Colby Piper said.

“It's a frenzy right now to get compliant real estate in Manhattan, and ultimately it's putting a lot of strain on landlords and attorneys,” he said. “The market has heated up very, very, very quickly because of the rules.”

But many brokers, lawyers and experts in the industry, as well as aspiring retailers, said that the path ahead for the industry isn't as clear as it would seem.

“There's a lot of open questions around that I do not have the definitive answers to,” said Kristin Jordan, founder and CEO of specialized cannabis brokerage Park Jordan. 

The 27 licensees already open in New York have Conditional Adult-Use Retail Dispensaries licenses, which were awarded on a social justice basis to applicants who had been personally impacted by a prior cannabis conviction or who have a family member in that position.

In August, a judge ruled that the way the OCM had set up its licensing process was likely unconstitutional, leaving the remaining 436 individuals who had been granted licenses by the agency but had yet to open storefronts unable to move forward.

Marte, who was arrested multiple times on drug charges and started a fitness company focused on bodyweight workouts he developed while serving time in prison, escaped having to reapply. His gym, Con Body, is upstairs from his dispensary, which gave him an inside track on a location — the biggest tripping point for other potential operators.

He had spent more than $1M getting ready to open in the four months after he received a license for Con Bud and was waiting for final signoff from the OCM when the injunction hit, per his testimony to the Albany County Supreme Court, asking to be exempt from the injunction. 

Two months after the ruling, the OCM has opened two new application windows: one for individuals who want a provisional license and plan to search for real estate if they are awarded a license and one for individuals with real estate in hand who want to apply for an unconditional license.

Anyone can apply for either of these licenses, but the 436 businesses that already were granted CAURD licenses who still want to open are required to reapply, albeit with 50% of the application cost waived.

One of the most common questions that Jordan has fielded over the past few weeks is whether people can apply multiple times for multiple licenses or if they can submit multiple applications that include different pieces of real estate. Clear guidance on that question hasn't been made publicly available by the state, she said.

“It's just causing a lot more confusion than is really needed or desired,” Jordan said. “The industry is hard enough. To add all these extra layers of complications is a nightmare for people.”

An OCM spokesperson didn't respond to Bisnow's request for comment. 

Per the new requirements, applicants have to have submitted notice to the community board for the area where they hope to open a store at least 30 days prior to filing their application with the OCM. Community boards have been overwhelmed as they deal with an influx of applications, The City reported.

Another source of confusion is the changes to what applicants need to demonstrate in terms of real estate. OCM guidelines issued when the new application window was announced, which are being used by lawyers to guide their clients and were obtained by Bisnow, explicitly say that applicants should have proof of secured real estate, although questions remain as to whether nonbinding agreements are sufficient.

“I don't believe that a nonbinding LOI will suffice,” Jordan said. “The application has you upload either a lease or a deed or proof of an option to lease or to purchase. So it's not an LOI — an LOI is a nonbinding agreement.”

The chance that applicants are denied a license is giving landlords pause in signing leases with prospective licensees, brokers said. 

“The landlords, they want to know who's the most apt to get the license,” Piper said. “They don't want to waste time.”

Signing a lease, especially for tenants who haven’t necessarily operated in a retail capacity before and may not have references, can feel risky to landlords who don’t know if they’re going to get paid, Cole Schotz member attorney Robert DiPisa said. But signing a lease is the only way to get expedited approval from the OCM so that tenants can start operating as soon as possible.

“I have had landlords with a fully negotiated lease in their hands being reluctant to sign it. I've had to have follow-up calls with their attorneys to explain that by them executing that lease agreement, it's for both parties' benefit,” DiPisa said. “What that will do is shave more time off of the tenants' contingency to receive a license before the lease actually goes into effect.”

Some landlords are starting to be more open to cannabis tenants than they had been, Jessica Naissant, CEO of dispensary Luxe Oasis, told Bisnow. That is in part because the licensed stores that are already open have pulled in $83M in sales so far this year, per Crain’s New York Business, despite only a handful being open for more than a few months.

“A lot of landlords are really considering the fact that this is a good deal. Cannabis is going to be making money,” Naissant said. “We've been able to really negotiate a good deal on our behalf.”

Pricing hasn’t necessarily changed, Ripco’s Piper said: Leases are still going for between $30K and $50K a month. But for some licensees — many of whom don’t have a lot of startup capital — those costs are simply too high, DiPisa said.

“There's some circumstances where operators are giving up if they have alternatives and other options, because some landlords here with cannabis, they get green eyes,” he said. “Before you know it, it's just so woefully in the landlord's favor that it just doesn't make financial sense anymore, especially for a startup.”

Between the breakneck pace at which applicants are trying to move in order to get their licenses, landlord misgivings and a lack of clarity from the OCM, players in New York’s burgeoning cannabis industry can see the finish line, but they aren’t sure who will reach it.

“There's tremendous fatigue,” Jordan said. “There's deal fatigue, there's site selection fatigue, there's fundraising fatigue, there’s mental health issues. … I mean, at this point, across the board — supply chain, consultants, advisers, lawyers — everybody is overwhelmingly fatigued.”