In a significant decision impacting New York’s adult-use cannabis licensing framework, the Albany County Supreme Court ruled on April 14, 2025, in DNP-Z, Inc. v. New York State Cannabis Control Board et al. (Index No. 908870-24) that the New York State Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) acted improperly when denying a dispensary license based on guidance not properly promulgated as a rule under the New York State Administrative Procedure Act (SAPA).
Background
DNP-Z, Inc. applied for an adult-use cannabis retail dispensary license in November 2023. The company’s owners, David and Marcia Nicponski, also owned DNP-Y, Inc., which had previously been awarded a retail license. Citing its May 2024 “Supplemental Policy Guidance,” the CCB and OCM denied DNP-Z’s application, asserting that the policy limited each “entity and majority owner” to only one retail dispensary license during the application window.
DNP-Z challenged the denial under Article 78 of the CPLR, arguing the one-license limitation constituted a “rule” that was never adopted in compliance with the procedural requirements of the State Administrative Procedure Act (SAPA).
The Court’s Ruling
Justice Gerald W. Connolly found in favor of DNP-Z and held that:
- The “one license per entity/majority owner” restriction was a rule, not merely interpretive guidance.
- The CCB and OCM failed to follow SAPA’s mandatory rulemaking procedures, including public notice and comment, before adopting this restriction.
- The rule was applied rigidly to deny DNP-Z’s application without consideration of individualized circumstances, which exceeded the agencies’ lawful discretion.
As a result, the denial of DNP-Z’s license was annulled and remitted back to the agencies for reconsideration in accordance with a properly promulgated rule or the applicant’s specific facts.
This decision aligns with longstanding precedent that agency actions setting fixed, general principles which dictate outcomes must comply with SAPA (see Cubas v. Martinez, 8 N.Y.3d 611 [2007]; Schwartfigure v. Hartnett, 83 N.Y.2d 296 [1994]).
Key Takeaways for Cannabis Licensees and Applicants
- OCM and CCB guidance documents that impose binding limitations (such as ownership or licensing caps) must comply with SAPA’s rulemaking requirements.
- The decision does not prevent the agencies from ultimately limiting ownership or licenses, but any such restrictions must be properly adopted through formal regulations.
- Applicants previously denied on the same basis may have grounds to challenge denials or seek reconsideration.
- Entities with shared ownership across multiple applicants should monitor future regulatory developments and consider consulting counsel to reassess eligibility strategies.
The ruling serves as a strong reminder that agencies must not sidestep required administrative processes, especially when enacting policies that affect fundamental licensing rights.
What Comes Next?
The case has been remitted to the agencies for further review of DNP-Z’s application. Whether the CCB and OCM will appeal or commence proper rulemaking to address ownership caps remains uncertain. Regardless, this decision represents a critical check on regulatory overreach and underscores the necessity for all agencies to strictly comply with SAPA when setting policy affecting license eligibility.
