Clarity in New York’s Cannabis Rules Will Spark a Leasing Boom

Recent changes to the New York State Office of Cannabis Management’s (OCM) proximity rules have quietly reshaped the cannabis retail landscape in NYC, unlocking a wave of new deal activity in 2025. Previous guidance stated that dispensaries were required to maintain a minimum distance of 200 feet from houses of worship and 500 feet from schools, which only applied if the institution was located on the same street and occupied a building used exclusively for religious or educational purposes.

More recently, the OCM’s review deemed those rules no longer apply. Current guidance states that a school or house of worship must be 500 feet or 200 feet, respectively, from a dispensary (with the distance measured from the dispensary to the institution’s property line). While devastating to many license holders, the new guidance represents clarity moving forward and will hopefully expand the pool of viable retail locations, offering a lifeline to an industry long constrained by real estate scarcity.

The retail sector’s momentum is reverberating across the vertically integrated cannabis ecosystem and impacting other asset classes as well. Cannabis operators are quietly acquiring industrial and other assets to support cultivation, manufacturing and distribution — license types that require flex or industrial space, given the seasonal challenges of outdoor farming in the Northeast. While dispensaries are the public face of cannabis, the backbone of the industry’s supply chain lies in these behind-the-scenes operations.

In some suburban markets, vacant single-story office buildings are being repurposed for cultivation and manufacturing. Even warehouses in less desirable industrial zones — far from major highways and unsuitable for e-commerce — are finding new life as grow facilities, thanks to their remote appeal. It is worth noting that the zoning must be compliant, and properties will typically require significant power service for this use.

Cannabis occupancy has other potential hurdles in addition to zoning. Most transactions are leases, requiring negotiation of standard terms — price, duration, escalations — as well as cannabis-specific provisions like “holding rent” during license approval, termination clauses if licensure fails, and substantial rent concessions for costly retrofits (which can exceed $400 per square foot in the case of some cultivation facilities).

These challenges, combined with limited inventory that meets all of the required criteria, have led to a very real “green tax” — a rent premium landlords charge to accommodate cannabis tenants. The data from recent cannabis transactions backs it up: New Jersey development sales have reached $120,000 per acre in markets that typically average half that, industrial leases closing at $20 per square feet in submarkets where rates typically hover in the low to mid-teens, and NYC retail rents attaining 10 percent to 20 percent premiums above market.

The use is still new, and, understandably, many landlords remain hesitant. Financing impediments, implications on neighboring tenants, and shareholder concerns continue to slow adoption. Yet the industry’s growth is undeniable. Combined cannabis sales in New York and New Jersey reached approximately $2 billion in 2024, with some projections estimating $10 billion combined in the coming years. The recent crackdown on illicit dispensaries in New York has further cleared the path for licensed operators, reducing competition and encouraging market entry.

After years of stalled progress due to lawsuits, injunctions and regulatory confusion, the tide is turning. With a more favorable regulatory climate, increased enforcement against illegal operators, and rising demand for compliant space, the region’s cannabis market is finally gaining traction. Landlords who are willing to navigate the complexities and embrace the opportunity stand to benefit from elevated rents and further potential regulatory easing at the federal level.

Daniel Tropp is the founder and president of AEBOV Industrial Real Estate Brokerage.

CORRECTION: This op-ed was updated at the top to better explain recent regulatory changes.