As New York’s adult-use cannabis market continues its rapid expansion, the state’s medical marijuana operators are fighting a costly requirement they say could jeopardize the future of the medical program altogether.
Several of New York’s largest medical cannabis companies are urging state leaders to reconsider a $15 million conversion fee required for medical operators seeking entry into the adult-use market. Industry representatives argue that the fee, originally established when cannabis company valuations were significantly higher and before recreational sales dramatically reshaped consumer behavior, no longer reflects the realities of today’s marketplace.
At the center of the dispute is a growing divide between medical cannabis operators struggling to maintain profitability and smaller cannabis businesses that believe the fee was a critical part of New York’s original legalization framework.
A Fee Designed for a Different Market
When New York legalized adult-use cannabis in 2021, lawmakers sought to prioritize social equity entrepreneurs and small businesses rather than grant immediate market access to the state’s existing medical marijuana operators.
To balance that approach, medical cannabis companies were eventually offered a pathway into the recreational market through a conversion process that included a substantial licensing fee. Initially set at $20 million and later reduced to $15 million, the fee remains one of the highest cannabis market entry costs in the United States.
Medical cannabis operators argue that the economics behind the fee no longer make sense.
According to industry advocates, medical marijuana sales in New York have steadily declined as consumers migrate to the adult-use market. While recreational cannabis sales surpassed $1.7 billion in 2025, medical cannabis revenue has continued to shrink, leaving many operators struggling to maintain their businesses.
Industry representatives say the fee was created under assumptions that no longer exist and that forcing companies to pay the full amount could accelerate the collapse of the medical program.
Industry Leaders Sound the Alarm
Medical cannabis companies have become increasingly vocal as state budget negotiations continue.
Katie Neer, legal counsel for the New York Medical Cannabis Industry Association, warned that codifying the $15 million fee into state law could have devastating consequences for patient access and operator viability.
Industry advocates have proposed an alternative structure that would lower the fee to approximately $5 million while allowing operators to make payments over time. Supporters of the proposal argue that a more reasonable fee would encourage additional participation, generate meaningful revenue for the state, and preserve the medical cannabis infrastructure that patients rely on.
Operators contend that many medical cannabis businesses simply cannot absorb another major financial burden after years of declining patient enrollment and increased competition from recreational dispensaries.
Medical Cannabis Program Faces Mounting Challenges
The numbers illustrate the challenge facing New York’s medical cannabis sector.
Medical cannabis sales have fallen significantly over the past several years, while adult-use dispensaries continue to open across the state. Recent data shows that New York has hundreds of licensed adult-use retailers but only a few dozen operational medical dispensaries.
Several major cannabis companies have already scaled back operations, closed locations, or exited the New York market altogether. Others are reportedly engaged in ongoing discussions with regulators regarding outstanding conversion fee payments and future compliance obligations.
Some operators have even chosen to shut down portions of their New York operations rather than commit to the remaining fee structure.
Meanwhile, the medical industry continues to pursue legal challenges against the conversion fee, arguing that the original framework is unconstitutional and economically unsustainable under current market conditions.
Small Businesses Defend the Existing Framework
Not everyone agrees that medical operators deserve relief.
Many small cannabis businesses and social equity license holders argue that changing the rules now would undermine the promises made during New York’s legalization rollout.
The conversion fees were intended to help fund programs propping up social and economic equity applicants, strengthen the legal supply chain, and provide resources for entrepreneurs entering the regulated market. However, many of those promised funding programs have yet to materialize, leaving smaller operators frustrated by the possibility that larger cannabis companies could receive concessions after years of waiting for state support.
For these businesses, eliminating or significantly reducing the fee raises concerns about fairness and accountability.
Supporters of the current framework argue that altering the agreement after operators have already entered the market would send the wrong message and further destabilize an industry still working through regulatory growing pains.
What Comes Next for New York Cannabis?
The debate over the conversion fee highlights broader questions about the future of New York’s cannabis industry.
State regulators have acknowledged the decline of the medical marijuana program and indicated a commitment to improving patient access moving forward. However, specific solutions remain unclear.
At the same time, lawmakers must balance competing interests between preserving medical cannabis access, supporting social equity commitments, and maintaining a healthy adult-use marketplace.
Whether the state chooses to reduce the fee, maintain the current structure, or pursue a compromise could have lasting implications for both medical marijuana patients and cannabis businesses operating in New York.
As budget negotiations and legal challenges continue, the outcome may determine whether New York’s medical cannabis program can remain viable in an increasingly competitive recreational market.
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