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A group of licensed cannabis dispensaries in New York has filed a lawsuit against state regulators after officials admitted they made a mistake when enforcing school zone rules.

The legal challenge, filed Friday in Albany's State Supreme Court, asks a judge to declare the businesses compliant and block the state from penalizing them.

The dispute stems from how the state's Office of Cannabis Management interpreted a law that requires dispensaries to be at least 500 feet from schools, AP News said.

For nearly three years, regulators measured the distance from a school's entrance to the shop's entrance.

Recently, officials admitted the law actually requires measurement from the school's property line, not its front door.

The correction suddenly put more than 150 dispensaries at risk. About 60 licensed shops already operating, plus another 40 that hold licenses but have not opened, were told they may be too close to schools under the new standard.

Nearly 50 additional applicants awaiting approval are also affected.

"This lawsuit seeks to prevent the state from rewriting the rules midstream, stripping licensees of their rights and investments," the plaintiffs said in their filing.

Cannabis Office Admits Mistake, Leaves Shops in Limbo Until 2026

Many dispensary owners have invested their savings into leases, construction, and hiring. Now, they say they face the possibility of being forced to move or shut down altogether.

The state has offered up to $250,000 in relocation funds, but business owners argue that it does not cover the millions already spent.

Felicia Reid, the interim executive director of the cannabis office, acknowledged the error and apologized to those impacted.

However, she stressed that a permanent fix may only come from lawmakers. The legislature is not scheduled to meet again until 2026, leaving shops in limbo.

According to NY Times, Governor Kathy Hochul called the situation "a major screw-up" and said her office would work with lawmakers to prevent businesses from being unfairly penalized.

Advocates say the mistake undermines New York's promise of equity in the cannabis industry. According to the lawsuit, nearly 90% of the affected dispensaries are owned by women, veterans, people of color, or individuals impacted by past marijuana convictions.

Matthew Bernardo, president of Housing Works, one of the first dispensaries to open after legalization, warned that the correction could crush the legal market. "We want more clarity, and that's why we brought this lawsuit," he said.

Despite the turmoil, New York's cannabis industry is still projected to reach $1 billion in sales this year.