New York’s Cannabis Retail Market Has Entered Its Real Estate Phase

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By Greg Tannor, executive managing director, and Jessica Gerstein, director, Lee & Associates NYC

For much of the past three years, the rollout of legal cannabis in the state of New York has been defined by headlines about licensing delays, regulatory hurdles and political infighting. 

That phase is largely over. Hundreds of adult-use dispensaries are now open across the state, and the market is entering a far more consequential — and less discussed — stage. Cannabis retail in New York is no longer constrained primarily by licenses. It is constrained by real estate.

Greg Tannor, Lee & Associates NYC

On the ground, the industry is moving rapidly out of its novelty phase and into a performance-driven phase where locational quality, operational discipline and realistic deal structures are separating winners from losers. This shift has major implications, not only for operators, but also for landlords, lenders and brokers who are navigating the sector for the first time.

Compliance, Not Curiosity, Is The New Bottleneck

Demand from licensed dispensary operators remains strong, particularly in New York City. But truly viable retail locations that meet state and local requirements while also making economic sense remain scarce.

Jessica Gerstein, Lee & Associates NYC

In Manhattan, the challenge is especially acute. Buffer zones restricting proximity to schools, houses of worship and other dispensaries sharply limit available inventory. Physical constraints — narrow storefronts, fragmented ownership, legacy retail layouts — further complicate site selection. Even when a space appears viable on paper, compliance often hinges on granular details, such as whether a school occupies an entire building or a single floor in a mixed-use property.

As a result, site selection for cannabis dispensaries has become a needle-in-a-haystack exercise. Operators are no longer competing simply to open; they are competing to open in places that can actually sustain long-term revenue.

The 80/20 Reality Is Emerging

As the market matures, a clear performance imbalance is becoming evident. A relatively small percentage of dispensaries are generating a disproportionate share of total revenue, while many others struggle to gain traction.

This disparity is not driven by product differentiation; most legal dispensaries carry similar inventory, but rather by fundamentals familiar to any retail landlord: foot traffic, visibility, access, density, management execution. Stores that opened in suboptimal locations, or under lease terms that assumed cannabis was a guaranteed win, are feeling the pressure.

In some neighborhoods, cannibalization is already underway. In others, entire trade areas remain underserved. This uneven distribution is forcing operators to reassess expansion strategies and pushing regulators to consider variance applications and potential buffer-zone adjustments.

Gray-Market Pressure Has Not Disappeared

Despite stepped-up enforcement, illegal and gray-market operators continue to impact legal dispensaries, particularly in regions where enforcement of those laws has been inconsistent.  In upstate markets, competition from untaxed sellers, including operations near sovereign tribal lands, has created price pressure that legal stores cannot match.

The result is a two-tier environment: well-positioned legal dispensaries with loyal customer bases and strong sales versus marginal locations struggling to compete on price, convenience or visibility.

Landlords Are More Open — But Often Misaligned

Compared to 2021 and 2022, landlords are far more receptive to cannabis tenants. Many now recognize dispensaries as dry-use, white-box retail with extensive security requirements and minimal operational risk relative to restaurants or nightlife uses.

However, openness has not always translated into alignment.

A common friction point arises when landlords significantly increase rent expectations late in negotiations, once cannabis use is disclosed. While some premium may be justified due to scarcity, excessive rent escalation often undermines long-term viability. Cannabis is not a shortcut to guaranteed returns, and leases structured on that assumption are increasingly proving unsustainable.

Federal illegality, refinancing concerns and resale considerations also continue to influence landlord decision-making, even as attitudes soften. Because cannabis remains illegal at the federal level, many large banks and federally regulated lenders will not finance properties that include cannabis tenants or require additional approvals before doing so.

As a result, landlords considering a dispensary tenant often need to evaluate how that lease could affect future refinancing. If a building owner seeks to refinance a property with a cannabis user in place, the pool of potential lenders may be smaller, and loan terms can be more restrictive. In some cases, lenders must explicitly approve the tenant use under existing mortgage covenants before a lease can be finalized. For owners of larger mixed-use or office properties where retail represents only a small portion of total income, that additional scrutiny can still create complications during refinancing or a future sale.

Financing Still Shapes the Playing Field

Banking and financing constraints remain a defining feature of cannabis real estate. Limited access to traditional lending increases borrowing costs for operators and heightens sensitivity to rent levels, free-rent periods and escalation schedules.

Because many national banks remain on the sidelines, cannabis operators and the landlords leasing to them often rely on a smaller group of regional banks, credit unions or private lenders willing to underwrite the sector. That dynamic can push borrowing costs significantly higher than typical commercial real estate loans and adds additional layers of underwriting tied to federal regulatory risk.

Until broader banking reform — such as the proposed SAFE Banking legislation — expands access to traditional financial institutions, deals will continue to require careful structuring, longer timelines and greater discipline from both sides of the table. For both landlords and tenants, financing considerations remain one of the most significant factors shaping how cannabis real estate transactions are negotiated and executed.

Cannabis Is Becoming a Mainstream Retail Category

Despite these challenges, the broader trajectory is clear. Cannabis stores are steadily being absorbed into the mainstream retail landscape. The learning curve remains steep, particularly for landlords and brokers new to the sector, but the fundamentals are increasingly familiar.

Successful dispensaries resemble successful retailers in any other category. They are well located, well capitalized, well managed and realistically underwritten. Those elements, not the license itself, now determine success.

An Inflection Point for Real Estate Decision-Makers

New York’s cannabis retail sector is at an inflection point. The early scramble to open has given way to a more disciplined phase focused on performance, sustainability and long-term real estate strategy.

For landlords, this is an opportunity — but only for those willing to approach the sector with clear-eyed expectations. For operators, site selection and deal terms have never mattered more. And for the commercial brokerage community, expertise and regulatory fluency are no longer optional.

Cannabis may be a new category, but the rules of retail real estate still apply. The market is now proving that lesson in real time.