New York built its adult-use market on a promise that people hurt most by cannabis prohibition would own and run the first legal stores. In August 2026, the Cannabis Control Board used one Harlem dispensary's operating agreement to spell out what that promise requires on paper. The case of Gotham Buds LLC is the first time the board has explained in detail what "sole control" means for an equity licensee, and its effects reach well beyond one shop.
How the case reached the board
Gotham Buds holds a Conditional Adult-Use Retail Dispensary (CAURD) license, the program New York reserved for people with past cannabis convictions and their families. CBS New York described it as Harlem's first licensed dispensary.
On February 3, 2026, a lawyer for the company's justice-involved majority owner, Jeffrey Lopez, asked the board for a declaratory ruling confirming that the business's 2023 operating agreement complied with state rules. OCM's Trade Practices Bureau reviewed the agreement, sent a deficiency letter on March 23, and the parties did not agree on fixes. On August 6, the board adopted Resolution 2026-58, finding that the agreement as written violates the sole control and proportionality rules.
What the board found in the operating agreement
The ruling's findings are specific:
- Ownership vs. economics. Lopez held 51% of the voting interest but only 14% of the economic interest. The four other members together held 49% of ownership but were entitled to 86% of economic returns. Two of them, who serve as CEO and CFO, each held 19.5% of the vote and 32% of the economics.
- Minority consent over major decisions. At least ten categories of decisions, including the annual budget, borrowing, distributions and mergers, required consent from the minority members.
- Management lock-in. Three co-managers ran the company, and Lopez could not remove the other two without their agreement.
- Money out first. The first $99,577 of distributable cash went to returning the minority members' capital before Lopez received anything.
- One-way transfer limits. Lopez needed the minority members' consent to transfer his stake. They faced no matching restriction.
The rules behind "sole control"
The relevant rules are in Title 9 of New York's codes. Under 9 NYCRR 116.4, as the ruling lays out, the qualifying owner of a CAURD license must keep ownership and control. The definition of sole control requires real, substantial and continuing ownership of at least 51%, the right to sign material contracts, and the power to appoint or remove most officers, with no one else controlling a majority of votes. A separate proportionality rule requires the owner's share of profits, losses and capital to match their ownership share for the full four-year conditional period.
"Sole Control is not just a technical requirement. It is how equity is delivered," OCM Executive Director John Kagia said in the agency's August 7 announcement.
Why this reaches beyond one Harlem store
The board said OCM has reviewed more than 40 agreements with similar problems. Its ruling describes why: equity operators largely cannot get bank loans or federal small-business lending because cannabis remains federally illegal, so many turned to private money carrying interest rates commonly reported at 20% to 40%, often paired with demands for equity or control. The board said about 351 CAURD licensees were the first to be awarded in a market that, as of June 2026, had more than 683 licensed adult-use dispensaries and more than $3.6 billion in cumulative legal sales.
Board Chair Jessica Garcia said that when the control standard is not met, "it is our role to step in, provide clarity, and protect the integrity of the program for all participants."
Update: October 2026
Gotham Buds' two minority co-founders contested the ruling at the board's September 3 meeting. Their attorney argued that the state received the operating agreement with the 2022 license application and approved the license anyway, that the owners relied on that approval, and that they pay more than $80,000 a month to the state Dormitory Authority (DASNY), which built out many early CAURD stores. He argued that sole control should mean the qualifying owner can veto decisions, not that minority partners have no say. He told the board his clients had offered to give Lopez 51% of both votes and economics for the rest of the conditional period, plus veto rights, but that talks broke down. He also signaled a court challenge if the license were pulled.
Board members asked him to submit that proposed amended agreement and to say which findings his clients would accept. The board did not vote that day. OCM's meeting summary said the board invited further submissions. Public comment split: one attorney urged the board to keep enforcing the rule against investor-controlled deals, while another warned that the ruling's reading could leave equity licenses effectively closed to rational investors.
At its October 1 meeting in Rochester, the board affirmed its August 6 ruling that the Gotham Buds operating agreement violates the sole-control and proportionality requirements, imposed a $35,000 civil penalty, and gave the licensee 90 days to file a compliant operating agreement, according to OCM's meeting release. The board's final determination can be challenged only in an Article 78 proceeding in state court. The next board meeting is November 5 in Albany.
What equity owners should take from it
The ruling lists what a compliant agreement must include. Owners and investors reviewing their own deals can use it as a checklist (it is not legal advice):
- The qualifying owner holds at least 51% of both voting and economic interests, continuously.
- No minority veto or "requisite consent" over material business decisions.
- The qualifying owner can appoint and remove managers and officers.
- The qualifying owner has final say over the budget and the compliance and regulatory-reporting function.
- No capital-return waterfall that pushes the owner's share below proportional.
- No one-sided limits on the qualifying owner's ability to transfer their interest.
- Sworn statements that no side letters undercut the structure.
For context on the equity program, see how New York's equity program is beating its targets and New York's $6 million bet on equity operators. For the other side of New York's equity promise, the tax money sent back to communities, read how the state tripled its community reinvestment fund.
Cannabis products are for adults 21+.