New York’s Cannabis Control Board has imposed a $35,000 civil penalty on Gotham Buds LLC and ordered the Conditional Adult-Use Retail Dispensary licensee to submit a revised operating agreement within 90 days after reaffirming earlier findings that its governance structure violated applicable sole-control and proportionality requirements.
Resolution 2026-78, adopted October 1, also establishes escalating financial consequences for continued noncompliance and allows the Board to consider suspension if substantial compliance is not achieved within the resolution’s 180-day framework.
Quick Take
- Immediate civil penalty: $35,000.
- Revised operating agreement due within 90 days of the October 1 resolution.
- OCM may not extend that 90-day submission deadline.
- Missing the submission deadline triggers a penalty equal to 5% of Gotham Buds’ 2025 sales on record with OCM.
- A deficient cure can trigger another 2%, followed by 1% for each 30-day period of continuing noncompliance after a deficiency determination.
- The case is a Board enforcement and declaratory-ruling matter, not a court ruling.
What the Board Found
The October resolution incorporates the Board’s August 6 declaratory ruling. In that earlier action, the Board found that Gotham Buds’ operating agreement failed to satisfy the sole-control and proportionality requirements applicable to the CAURD licensee. The October resolution states that later submissions by minority shareholders did not establish material errors in those findings.
The Penalty and Cure Structure
The Board imposed a $35,000 civil penalty and directed Gotham Buds to submit a fully executed revised operating agreement within 90 days of the October 1 resolution. The resolution expressly states that OCM may not grant an extension of that submission deadline.
If Gotham Buds does not submit the revised agreement on time, the resolution imposes an additional civil penalty equal to 5% of 2025 sales on record with OCM. If the company submits on time but the Board later determines that the agreement still fails to establish substantial compliance, another penalty equal to 2% of 2025 sales applies. Continuing noncompliance after that deficiency determination can add 1% of 2025 sales for every 30-day period.
The resolution also provides that if substantial compliance is not achieved within 180 days from October 1, excluding days attributable to OCM or Board review, the Board will require interested parties to appear at a regularly scheduled meeting where it may consider suspension or other authorized action.
Why This Matters Beyond Gotham Buds
The Board itself says the underlying declaratory ruling provides guidance for other market participants concerning the requirement that qualifying justice-involved individuals retain primary decision-making authority over the operations, obligations and benefits associated with the CAURD license.
That does not make every governance provision identified in this case automatically unlawful in every other business. Ownership structures, voting rights, economic arrangements and management provisions are fact-specific. Operators should compare their documents with the controlling statutes, regulations and Board decisions and seek qualified advice where interpretation is required.
What CAURD Operators and Investors Should Review
- Who can direct day-to-day operations and strategic priorities.
- Who can appoint or remove managers or equivalent governing personnel.
- Whether voting or veto rights undermine the qualifying owner’s required control.
- Whether economic rights and distributions are consistent with applicable proportionality requirements.
- Whether side agreements, management arrangements or financing terms shift practical authority away from the qualifying owner.
Empire Bud Academy Analysis
The significance of Resolution 2026-78 is the enforcement structure. New York has moved from explaining its view of sole control in a declaratory ruling to attaching a fixed penalty, a non-extendable cure deadline, sales-based penalties and potential suspension to continued noncompliance. For CAURD businesses and their investors, governance documents should be treated as operating compliance instruments, not merely private contracts.
Empire Bud Academy provides cannabis industry news and educational information and does not provide legal advice. Regulations and guidance can change. Always verify current requirements with the New York State Office of Cannabis Management and other applicable authorities.
