The Legal Highs industry says retailers have lodged more than 100 applications to continue to sell synthetic cannabis products.
A four-week grace period for retailers is over, following a law passed last month banning some products unless they have been approved.
No products are now allowed to be sold unless they have been granted an interim licence.
The new law set up a licensing regime for legal highs such as party pills and synthetic cannabis.
As soon as the law was passed, service stations and dairies had to clear their shelves and specialist shops had 28 days to get a licence.
The Star Trust, which represents most of the country's legal high companies, says the application process will restrict the sale of synthetic cannabinoids and party pills to responsible, authorised retailers.
Spokesperson Grant Hall says sales should be restricted to R18 adult shops, hemp stores, and tobacconists.
He says the number of retailers has dropped from about 3000 to fewer than 200.
Owner of the Hemp Store Chris Fowlie says the Ministry of Health is telling approved retailers, such as R18 adult shops and hemp stores, they will be denied a permit to sell legal highs if their shop also sells food and drink.
He says this is ridiculous, considering adult stores sell edible underwear, and hemp is also sold in edible forms.
Mr Fowlie says the ministry has told him it will conduct visual inspections of retailers following the application process.
He says it should just provide the shops with interim permits until then.
Associate Health Minister Todd McClay says the law change has resulted in a dramatic reduction in the number of retailers selling legal highs.
A company selling them without an interim licence faces a fine of up to $40,000 and up to three months in jail for an individual.
Any company importing or manufacturing could be fined up to $500,000 and individuals face up to two years in jail.