New Mexico’s Big Day

Photo: Adobe Stock © SeanPavonePhoto

Lawmakers in four states passed adult-use cannabis measures in 2021, a year of major reform efforts by elected officials who’ve traditionally remained on the sidelines for full legalization.

Vermont became the first state to legalize adult-use cannabis through state legislation in January 2018—but still doesn’t have a commercial sales program—and the Illinois General Assembly followed suit in June 2019.

Legislative action took a pause in 2020, before New York, New Mexico, Virginia and Connecticut all passed adult-use legalization bills in 2021 in a domino effect among state lawmakers effectuating policy changes in their respective statehouses rather than waiting for voters to force the issue via ballot measures.

But without a one-size-fits-all blueprint to launch a commercial sales program, state-by-state timelines to build out a regulatory framework have varied.

Among the four states that passed adult-use measures last year, only New Mexico has got its retail program up and running: The Land of Enchantment became the 13th state to officially launch a licensed adult-use retail program on April 1, 2022, less than a year after Gov. Michelle Lujan Grisham signed the Cannabis Regulation Act (CRA).

That launch included $1.96 million in adult-use sales in the first 24 hours, according to the state’s Cannabis Control Division (CCD), which was created to administer a comprehensive licensing, taxing and regulatory structure.

By month’s end, New Mexico’s licensed retailers recorded nearly $39.5 million in sales in April, including more than $22.1 million in adult-use cannabis and $17.3 million in medical cannabis.

“I think what we’re most proud of is that the system stayed up and running,” CCD Director Kristen Thomson says. “We did not encounter shortages—not in the medical program, not in the recreational program—and all systems were a go even though the public adoption of the new cannabis market was unexpected.”

While New Mexico’s adult possession and home-grow provisions went into effect June 29, 2021, Thomson wasn’t hired as CCD director until November 2021, after spending more than two years as the director of government affairs with The Green Solution, a Colorado-based vertically integrated operator that was acquired by Columbia Care in September 2020.

CCD officials began adopting rules Aug. 24, such as a 10,000-plant count limit for cultivators, more than two months before Thomson’s arrival. But CCD’s staff of seven (at launch date) had to adapt along the way, including drafting an emergency rule that went into effect Jan. 13 to increase the limit to 20,000 plants amidst concerns over a possible supply shortage leading up to the retail launch.

Those concerns did not materialize, says Thomson, who anticipates a quick market stabilization.

“The feedback that I’ve gotten so far is that people are very excited with the rollout, are happy that it was smooth, but also that the industry was embraced by the people of New Mexico,” she says. “Customers showed up to pay taxes on a product that there is no shortage of in New Mexico or really in any other states.”

Under CRA, the state levies a 12% excise tax on adult-use cannabis, with a portion of the revenue generated distributed back to the local communities where the cannabis is sold.

In the 12 months leading up to the launch, Ultra Health, a vertically integrated operator with 38 dispensaries serving both patients and adult customers in the state, doubled its retail footprint, increased its greenhouse capacity by more than 80%, and hired and trained 150 new employees, says company president and CEO Duke Rodriguez.

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Ultra Health’s biggest challenge along the way was the regulatory unknowns, he says.

“Rules were being promulgated throughout the year leading up to the launch, so it made it difficult to commit resources to protocols while knowing that the final regulations might look substantially different than earlier proposals,” Rodriguez says. “The best way to handle the high level of uncertainty was to accept the reality that whatever seemed true today would likely change tomorrow, so any commitments had to be made with an eye toward flexibility first.”

Vertical integration remains the best path for success under New Mexico’s framework, he says.

With wholesale prices roughly doubling in six months—to as high as $4,000 per pound in early May, according to Rodriguez—the regulated market is going to be hard-pressed to effectively compete with the illicit market, Rodriguez says.

According to a May 6 report from data firm Cannabis Benchmarks, “Contacts in New Mexico say they are being offered indoor flower at $3,200 per pound wholesale, while some stores have delayed opening due to the high price of indoor product.”

Rodriguez says, “Being able to have more control over the supply side of the equation is a huge advantage. Being a retailer-only kind of operator that is wholly dependent on an unknown or not yet developed market is a recipe for likely failure.”

While Albuquerque, the state’s largest city of more than 560,000 people, is located in central New Mexico, retailers like Ultra Health made calculated moves in border communities near Texas, the nation’s second most populous state where only medical cannabis with a 1% THC cap is legally accessible.

“Our projection model was built in anticipation that over 40 percent of New Mexico’s demand would be from out-of-state purchasers,” Rodriguez says. “We are seeing that reality play out particularly in southern and southeastern New Mexico.”

While Albuquerque retailers recorded $8 million in adult-use cannabis sales in April, or roughly $14 per capita, retailers in Las Cruces, a city of approximately 103,000 people located about 35 miles from El Paso, Texas, recorded $2.1 million in adult-use sales, or $20 per capita.

With new market entrants arriving just about every day under an unlimited license structure, Rodriguez predicts New Mexico’s adult-use retail industry will take about a year to settle.

Albuquerque officials, for instance, have already approved 90 locations for cannabis retailers, or roughly 16.1 dispensaries per 100,000 residents, which rivals some of the most saturated state retail markets in the nation. Oregon, which has roughly 18.3 dispensaries per 100,000 residents, implemented a licensing moratorium in April in response to a “crowded marketplace.”

As of mid-May, CCD officials had approved 269 licenses for adult-use retailers statewide (12.8 per 100,000 residents), including for existing operators in the medical market and new aspiring entrepreneurs.

The department, which onboarded eight new staff members April 4, is now focused on rolling out New Mexico’s social equity program by this fall, Thomson says.

“We’re looking forward to our role in fixing the negative effects of the war on drugs, making communities whole, people whole who were impacted during that period of time,” she says. “We have a really good foundation in New Mexico already because the licenses aren’t limited.”