Legalizing recreational cannabis is likely to be a hot topic in the Roundhouse this January, but allowing access to a long-illegal industry isn’t as simple as flipping a switch.
As many as four bills related to reforming New Mexico’s cannabis industry might be introduced during the upcoming legislative session, ranging from legalization with limited oversight to a dramatic expansion of the state’s existing medical program.
In the lead-up to the session, some industry leaders and lawmakers expressed support for a system that protects existing cardholders and gives marginalized communities a chance to participate, while creating a tax structure that keeps New Mexico competitive with neighboring Colorado and Arizona.
But even legalization proponents disagree over how much cannabis customers should be able to buy, how much growers should be able to grow, and how much money the state can collect.
Fortunately, New Mexico has a wealth of experience, both positive and negative, to draw upon if it looks at legalization. After local elections in November, 15 states have legalized cannabis for recreational use, including New Mexico’s neighbors to the north and west.
“We know from other states the mistakes that we shouldn’t be repeating,” said Rep. Javier Martinez, D-Albuquerque.
Martinez and Duke Rodriguez – president and CEO of Ultra Health, the state’s largest chain of cannabis producers – agreed a key to New Mexico’s program will be to ensure that the tax rate is sufficiently high to fund state programs, but not so high that it prompts New Mexicans looking for a fix to look to the black market, or venture into Colorado or Arizona.
“I think New Mexico and Arizona and Colorado will emerge as direct competitors,” Rodriguez told the Journal.
Colorado, one of the first two states to approve a recreational cannabis program in 2012, placed a 15% sales tax on recreational sales, alongside a similar tax at the wholesale level, according to Shannon Gray, communications specialist for the Colorado Department of Revenue’s Marijuana Enforcement Division.
Jim Burack, director of Colorado’s Marijuana Enforcement Division, said this tax structure, alongside a strong regulatory framework, has made the state’s cannabis program one of the most lucrative in the country, exceeding $2 billion in sales in 2020.
Rodriguez said Colorado, which has been producing cannabis for the recreational market for nearly seven years, is currently able to offer significantly lower prices than New Mexico.
To stay competitive, Rodriguez said a tax rate no higher than 20% would be a sweet spot for the state.
Other Southwest states that have legalized, including Nevada and Arizona, have adopted a similar tax structure. Arizona’s proposition 207, approved by voters in November, placed a 16% tax on the sale of cannabis.
In Nevada, the state has a 10% tax on sales, alongside a 15% tax at the wholesale level, according to Tyler Klimas, executive director of Nevada’s Cannabis Compliance Board.
“I think we’re in a great spot, and our industry is in a great spot,” Klimas said.
Focus on local
New Mexico leaders said that, in other states, legalization has prompted a flood of out-of-state investors into the industry, which sometimes leaves locals, particularly those from marginalized groups, on the outside looking in.
Rachael Speegle – a registered nurse and CEO of the Verdes Foundation, which operates dispensaries in Albuquerque and Rio Rancho – called for restrictions on either the number of recreational licenses issued or the number of plants that a single producer can produce.
In Oregon, which legalized without limits on both, Speegle said large producers flooded the market, and the supply of cannabis significantly outstripped the demand.
“We are lucky to have allowed other states to go to market first, and to learn from those mistakes,” Speegle said.
Speegle said she would support a scaled approach to either the number of plants or the number of licenses, which she said would keep small local producers from having to scale up and risk going bankrupt.
“As a member of this community … I am willing to restrict my own growth for the sake of allowing the community not to leverage everything,” Speegle said.
However, Rodriguez said limiting the number of plants would keep the recreational industry from meeting demand, and has the potential to create shortages for the medical program as well. Capping the number of licenses, he said, has the potential to create a similar environment to New Mexico’s liquor license system, which he called a “morass.”
“Any kind of artificial cap is really detrimental to the hopes and dreams of those who want to enter this industry,” Rodriguez said.
Martinez added that he supports a program that would give some of the funds from recreational cannabis back to marginalized groups that he said have been targeted from the war on drugs.
Martinez called for a social equity component to the cannabis legislation, which could include creating a community reinvestment fund aimed at helping entrepreneurs of color from some of the funds, along with a set of “micro-licenses” that would allow small producers to enter the industry.
“That component should allow for communities across the state, no matter the capital they might have, to be able to jump into this industry,” he said.
It’s an approach that other states are beginning to adopt as well. In 2019, Colorado adopted a statewide social equity program, which provides micro-licenses and certain incentives for applicants from low-income areas. The program begins in 2021, according to Burack.
“Currently, there’s no higher priority than getting this right,” Burack said.
While officials from every state interviewed by the Journal agreed there’s no one-size-fits-all approach to legalizing cannabis, they each offered advice if New Mexico pursues a recreational model.
Mark Pettinger, spokesman for the Oregon Liquor Control Commission, which oversees the state’s recreational cannabis program, said communicating with stakeholders is key. Pettinger said the department did a series of listening tours around Oregon each time a program requirement changed, and even launched a podcast about the program.
Gray, from Colorado, stressed the importance of data collection, particularly getting baseline data on cannabis use before launching a recreational program to better compare demand pre- and post-legalization.
Klimas, from Nevada, said each state with a recreational program has taken a different approach, but added that collaboration between states has been key for everyone.
“Every issue that New Mexico will soon face, it’s either being faced by other jurisdictions, or has been in the past,” Klimas said.