NM Supreme Court clears way for medical cannabis producers to claim tax refunds - Albuquerque Journal

NM Supreme Court clears way for medical cannabis producers to claim tax refunds

Copyright © 2022 Albuquerque Journal

SANTA FE – New Mexico’s tax agency could be on the hook for more than $24 million in reimbursement payments to medical cannabis producers, after the state Supreme Court on Tuesday rejected an appeal of a lower court ruling.

At issue in the long-running case is whether medical cannabis producers can claim a state gross receipts tax deduction for prescription medication.

While a 2021 law legalizing recreational cannabis for adult users in New Mexico made medical marijuana sales exempt from taxation going forward, the court case deals with tax deduction claims denied by the state Taxation and Revenue Department that date back to 2014.

An agency spokesman said Tuesday the tax department was still working on pinning down an updated cost estimate, but would process refund claims as they are submitted.

“While the department is disappointed with the Supreme Court’s decision to quash its review of the case, we respect the decision and will move forward to issue refunds to the affected taxpayers once the court’s decision is mandated to become final,” Taxation and Revenue Department spokesman Charlie Moore said.

The latest twist comes after the Court of Appeals ruled in January 2020 that medical cannabis meets the definition of a prescription drug under New Mexico’s tax code since physicians are required to certify that patients have a qualifying condition before they can enroll in the program.

But the Taxation and Revenue Department appealed that ruling to the Supreme Court, arguing the Legislature never intended for medical cannabis to qualify for the deduction and questioning whether it should be considered a prescription drug.

The Supreme Court had scheduled oral arguments in the case for Feb. 28, but its unanimous ruling Tuesday canceled the hearing and effectively dismissed the appeal.

In addition to the financial implications, at least one prominent medical cannabis producer said Tuesday the Supreme Court’s decision could renew questions about medical cannabis costs being covered either by private insurance companies or Medicaid.

Duke Rodriguez, CEO and president of Ultra Health Inc., the state’s largest medical cannabis producer, said it could specifically impact a pending request that insurers cover the cost of medical cannabis purchases for mental health and related treatment.

“This is a huge decision,” Rodriguez told the Journal. “I think it’s especially important because it sets the precedent that medical cannabis is medication.”

He also said the total dollar amount the tax department could have to pay to medical cannabis producers for past gross receipts taxes could end up hitting – or even exceeding – $30 million.

The first claim for a tax deduction for medical cannabis sales was filed in 2014 by Sacred Garden, a Santa Fe-based cannabis dispensary, which sought a refund of roughly $275,000 for gross receipts taxes paid over a three-year period.

The refund claim was denied by the tax department, and a hearing officer subsequently rejected a protest.

But the company then appealed the ruling in 2018 and was subsequently joined in its legal effort by Ultra Health. An Ultra Health spokeswoman said Tuesday the company stands to get a refund of $7.4 million plus interest under the Supreme Court’s ruling.

New Mexico launched its medical cannabis program in 2007 – the law is officially called the Lynn and Erin Compassionate Use Act – and the number of people enrolled in the program has surged in recent years.

There were 130,345 active patients in the program as of January – up from 81,771 patients in January 2020, according to the state Department of Health.

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