Up in Smoke? - Albuquerque Journal

Up in Smoke?

Chris Tapia of Sawmill Cannabis Co. shows off construction progress on the company’s grow facility and dispensary on Menaul Boulevard. (Roberto E. Rosales/Albuquerque Journal)

Copyright © 2022 Albuquerque Journal

When cannabis was legalized for recreational use in New Mexico, Chris Tapia didn’t hesitate to jump into the new industry.

Tapia’s company, Sawmill Cannabis Co., planned to open five dispensaries in and around Albuquerque, along with a grow operation and a pair of manufacturing facilities that could supply the stores.

But on April 1, when recreational cannabis sales are expected to begin, Sawmill Cannabis won’t be among the dispensaries selling products. Instead, Tapia said Sawmill now plans to wait until the summer to open, citing licensing delays and concerns that there won’t be enough cannabis available to keep its stores stocked.

“I think everybody’s doing all they can to make this happen, I just think that the demand is going to exceed the supply for a little bit of time,” Tapia said.

In the meantime, the startup, which is operated by Tapia and members of his family, will pay rent on buildings with no way to make money.

“It is a drain on resources to continue to carry the properties without having them generate income,” Tapia said.

Sawmill Cannabis isn’t the only new company in this position. Across New Mexico, cannabis producers are bracing for recreational demand to temporarily outstrip supply when the program launches, leaving stores potentially missing key products. Smaller producers targeting the recreational market, like Sawmill and Enchanted Botanicals in Albuquerque, are opting to delay opening until they can supply their stores consistently rather than disappointing customers.

“We’re moving as fast as we can to get ready on time with the product,” said Pierre Amestoy III, owner of Enchanted Botanicals.

Industry leaders, including Kristen Thomson, director of the state’s new Cannabis Control Division, said supply shortages have occurred in most states that have launched recreational cannabis. Thomson said she believes that any disruptions will be short-lived once sales go live.

“That initial demand and excitement about a new product can lead to very short-term shortages that don’t hurt the industry,” Thomson said.

However, some in the industry, including the founder of the state’s largest cannabis company, are convinced the shortages will not be short-lived.

“The reality is, it’s going to be quite the ugly scene for quite a while,” Ultra Health founder Duke Rodriguez told the Journal.

David White, founder of Organtica, a New Mexico medical cannabis business with dispensaries in Albuquerque, Silver City and Truth or Consequences. (Adolphe Pierre-Louis/Albuquerque Journal)

How did we get here?

Rodriguez, a longtime and vocal critic of New Mexico’s limits on cannabis production, has expressed concern about a potential shortage since the Cannabis Regulation Act was signed into law last year.

The law tasked the state Regulation and Licensing Department with creating rules that govern the newly legal industry. The department’s Cannabis Control Division originally capped the number of mature cannabis plants individual license-holders could grow at 10,000. Ben Lewinger, executive director of the New Mexico Cannabis Chamber of Commerce, said the cap on production ensures that the state won’t have a dramatic oversupply of cannabis, as is still the case in Oregon and California, that would eventually force the state to step in and curb production.

“That would be an issue that would be much more difficult to rectify and manage than a short-term supply-constrained scenario,” Lewinger said.

In January, the state announced that it was doubling plant caps for all license levels, excluding micro-businesses, which are subject to plant counts written into statute. Thomson told the Journal the change was needed to bolster the state’s supply of cannabis.

“It was the right thing to do to help our businesses gear up and be ready to backstop the economic opportunities created by the new industry,” she said.

However, Thomson acknowledged that the timing of the rule means that the additional cannabis won’t be available for harvest until after April 1, adding that the focus was on building supply for future grow cycles.

“Hopefully those businesses are using this opportunity to scale up,” Thomson said.

But the scale-up for micro-businesses will not occur. Small producers entitled to grow a more limited amount of cannabis required a legislative fix that failed to materialize.

Senate Bill 100 would have increased the limit on the number of plants a micro-business can possess from 200 to 1,000. The bill passed in the Senate but ultimately died in the House Judiciary Committee. Lewinger and Thomson both expressed disappointment that the increased plant caps failed to become law.

“That was a very important provision that would not only help small businesses get started in this industry in New Mexico, but would help to minimize any supply constrained environment,” Lewinger said.

How severe will shortages be?

Even with the increase to plant counts for larger licensees, Rodriguez, who favors getting rid of caps on cannabis production entirely, believes the market will be well short of the amount of cannabis flower it will need to satisfy recreational and medical demand.

The Cannabis Control Division and industry leaders have pledged to protect medical cannabis patients, noting that the law requires producers to make one-fourth of their sales to medical patients each month through the end of the year, although concerns remain.

“I’m expecting it to be very hard on patients,” said David White, founder of Organtica, a New Mexico medical cannabis business with dispensaries in Albuquerque, Silver City and Truth or Consequences.

On the recreational side, most people who spoke to the Journal agreed that some amount of shortages were inevitable. Rodriguez cited a study, conducted by MPG Consulting on behalf of Ultra Health, showing that New Mexico will need around 428,607 individual cannabis plants to meet projected demand in 2022. The company estimates the industry has between 100,000 and 115,000 plants currently licensed.

Rodriguez noted that the vast majority of producers in the state are planning to grow less than the maximum allotted number of plants.

He predicted that shortages could linger for 12 to 18 months.

However, most in the industry disagree. While acknowledging that specific strains or edibles may be hard for recreational customers to come by initially, Thomson said she’s not concerned about widespread shortages, noting that CCD is targeting much lower levels of production than Rodriguez’s study.

“The market, we anticipate, will quickly smooth out, as it has in the other markets,” Thomson said.

Whatever the scale of the shortage, most producers agreed that cannabis will likely be more expensive at the outset than recreational cannabis available in states like Colorado. Amestoy, with Enchanted Botanicals in Albuquerque, said he’s expecting a gram of top-shelf cannabis flower to run between $16 and $20 in New Mexico for the first 12 to 18 months of recreational sales.

“The price of cannabis is going to be very high,” he said.

Lewinger maintained that even a longer shortage would be less harmful to the state long term than an oversupply that would force state regulators to restrict the industry, forcing operators out of business.

“It’s not necessarily what was right for any business now, but that’s what was right for the state, and that’s what was right to give homegrown businesses the opportunity to thrive in what is a very competitive and highly regulated business,” Lewinger said.

Cultivation assistant Kelly Montgomery clips the undergrowth from plants at Ultra Health’s grow facility in Bernalillo on March 2. (Roberto E. Rosales/Albuquerque Journal)

Producers in limbo

Given the uncertainty, a handful of producers are opting to sit on the sidelines until they’re sure they can keep their shelves stocked and state permits in order.

Amestoy worked in cannabis during transitions to recreational in two other states – Colorado and California – before moving to New Mexico to be closer to family.

In the lead-up to sales starting, Amestoy and his brother, Adam, identified two storefronts – one at Menaul and San Mateo Boulevard NE, the other at the former home of Frost Gelato in Nob Hill.

“We’re grateful that we’re going to be a staple of this community and this area,” Amestoy said of the Nob Hill space.

As of late February, however, the store is still largely empty, which Amestoy attributed to delays getting permits approved. Amestoy said Enchanted Botanicals had originally planned a soft opening on April 1, with a limited supply of product. But as the spring began closing in and permits from the state failed to arrive, Amestoy realized the stores wouldn’t be able to grow enough biomass by April to justify opening.

“We can’t open with nothing on the shelves, so we’re timing it as fast as the market lets us,” he said.

For Tony Martinez at Lava Leaf Organics, a vertically integrated cannabis business in Farmington, the plan is to sit tight in April and delay opening until they have more than one harvest in place. Martinez said a typical harvest, using the company’s mix of indoor and outdoor growing facility, would provide enough product for about three weeks.

“It doesn’t really move the needle that far as far as having backstock,” Martinez said.

Martinez, who worked in the state’s medical industry for years, said he’s seen the reaction when dispensaries have bare shelves.

“What I didn’t want to do is come to the market and be having to apologize to these medical patients, because they’re going to take it out on whoever they can,” Martinez said. “In their mind, they’re gonna think you just sold all your flower … and now you’re giving them the shaft.”

Each of the producers expressed optimism about the long-term future of the industry and the current management of CCD, but acknowledged that costs will be a burden in the short term.

“It’s going to cost us money, but we feel this location, and our product, and our brand and our business acumen are going to be able to bring enough to the table to where we’ll be able to make that up,” Amestoy said.

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