New Mexico’s newest industry has many around the state excited for its potential economic impact — from the funding it can provide for things like public education, to the tourism it can drive to the state and even the opportunity it can give to potential business owners.
So far, the state’s cannabis industry has seen millions in cash flow from revenue. The state itself has also made millions so far off cannabis excise taxes that show the industry may be a boon for the economy, said Reilly White, an associate professor with the Department of Finance and Innovation with the University of New Mexico’s Anderson School of Management.
White, through his own firm independent of UNM, has forecasted what the New Mexico cannabis industry looks like going forward.
“When we see the presence of a new industry, lots of new businesses come about,” White said, whose firm Erobor has worked with the City of Santa Fe on cannabis forecasting. But he added that it is likely over the coming months that industry leaders will arise — even outside of legacy operators within the state.
White said he expects the industry to see growth going forward, whether that’s in sales or tax revenue, or in opportunity for new business owners.
What has the first four months of the cannabis industry looked like in terms of sales and taxes?
From April through July, New Mexico’s cannabis businesses have brought in close to $88 million in recreational sales. And cannabis excise taxes, which are a 12% tax added onto an adult-use purchase, have accounted for nearly $8 million for the state’s coffers from April through June.
July proved to be the best month yet for adult-use sales, with cannabis retailers bringing in $23.5 million from recreational sales. The best month previously was April — when adult-use sales began — when retailers did more than $22 million in sales, according to data from the state’s Cannabis Control Division.
White says the first four months show how strong the reaction from cannabis consumers has been, adding that he expects the industry to continue on with the strong numbers going forward.
“I mean, this is going to happen,” White said. “And I think it’s a rational consumer reaction as people get more accustomed to buying legalized recreational cannabis.”
What does forecasting involve?
As a baseline, White said he is using data that is already available in the state — so, sales numbers the state has already put out for the first few months.
He then compares those numbers to other states where recreational sales are legal.
“I think we looked at 12 or so that were in various aspects of legalization, and looking at how recreational cannabis growth looks like in these different places,” he said.
He said everything is scaled in a way that represents the population of New Mexico, and how much people are willing to spend here on cannabis. By doing so, White calculates a growth rate for New Mexico’s cannabis industry.
The goal is to get as close to a precise estimate as possible for sales going forward.
“The question becomes, ‘What are the sales going to be the next April? What are the sales going to be the following April? And what are those growth rates looking like?'” he said. “And so taking other states into consideration, looking at those growth rates and also modeling them specifically based on New Mexico variables, we’re able to extrapolate and say, ‘Hey, you know, every state recognized significant growth in cannabis sales following recreational usage.”
What do projections look like?
To give some perspective, Gov. Michelle Lujan Grisham in April said she expects the state’s recreational cannabis industry to do $350 million in sales in the first year. While that is unlikely from April 2022 to April 2023 due to sales numbers that have so far come out, White said that is where he expects the industry to be in the coming years.
“I think $400 million and even ultimately a $500 million industry is possible in the next three years,” White said.
For now, though, White’s forecast for the first year stands at about $250 to $300 million, something he called a conservative estimate. He did, however, come up with a fiscal year sales forecast — which goes from July 2022 to June 2023 — that stands at about $300 million to $350 million. His first forecast initially predicted $360 million in sales over the 2023 fiscal year. White came up with that estimate by using sales numbers from April and comparing growth rates in other recreational markets.
“We know that New Mexico (was) not the first mover on this,” he said.
Matthew Narvaiz covers cannabis, health care and the economy for the Journal. He can be reached at email@example.com or by phone at 505-823-3919.