Dan and Anna Novak knew way back in 2019 that they wanted to get into the cannabis industry together.
On April 1, 2022 — the day recreational cannabis sales began in New Mexico — the couple opened their dispensary. Located in the Northeast Heights at 1616 Eubank NE, The Bad Company is one of hundreds of new dispensaries that opened last year — a mix of new entrepreneurs and industry veterans who are looking to capitalize off New Mexico’s green rush.
Those who are now in the space come from a variety of different backgrounds. The military. State and local government. Education. And in the case of Anna Novak and Dan Novak, tattooing and business management.
“I remember doing marches for (legalized cannabis) in college,” Dan Novak said. “This is what we were marching for. This is what we were fighting so hard for back then. To finally come true here, it was like, ‘how could I not be involved?'”
While New Mexico’s economy in 2022 is a story of many different things — inflation that has changed the ways New Mexicans spend, a thriving oil and gas scene, a hot housing market, and a booming film industry — recreational cannabis has taken the state by storm, pouring millions into the hands of thousands of license holders and into state coffers, and by many measures becoming a destigmatized industry that has brought new customers into the fold.
All that is likely to continue. New Mexico is just nine months into the sale of recreational cannabis. Industry leaders and regulators say they will look to continue New Mexico’s green rush and make it a profitable industry, not only for the state but for the many businessmen and women who have poured, in some cases, their life savings into their new ventures.
That includes taking a fresh look at the Cannabis Regulation Act and finding ways to reevaluate and rework issues within it, particularly dealing with water and equity, in new legislation or through rulemaking. And it means that 2023, with the many licenses approved in the state’s introductory year to recreational cannabis sales, will likely mean mergers, acquisitions and even shutdowns for some.
How we got here
The fight for recreational cannabis sales — or the right to even possess marijuana legally — began long before 2022.
More than two decades ago, former Gov. Gary Johnson called for the legalization of marijuana — something that, at the time, drew resignations from staff in his cabinet and a state drug council.
But less than a decade later, under the leadership of then-Gov. Bill Richardson in 2007, the state legalized cannabis for medical use.
Fast forward to April 2021 and the Cannabis Regulation Act made it to Gov. Michelle Lujan Grisham’s desk after passing through the House and Senate during a special session. The CRA, in turn, created the Cannabis Control Division, which now regulates the cannabis industry, and set a timeline for the sale of adult-use cannabis.
After months of rulemaking by regulators, through much of the fall and summer of 2021, the state opened up license applications for producers, eventually issuing the first cultivator license to Aztec-based Lava Leaf Organics in November 2021. Applications then opened up for other cannabis license types — including retail and manufacturing — shortly after.
By January, CCD had issued the first retail licenses to Albuquerque-based Dulce Cannabis and Enchanted Botanicals, and the first manufacturing license to Clovis-based Vana. In the months following and before April 1, CCD had issued hundreds more licenses — setting up the infrastructure needed for the first day of adult-use cannabis sales.
Andrew Vallejos, acting director for CCD, told the Journal that legalizing recreational cannabis was about more than just destigmatizing the consumption of a cannabis plant — it meant opportunity.
“I think there was a push by the people who wanted to have legalized, adult-use cannabis,” Vallejos said. “But there was also opportunity for economic growth. … I don’t want to pretend like cannabis is going to be oil and gas — the state isn’t going to rely on cannabis profits to fund massive amount for schools — but as we diversify our economy, it’s just another arrow in the quiver.”
By the numbers
New Mexico, a state of roughly 2.1 million people, by many measures has seen success less than a year into adult-use sales.
And industry leaders say the recreational cannabis industry is likely to continue to grow as it matures and stabilizes.
But one area that has already seen growth less than a year into sales is in licensing.
By August the state had approved licenses for more than 1,000 cannabis businesses. As of Dec. 21, the state had more than 1,800 licensed premises across the state — 557 of which are for dispensaries.
Some industry experts see that as a measure of success, opening up the doors for new entrepreneurs — specifically those from minority backgrounds — to an industry they say has a bright future.
That includes people such as Zachary Mendoza, the owner of Mesilla Valley Extracts in Las Cruces, who, with a small army of employees, has been creating edibles for small and large cannabis operators across New Mexico.
Mendoza, who also received a license for cultivation, said recreational cannabis allowed him to enter into an industry in which he felt comfortable — and motivated — enough to succeed.
“It’s basically my livelihood now and it means everything to me,” Mendoza said.
Some economists and industry experts have said New Mexico’s sales numbers in the adult-use market are the true indicator of what growth will look like going forward.
Since April, the state’s recreational cannabis industry has done $186.1 million in sales. And through October, the last month data was available for cannabis excise taxes, the state has collected roughly $18.6 million in taxes from legalized weed.
December sales won’t be made available until early January, but it is likely that by that point the state will cross the $200 million threshold. And it is likely the state, by April 2023, will near or meet the $300 million standard many in the industry have predicted — including the governor herself — unless monthly sales drop off significantly.
The state has seen recreational cannabis sales, for the most part, continuously grow — from $22.2 million in April to a high of $25 million in October.
In November, the last recorded month for recreational sales, the state’s industry did about $24.6 million in recreational sales.
It isn’t just in the overall sales number either. Border towns, such as Sunland Park, continue to see high sales — November’s number of $1.6 million being its highest sales month to date. More specifically, sales in towns that border Texas have combined for nearly 30% of overall recreational sales.
In Albuquerque, the state’s largest city, recreational cannabis sales have hovered between $6.9- and $8.1 million, according to CCD data.
The addition of recreational cannabis doubled the cannabis industry, which had previously been limited to medical.
“… And that’s fantastic,” said Everest CEO Trishelle Kirk. “Being an industry that has that much potential for growth, for creating jobs, for creating tax income for our communities and for our state, I think is great.”
While recreational sales are booming, the state is seeing its medical cannabis program take a hit.
Medical sales since April have dropped by about $3 million. The latest revenue for November stood at $14 million, a drop off from $17.4 million in April.
The patient number dropped, too, from 133,113 patients at the end of March to 116,279 patients by the end of November, according to New Mexico Department of Health data.
Recently, the state added anxiety as the newest qualifying condition for medical cannabis, a move aimed at bringing new patients into the fold.
While many industry experts say a drop off in medical sales and patients is a normal occurrence when an adult-use market is introduced, with fewer people renewing their licenses, it has sounded the alarm for some.
That includes Duke Rodriguez, the CEO and president of Ultra Health — the state’s largest cannabis operator with roughly 40 dispensaries, manufacturing and grow operations across New Mexico.
“We’re down 40% just like Colorado (in sales),” Rodriguez said.
If 2022 was a year of building the plane while flying it, then 2023 will be a year of market correction and stabilization, and looking at ways to keep the industry going strong either through legislation or rulemaking, industry experts and regulators said.
“Film took a decade to grow,” said Pat Davis, founder/partner with Weeds Cannabis Consulting and an Albuquerque city councilor. “I mean, cannabis literally bloomed in a year and … we’ve maxed out the number of retailers more or less, we’ve maxed out the number of large operators more or less. We have a fully developed market and no other state in the country has done this that fast.”
Vallejos, who has served as CCD’s acting director for the past few months with former CCD Director Kristen Thomson’s departure, said the Cannabis Regulation Act will likely not be amended but new legislation the division will introduce “is going to hopefully clear up some ambiguities and maybe some approaches here and there,” with recreational cannabis.
“After the session, we’re going to take a… brand-new look at all the rules and what we call ‘repeal and replace,'” Vallejos added. “And so we want to give the industry sort of like a refresh.”
That may mean taking a look at water, Davis said, with possible legislation or rulemaking that will help clear up the process of water rights for the state engineer.
“The state engineer desperately wants some clarification on how to apply those rules,” Davis said.
But that also means possible changes to rules set for dispensary license holders, who, as it stands, need a manufacturing license to roll cannabis-filled pre-rolls.
Moreover, the large quantity of new dispensaries across the state may shrink with some exiting the market due to extreme competition and others merging and being acquired by others, Kirk said.
“I feel like there has to be some consolidation and correction in the market,” Kirk said. “We have more flower than revenue. We have more dispensaries than revenue. And what that means is we’re going to see some fluctuation in prices. It will likely be good for consumers and bad for business owners because a lot of business owners have a big tax bill coming.”
But for others, including Dan and Anna Novak, a new year means new ways to grow their business — and to keep their customers coming back.
“Yes, we’re selling product and yes there’s a service aspect,” Anna Novak said. “But that service aspect is very human-centered. Being able to interact with people, it’s very important.”