‘A game changer’: For New Mexico’s cannabis industry, Trump’s reclassification order signals new possibilities 

Many of the businesses in New Mexico’s billion-dollar cannabis industry pay steep tax rates as part of a federal tax code restricting deductions on drugs that the government considers to be the most dangerous.

Marijuana has, for more than a half century, been classified with the U.S. Drug Enforcement Administration as a Schedule I drug alongside heroin and LSD, meaning the federal government acknowledges no accepted medical use, along with a high potential for abuse.

On Thursday, President Donald Trump signed an executive order expediting the reclassification of marijuana from a Schedule I drug to Schedule III, alongside drugs like ketamine and Tylenol with codeine. 

The order means the federal government acknowledges the drug has some medicinal value, and in addition to relaxing tax laws, the move will likely ease restrictions on research.

Per section 280E of the federal tax code, companies are forbidden from deducting business expenses associated with the “trafficking” of Schedule I or II controlled substances, which has made it prohibitively expensive for many businesses in the cannabis industry, said Jon Updegraff, chief financial officer at Verdes Cannabis, a New Mexico dispensary chain.

Under the law, Verdes Cannabis, which operates five dispensaries in the Albuquerque, Rio Rancho and Santa Fe areas, pays an effective tax rate over 100%, Updegraff said. 

The White House’s new executive order could change that.

“We’ve been waiting years and years for this,” Updegraff said. “We hoped it’d happen under (former President Joe) Biden, but it’s good to see that President Trump’s looking at it in a practical way.”

At a White House news conference Thursday, Trump said he’d received many phone calls from people with chronic health issues asking him to follow through on a Biden-era proposal reclassifying marijuana.

“We have people begging for me to do this,” Trump said.

When cannabis is reclassified, Updegraff said he expects the company’s income to go up by about $1 million. The industry has grown significantly since April 2022, when adult-use cannabis sales became legal in New Mexico, totaling nearly $1.5 billion.

“We work really hard, just as hard as everybody else, and to be penalized like that is pretty unreasonable,” he said.

Matt Kennicott, executive director of the Cannabis Association of New Mexico and the co-owner of a cannabis farm in Socorro, said that while the consensus in the industry is a preference to see marijuana descheduled entirely, being unburdened by stringent tax laws will be a financial relief.

“If we can actually deduct business expenses like regular businesses, we would see more profit and more money in our pocket at the end of the year,” Kennicott said.

Though Trump’s order levels the playing field, there’s still more work to be done, said Matt Chadwick, CEO of Top Crop and Dark Matter, popular dispensaries spanning from Albuquerque to Sunland Park.

“I do believe rescheduling is a good thing, and it’s a step in the right direction toward progress, but it’s not quite there,” Chadwick said.

Trump’s potential executive order could make banking easier for New Mexico’s cannabis businesses, too, said Sarah Stith, an economics professor at the University of New Mexico studying cannabis regulation. 

National banks have been historically reluctant to do business with cannabis companies because marijuana is illegal federally, Stith said, so local credit unions have often served as their best option for banking and lending.

A lower classification might make state credit unions “slightly more willing to bank to cannabis companies, just by decreasing the general risk perception,” she said.

Because cannabis will still be largely illegal at the federal level, Stith anticipates that not much will change initially for consumers after the executive order.

“These dispensaries are still going to be selling illegal products that, as far as the federal government is concerned, are no more legal than the stuff that is sold by some guy down the street,” Stith said.

The new classification could make it easier to research the drug’s medicinal potential, which could mean FDA-approved cannabis-derived products in the distant future, she said.

As of now, the only way to do legal cannabis research is to get a study approved by federal agencies, which can take years and can require a lot of money, according to Stith. 

The regulatory implications of Trump’s executive order “remain uncertain,” said state Regulation and Licensing Department spokesperson Andrea Brown in a statement Thursday. RLD oversees the Cannabis Control Division, which regulates the local cannabis industry.

Though state cannabis businesses could profit tax-wise from the reclassification, “it is not yet clear how any federal changes would intersect with New Mexico’s existing statutory and regulatory framework governing cannabis production, distribution and sales,” Brown said. The state will continue to review the order and any additional guidance, she added.

New Mexico’s economy could stand to benefit from Trump’s executive order, said cannabis consultant and former Albuquerque city councilor Pat Davis.

While other states will have to establish a legal framework in their legislatures, New Mexico already has a provision in its state law for research into the medical benefits of cannabis, Davis said.

“Long term, the market is national, for sure,” Davis said. “But on the business side, if you wanted to get rich tomorrow, most states would not allow you to do that. New Mexico is the exception.”

The Land of Enchantment is already well-situated to benefit from the executive order because of its existing cannabis industry, said Duke Rodriguez, CEO of New Mexico cannabis company Ultra Health.

“This is the single biggest game changer in a decade,” Rodriguez said.

Added Davis, “If somebody wanted to spend $100 million to seed a new pharmaceutical ingredients cultivation program anywhere in the country, New Mexico is on top of everybody’s list.”