January 15, 2021

NM cannabis producer sues state, claims retaliation

A prominent New Mexico medical cannabis producer filed a lawsuit Wednesday against the state Department of Health, alleging the department violated a previous court order and discriminated against the company regarding cannabis plant limits.  

Albuquerque-based attorney Jacob Candelaria, who is also a New Mexico state senator, filed the motion on behalf of Ultra Health, a medical cannabis company that has previously taken the state to court numerous times. In the motion, which effectively reopened a previous lawsuit against the state, Candelaria argued that the Department of Health, which oversees the state’s Medical Cannabis Program, failed to obey a court order that plant limits for medical cannabis producers be based on reliable data and that the department discriminated against Ultra Health specifically. 

The case that was reopened was originally filed in 2016 and argued that the state’s then-limit of 450 plants was not enough to provide an adequate supply of medical cannabis to the more than 26,000 medical cannabis patients at the time. In November 2018 a state district judge ordered the state’s Department of Health to come up with a data-based plant limit for medical cannabis producers by March 2019. 

With five days until the state’s deadline, then Secretary of Health Kathyleen Kunkel sent an email to Jane Wishner, a policy advisor for Gov. Michelle Lujan Grisham, about the department’s next steps in coming up with a data-driven limit on cannabis plants. The email chain began with the former director of the Medical Cannabis Program explaining that New Mexico seemed to be the only state with a medical cannabis program that used plant counts as a limit, opposed to facility size. Wishner, in reply, contemplated taking a look at the state’s medical cannabis law and coming up with a temporary plant limit for producers. Not only was the state facing a court order to come up with a data-driven number, but if the new number was not in place by March 1 of 2019, there would have effectively been no limit for producers. 

Kunkel replied, “Yes I think we might do that,” without specifying what “that” was. 

“Right now I am trying to figure out [the] last possible date to hold a rule hearing (looks like July 5) in time to control the plant expansion of Ultra [Health]. They cannot produce a new crop for 16 weeks, so I have roughly 4 months to manage this,” Kunkel wrote. 

It’s not clear from the email why Kunkel wanted to control the expansion of Ultra Health or why she wanted to wait until the last possible date and a department spokesman said the department does not comment on pending litigation. But Candelaria said the email highlights that the department was discriminating against Ultra Health. 

“The emails confirm something very concerning, which is that my client brought this lawsuit to ensure that patients across New Mexico have an adequate supply of medicine,” Candelaria told NM Political Report. “And the governor’s office and the Department of Health, instead of following the judge’s directive to use their authority to ensure that there was an adequate supply of cannabis, instead used their authority to retaliate and to try and harm my client.”

A spokeswoman for Lujan Grisham declined to comment on the issue. 

By March 1, 2019, the Department of Health implemented an emergency rule change that raised the plant limit to 2,500, a more than 450 percent increase. Later that year the department officially changed the limit to 1,750, which officials said was based on patient and producer surveys, among other calculations. 

Alleged retaliation aside, Ultra Health’s latest motion also claims that DOH has failed to comply with the court order that the department base plant limits on reliable data. In the motion, Candelaria wrote that with more than 104,000 registered medical cannabis patients, the current plant limits come out to about half of a cannabis plant per patient. The amount that can be harvested from one plant can vary. But for comparison, Candelaria wrote, patients who are qualified to grow their own cannabis are allowed to have up to four mature plants. 

“Due to Defendants’ arbitrary and capricious use of its regulatory authority, the supply of medical cannabis available to qualified and reciprocal patients is substantially less that what is available to patients with a Personal Production License (“PPL”) that allows them to home-grow an individual supply of medical cannabis,” Candelaria wrote. 

Possible contention

While plant limits for producers are written into the department’s rules and not statute, it’s likely the issue will be raised, at least in discussion, during the upcoming legislative session. Lujan Grisham listed recreational-use cannabis legalization as one of her legislative priorities this year and many legalization advocates have said the state will need to increase the number of available plants in order to protect the supply of cannabis for registered patients. 

Possibly compounding the issue is the fact that Candelaria also serves as a legislator. 

New Mexico legislators are paid a stipend, but not a salary, which means they also have jobs outside of legislating that can present an implication of a conflict of interest. 

Further, legislative rules state that lawmakers shall vote on issues unless the legislator has a financial interest in the issue. 

Candelaria said his representing Ultra Health does not pose a conflict. 

“The implication that I have a conflict of interest because I represent medical cannabis clients is the same logic that should apply to criminal defense lawyers or trial lawyers who are voting on bills that create or adjust civil liability,” Candelaria said. “Just because it touches on a subject matter that we work on in our private lives, does not mean that we have a direct or personal pecuniary interest in the outcome of the legislation.”

Last year, Ultra Health was in the middle of another legal dispute with the state over whether the New Mexico Medical Cannabis Program was open to non-residents. While the issue was pending in the state Court of Appeals, Lujan Grisham called on lawmakers to pass a bill specifying the program was only available to residents or reciprocal patients who were already qualified to use medical cannabis by another jurisdiction. At the time, Ultra Health’s attorney was Speaker of the House Brian Egolf, who also works as a lawyer in Santa Fe. When a bill to limit the program to residents made it to the House, Egolf recused himself and appointed a speaker pro tem to handle the bill’s committee assignments. Egolf’s recusal seemed to spark outrage with the House minority leader.

Long time coming

DOH and Ultra Health have been at odds with each other for years, even before Lujan Grisham took office. Ultra Health has filed numerous lawsuits against the state regarding the number of allowed store fronts, whether a medical cannabis plant can be displayed at the state fair and now three times over plant limits. Ultra Health’s president and CEO, Duke Rodriguez, has long maintained that the number of allowed plants for producers, whether it was 450 or 1,750, is not enough to supply patients with enough cannabis. The department and its Medical Cannabis Program has maintained that there is not a shortage of cannabis. In an email that NM Political Report obtained in 2019, the department’s legal counsel, Chris Woodward opined that there was not a state-wide shortage, but instead that Ultra Health cannot supply its stores. 

“Ultra Health has rapidly expanded the number of dispensaries (to 12 or more, I believe), thanks in part to a case from the Bernalillo court that said that DOH couldn’t limit them,” Woodward wrote in 2019. “UH couldn’t stock their old locations, so they definitely can’t stock the number that they have now.”

But Candelaria said the data that the department used to determine if the state has enough medical cannabis was based on a now outdated cannabis patient count.   

“They continue to use unreliable data and unreliable questionnaire data to come up with their numbers, and that’s why we’re in the situation we’re in,” Candelaria said. 

Earlier this year, Medical Cannabis Program Director Dominick Zurlo said there was “more than an adequate supply” of medical cannabis in the state. 

But other states that transitioned from medical-use only to full legalization saw significant supply shortages for medical-use cannabis within days of the transition. While there is really no substantive difference between medical-use and recreational-use cannabis, medical-use cannabis is generally sold at a lower price or is exempt from taxes, depending on the state. 

Candelaria said if the state does not move to bolster supply, full legalization could be significantly delayed. And not one to mince words, he put the onus on the governor.  

“Even if we’re going to legalize in January, it is going to be months, if not more than a year, before we see a recreational cannabis program fully stood up, which I think is further evidence of this administration’s failure to lead on this issue and articulate an actual cannabis policy other than, ‘Do what we say or we will retaliate,’” Candelaria said. “That is what seems to be their policy in light of their actions, and I think they should be ashamed.