November 9, 2021

Mystery surrounds the last cannabis production license DOH granted

Recreational-use cannabis dispensaries in New Mexico are slated to open their doors in about five months, if not sooner. Medical cannabis dispensaries, many of which have been in operation for years, may end up feeling the brunt of an expected run on cannabis products next year, but legacy cannabis cultivators could have an advantage over those who are still in the queue, waiting for their applications to be approved. 

While the applicants currently waiting for approval cannot start growing or manufacturing cannabis, medical cannabis cultivation companies that have been licensed for years can start ramping up production in anticipation for next year.  

Some of those businesses that are awaiting approval have also, over the years, been waiting for a chance to break into the medical cannabis industry, but were repeatedly told the state was not accepting applications for medical cannabis production, a term New Mexico regulators use for cultivation.

The more than two dozen producers who have historically produced medical cannabis are often colloquially referred to as “legacy producers.” But for one producer, the term “legacy” is somewhat of a misnomer. Generation Health, along with 33 other medical cannabis producers, got a fast track through the recreational-use licensing process. The idea was that since the legacy producers were due for license renewals over the summer, they would be re-licensed through the Regulation and Licensing Department, which largely took over cannabis regulatory duties from the state’s Department of Health after the Cannabis Regulation Act went into effect on June 29, 2021. 

But Generation Health had only been licensed as a medical cannabis producer for about 24 hours before that jurisdictional switch happened. Now many are still trying to figure out how and why DOH quietly and swiftly approved Generation Health’s production application while many others have been pushing the department to open up licensing for years.   

From nearly the start of the Medical Cannabis Program, which is overseen by DOH, the list of cannabis producers in New Mexico has been exclusive. A few years after the New Mexico Legislature and then-Gov. Bill Richardson legalized medical cannabis, there were about two-dozen companies that were allowed to produce medical cannabis in the state. In 2015, the New Mexico Department of Health, which oversees the Medical Cannabis Program, approved 12 additional cannabis production licenses. Between 2015 and 2021, the department left the door closed on any new licenses, but the department revoked two licenses — one in 2018 for falsified audits and another earlier this year for failed safety measures the department said led to an explosion. 

Over the years, department officials repeatedly said there were no immediate plans to issue more licenses. But just days before many responsibilities of DOH were set to move to RLD, Generation Health applied for a production license. Then, the day before duties were to be moved from one department to the other, Generation Health received approval to operate as a medical cannabis dispensary, clearing the path to re-licensure through RLD instead of starting from scratch as the rest of the industry hopefuls are doing now. In a matter of days, Generation Health CEO Vance Dugger, who also owns Dugger’s Road Service, accomplished what many others have been waiting years to do. 

Right place at the right time

According to Generation Health’s application submitted to DOH, Dugger became a medical cannabis patient sometime after injuring his neck and subsequent spinal surgery. According to state records, and Dugger himself, he first applied for a medical cannabis production license in 2015, when DOH announced it would approve a limited number of new licenses. Dugger and his company did not make the cut that year, but according to Generation Health’s 2021 application, Dugger at some point “began to look in every direction possible to involve himself in the cannabis industry.”

“Eventually, an opportunity presented itself that opened a door to obtain an economic interest via a consulting agreement with Patients Plus in the neighboring state of Colorado,” the application read. “Vance would spend the next several years entrenched in working within and among every aspect of the cannabis industry.”

When DOH opened the licensing process for cannabis production in 2015, the department sent out numerous press releases and announcements calling for applications. But in June of this year when DOH, now under a new administration, opened the process for the first time in five years, there were no official announcements or calls for applications. Instead, DOH and the Medical Cannabis Program posted a production license application on their website on June 23, with no additional explanation or guidelines about how long the department would be accepting applications.  

Dugger told NM Political Report in September that he successfully applied for a cannabis manufacturing license in the beginning of 2020. Under the Medical Cannabis Program’s rules and regulations, a standalone manufacturing license did not allow for cultivation. But already licensed producers could get a manufacturing license. Dugger said at some point in 2020 he spoke with then-compliance officer Martinik Gonzales about how to get a full production license that would allow his company to also cultivate cannabis. Dugger said that Gonzales told him that the state might issue production licenses in the near future and to keep an eye on the department’s website. Gonzales moved to RLD after the Cannabis Regulation Act went into effect and would later join three of her coworkers in a lawsuit against RLD

Gonzales, both herself and through her attorney, declined to speak with NM Political Report about this story. 

Dugger said after talking to Gonzales, he and his staff began checking the DOH website on a weekly basis. Finally, he said, after returning from a trip on a Thursday, he spotted the application online. 

“I actually got angry at one of my secretaries, because it was there and none of my folks had told me it was online where you could submit,” Dugger said. “That’s how I found out.”

DOH confirmed with NM Political Report that Generation Health was the only organization to apply for a production license and therefore was the only company to get one in June. 

When asked if he could see why the process raised questions and concerns from others in the industry, Dugger said he had no indication that he was the sole applicant. 

“I’m perplexed by the questioning,” Dugger said. “To be quite candid, I was following instructions by [Gonzales] specifically, and I thought that I was one of many. So to me, why would I think the optics look bad? I didn’t know that I was the only one.”

On June 25, which was a Friday, Dugger submitted his lengthy application to DOH. The following Sunday, Medical Cannabis Director Dr. Dominick Zurlo and DOH’s legal counsel Billy Jimenez inspected the Generation Health facility. By Monday, June 28, the day before the Cannabis Regulation Act went into effect and duties were to be moved to RLD, Dugger was awarded a medical cannabis license. If DOH had not approved Dugger’s application by June 28, application approval would have been the duty of RLD, which did not start accepting applications until Sept. 1. Of the numerous previous cannabis facility inspections obtained by NM Political Report, through a public records request, none show Zurlo or Jimenez as inspectors. By June 29, Generation Health was included in the group of the so-called legacy producers that, in lieu of re-licensing under DOH, was licensed under RLD. 

A need for additional licenses

When Growing Forward, the collaborative cannabis podcast between NM Political Report and New Mexico PBS, spoke with Zurlo last July, he said DOH did not see a need to increase cannabis production licenses at the time. But, he said, if and when the department saw a need for more licenses, there would be a specific process for approving applications. He described the hypothetical process as “Not quite an RFP, or a request for proposal process, but very similar.” 

“Those that have the highest scores, essentially, or have the best proposals, are the ones that will end up getting licensed,” Zurlo said last year. “But part of that will also depend on the projections of how the program is growing, and what the needs of the patients will be. And so at this point right now, with the new plant counts, we are seeing enough of a supply and so at this point, we haven’t opened those particular licenses.”

When NM Political Report spoke with Zurlo in September 2021, he said DOH started considering opening the production licensing process sometime before the 2021 legislative session, but couldn’t say exactly when that consideration started.  

“The department had wanted to open additional licenses, or award additional licenses, basically, to help to increase quality, potentially lower price and increase diversity,” Zurlo said. “So we had been requesting that for quite some time.”

Zurlo said the Medical Cannabis Program did not get approval from DOH’s Office of the Secretary until June, but that the production license application was posted online soon after that approval was granted. Despite Generation Health being the only organization to apply between June 23 and June 28, Zurlo said the department was prepared to approve any organization that was ready to hit the ground running. 

“The plan was that if organizations and especially because of the [Cannabis Regulation Act] at that time, that if there were organizations that had their plans and the required items in place, that we would approve their licensure,” Zurlo said in September. “Because we do agree with many of the statements that have been made in the past, that we do need to get this moving forward to ensure that there will continue to be enough supply for patients when recreational or adult-use sales actually start again. And the quicker we could do that, the better.”

Zurlo acknowledged that there was no explicit announcement that the department would be accepting production license applications, but added that for the past couple of years the department has followed the same process when opening the application process for manufacturing and courier licenses. When asked why DOH and the Medical Cannabis Program decided not to send out a press release or public notification, he said, “I am not in control of press releases, so I can’t answer with regard to that.”

“But what I can say is, this is why we have been telling everybody, and this has been a consistent message that has come from the program and the department, is keep watching the website, because that’s where we will post this information with regard to it. And so that’s what we’ve done,” Zurlo said. 

As for him and Jimenez inspecting Generation Health’s facility themselves instead of delegating the job to designated inspectors, Zurlo said staff was already spread thin. 

“Because things were in transition, I did request for additional help because we have staff members who are switching offices, moving from the Department of Health over to RLD for the cannabis control division,” Zurlo said. “And it is not unusual for us to have help and assistance from either the Office of the Secretary or from our legal department, and so that’s how it ended up being Billy and myself.” 

Zurlo pointed to his many years of experience in the Medical Cannabis Program, under both former Gov. Bill Richardson and current Gov. Michelle Lujan Grisham and that he practically “wrote the book” on cannabis regulation as reasons why he was more than qualified to conduct a facility inspection himself.  

Further leaving many in the New Mexico cannabis industry scratching their heads was the fact that Jimenez and Zurlo conducted the inspection of Generation Health on a Sunday. But Zurlo said the Sunday inspection was simply because DOH wanted to make sure there were enough producers to provide medicine to medical cannabis patients. 

“Essentially, we needed to get the job done,” Zurlo said. “And whether it’s on a Sunday or a Saturday or a Wednesday, or if it’s at night, we’re doing what we need to do to get things taken care of and accomplished, especially when it’s something that has the potential to improve the lives and the care of our patients.” 

But there are still some in the medical cannabis industry who said they would have appreciated a heads up. 

Left waiting

Jennifer and Eric Merryman became interested in medical cannabis when they found that cannabis helped Eric’s terminally ill mother find relief. Eventually, they started Mountain Top Extracts but soon found that being licensed as a manufacturer without the ability to cultivate cannabis made things difficult. Many large producers in New Mexico are vertically integrated, meaning they have their own manufacturing license and have little to no need for an outside manufacturer. For the Merrymans, one of the biggest issues to overcome is that their company has little to no control over the quality of the raw plant material they receive from producers.

Jennifer said she has had an opposite experience with DOH, compared to Dugger’s, when it comes to inquiries about getting a production license.  

“We’ve been pushing, through the [New Mexico Cannabis] Chamber [of Commerce] and the Department of Health, just even trying to get a cultivation license add-on. It’s sort of a temporary measure so that we could at least provide more feedstock and product to the community,” Jennifer said. “And the department was like, ‘No way.’ They wouldn’t have any sort of discussions on that. Many of the independent manufacturers were looking to pick up some cultivation, anything to bring more material to the market.”

Eric said that not only has he never heard of a facility inspection being done on a Sunday, but that he has had trouble getting one completed on a weekday. 

“We have been told multiple times that we couldn’t get inspected because we are in the queue and that they were overwhelmed,” Eric said. “And to hear that these inspections were done over the weekend, just absolutely blew my mind. I’d never, ever heard of such a thing.”

At the time, the advantage Generation Health might have had in getting licensed ahead of the dozens that applied in September, was arguably negligible. But now that those who are waiting on approval from RLD are running out of time to get products on their shelves and open their doors by April 1, the advantage seems more significant. 

Last week Growing Forward spoke with three people who are eagerly waiting on approval and trying to navigate local ordinances. All three said they were concerned that there will be a run on cannabis next April that will result in a shortage of medicine for medical cannabis patients. 

Matt Muñoz, one of three business partners that make up Carver Family Farm, told Growing Forward that he doesn’t think any new producers will be ready to go by April 1 and made a thinly veiled reference to Generation Health.

“I don’t think anybody’s going to be ready unless you’re somebody who purchased a legacy license or got one on June 28, 2021. 

The process in which DOH granted a license to Generation Health has left many in the New Mexico cannabis community to speculate and exchange theories to explain why Dugger received the only license issued just days before duties moved from DOH to RLD. But Dugger maintains he is not politically connected to anyone who would have helped him get an early cannabis production license. The only record of a political contribution from Dugger that NM Political Report could find was $300 paid to the National Republican Committee in 2003. 

“I’m not politically connected,” Dugger said. “I literally did what I was told to do.”