January 26, 2022

NM Supreme Court to hear oral arguments in medical cannabis tax case

The New Mexico Supreme Court this week scheduled oral arguments for a case regarding medical cannabis sales and gross receipts taxes. 

Lawyers for the New Mexico Attorney General’s Office and two medical cannabis businesses will have an opportunity to make their respective arguments on Feb. 28 as to whether or not medical cannabis sales should have been exempt from gross receipts taxes prior to the state’s Cannabis Regulation Act that went into effect last June. 

The issue goes back several years to when medical cannabis producer Sacred Garden asked the state’s Taxation and Revenue Department for a refund of multiple years worth of gross receipts taxes the company paid. Initially, a hearing officer ruled in favor of the state, but that ruling was eventually reversed by the New Mexico Court of Appeals. In February 2020, the state took the issue to the state supreme court, where it has been pending since. In June 2021, medical cannabis company Ultra Health joined the case as an amicus curiae, or friend of the court. 

In previous court filings, Sacred Garden and Ultra Health argued that like prescription drugs, medical cannabis should have always been exempt from the state’s gross receipts tax, which is sometimes incorrectly referred to as a sales tax. The state’s Attorney General’s Office, however, has argued in filings that the use of medical cannabis is recommended by a medical professional, not prescribed like other drugs. Therefore, the state has argued, medical cannabis was not meant to be exempt from taxes until lawmakers explicitly added an exemption to the Cannabis Regulation Act, which legalized recreational-use cannabis. 

In an interview with Growing Forward, the collaborative cannabis podcast between NM Political Report and New Mexico PBS, Gov. Michelle Lujan Grisham said that despite her view that “cannabis is medicine,” it is important to have the courts weigh in on the matter.  

“This is an area where clarity rules because otherwise, you have a department that is guessing based on what they think legislative intent is or isn’t,” Lujan Grisham said, days after signing the Cannabis Regulation Act. “You would put a department in a position to be challenged for making arbitrary and capricious decisions all the time, as they were guessing or taking the side of the particular taxpayer.”

Since June 2021, medical cannabis producers have been exempt from gross receipts taxes, but non-medical sales, which are expected to start in April, will be charged a 12 percent cannabis excise tax in addition to gross receipts tax.