February 18, 2022

What the failed cannabis clean up bill means

Largely overshadowed by legislation addressing crime and voting rights during this year’s 30-day Legislative session, a cannabis law clean-up bill failed to make its way to the governor’s desk. 

SB 100, sponsored by Sen. Linda Lopez, D-Albuquerque, would have made a series of changes to the Cannabis Regulation Act, which went into effect last June. Those changes included clarifying tax language, allowing certain cannabis businesses to wholesale their products, among other things. One of the more significant changes though was a proposed production increase for smaller cannabis businesses. The bill was praised by those already active in the state’s cannabis industry as well as industry newcomers. 

But early in the committee process, a new change to the Cannabis Control Act emerged: water.

The amount of water the new cannabis industry might use has been a big concern for many and part of the Cannabis Regulation Act requires that cannabis cultivators verify they have legal access to water. That language was stripped, in a bipartisan vote, from SB 100 and replaced with language that would allow a license to be revoked if the licensee was found to be using water illegally. 

With SB 100 failing to make it through the legislative process, some water conservation advocates are relieved that there is still a requirement to prove water access, but others are frustrated that what they see as needed changes will have to wait another year. 

One of the most vocal groups against changing water requirements this session was the New Mexico Acequia Association. They, along with more than a dozen other advocacy groups, urged lawmakers to add the water verification language back into the bill. The Acequia Association was also a key group in getting the verification requirement into the bill in the first place. 

Acequia Association Executive Director Paula Garcia told NM Political Report that the group’s intention was not to hold up the bill but just to make sure the bill included the original water language. In fact, Garcia said, the bill was not originally even on the group’s radar until Sen. Cliff Pirtle, R-Roswell, successfully removed the water verification requirement through a Senate Judiciary Committee amendment, which was opposed only by Lopez, who is a member of the committee. 

“We actually had no problem with [the original bill],” Garcia said. “But when the amendments were attached in the Senate, specifically Pirtle’s amendment in Senate Judiciary Committee, which removed the paragraph in the Cannabis Regulation Act that required the upfront water rights verification, that’s when we started to weigh in.”

The current process of verifying legal water is sometimes easier than others. Many current cannabis producers are already using water from municipal providers and that could be the case for many new producers as well. For those producers using municipal water, the verification process is relatively simple. But for those who are tapping into wells or other rural water sources, the process can be much more complicated. 

A representative of the state’s Water Right’s Division of the Office of the State Engineer recently told NM Political Report that nearly 90 percent of those who have tried to verify their legal access to water ultimately do not have actual water rights or have been tapping into illegal sources of water like a domestic well or water sources that are owned by someone else. 

Garcia said one concern of the association is that larger cannabis companies with plenty of capital will tap into the state’s water supplies without being properly  vetted. But she said another concern is well-meaning producers who just do not understand the state’s complex water laws, especially when the state is perpetually facing drought.    

“People are discovering that they don’t have those permits that they didn’t know they had to have,” Garcia said. “I think that’s what’s really taking some people by surprise, that water rights are difficult. They’re not an easy thing to deal with.”

Garcia said the association was already working with lawmakers to draft another amendment that would put the water verification language back in the bill during a scheduled House Judiciary Committee hearing, but that meeting never happened. During the last night of the session, the House focused on moving along legislation that had been languishing on the floor and worked through bills in a 24-hour floor session without breaking for committee meetings. 

The end result was an unchanged Cannabis Regulation Act that has many business owners frustrated. 

Last year House Majority Floor Leader Javier Martínez, D-Albuquerque, who co-sponsored the bill that legalized adult-use cannabis, answered criticism from his colleagues that the legislation was lacking by saying it was a living and breathing document that would need adjustments in subsequent years. In a phone interview on Thursday, New Mexico Cannabis Chamber of Commerce Director Ben Lewinger said he hoped that SB 100 would address what he said are needed changes. 

“When the Legislature passed the Cannabis Regulation Act last year, embedded in that was a promise to revisit and continue to work on this,” Lewinger said. “And Senate Bill 100 is that revisitation and it contains several provisions that are necessary for new and existing license holders, and for the industry as a whole, to launch on strong footing.” 

One of the main goals of SB 100 was to increase production limits for cannabis microbusinesses as a way to create parity between larger and smaller producers and to address expected medical cannabis shortages in April when non-medical sales are slated to begin. After months of confidently saying there would likely not be shortages of medical cannabis, the New Mexico Regulation and Licensing Department and its Cannabis Control Division announced in January an emergency rule change that temporarily increased production limits and lowered administrative fees. During a legislative committee hearing during this session, Regulation and Licensing Department Superintendent Linda Trujillo told lawmakers that the department found that licensed medical cannabis producers were not growing the maximum amount of plants as the department had expected. 

While production limits for larger cannabis producers are decided through rules by the Cannabis Control Division, production limits for cannabis microbusinesses are written into the Cannabis Regulation Act, which requires the Legislature to make changes. 

But SB 100 would have also made tax clarifications, allowed microbusinesses to wholesale products and would have allowed those with a liquor license to also obtain a cannabis business license, as long as the two licenses are not used at the same establishment. Lewinger said many industry newcomers are going to be negatively impacted by the failure of SB 100.  

“We’ve heard from tons of people who live in rural New Mexico who happened to own a restaurant, and they’re prohibited from being able to participate in this industry because of a mistake in the enabling legislation,” Lewinger said. “So new and existing operators are hugely hamstrung by not passing this bill.”

Matt Muñoz, a co-owner of cannabis microbusiness Carver Family Farm, told NM Political Report that Thursday was a “bad day for microbusinesses.”

“I think the legislature did a disservice to all the mom-and-pop constituents out there that are trying to make this work,” he said. 

While Muñoz and his two business partners could have benefitted from being able to increase their production output, he said a bigger issue is that SB 100 would have allowed businesses like his to supplement their supply with cannabis grown by larger producers. 

“That’s the biggest disadvantage in this market that I see,” Muñoz said. “That micros are basically only what you can produce is what you can sell. But if we want to be a level one licensed producer for an extra $5,000 we can do whatever we want, and it’s absolutely insane.”

Mateo Frazier, who already produces hemp in northern New Mexico, is working to create a cannabis business with his wife and other business partners. Frazier said he had been tracking SB 100 because he planned on entering the market as a micro-producer and eventually ramp up production. 

“We were going to start as a micro and then try to scale up,” Frazier said. “But then the increased plant count came along, and so we were like, ‘That’s great. That’s awesome, actually.’” 

But Frazier said 200 plants is not a viable business model for his business. 

“We just need a larger plant count if we want to be viable considering the amount of capital we’re investing on the front end,” Frazier said. 

Frazier, who said he is active in his local acequia community, told NM Political Report that his views tend to “align with a lot of those concerns” of the Acequia Association, but that the current water access verification process is “cumbersome.” Frazier said he does not quite understand why there would be a requirement to show legal water access when other agricultural water users do not have the same requirement. 

“It’s legal agriculture,” Frazier said. “We thought that’s the way it would be approached, and obviously, that’s not how it’s gone.”

The Cannabis Regulation Act went into effect last June, after Gov. Michelle Lujan Grisham called a special session to address, in part, legalizing cannabis. Proponents of legalization have argued that taxes from cannabis sales will provide the state with added financial stability as it seeks to diversify revenue that has historically come mostly from oil and gas. 

Recreational-use sales by law have to begin no later than April 1.