NMPR

A legal battle has emerged between a New Mexico cannabis business and the agency tasked with regulating cannabis production and sales after state regulators reportedly found mold in some of the company’s products. 

The day before legal adult-use cannabis sales began, cannabis producer Sacred Garden filed a request for a temporary restraining order and preliminary injunction in state court, asking a judge to effectively override a cease and desist order issued by the stateโ€™s Cannabis Control Division. 

First Judicial District Court Judge Bryan Biedscheid, during a hearing on Tuesday, ordered the Cannabis Control Division to allow Sacred Garden to sell manufactured products, which both parties agreed would not have been affected by the mold that was reportedly found. 

Biedscheid said on Tuesday that โ€œthe appropriate court orderโ€ he could issue at the time was to allow Sacred Garden to sell manufactured products that are โ€œthought to be safe by virtue of the process involved.โ€

Biedscheid also took issue with the reason that regulators had not been back to Sacred Gardenโ€™s facility to determine if the reported mold problem had been resolved. Kevin Graham, deputy general counsel for the New Mexico Regulation and Licensing Department, which oversees the Cannabis Control Division, initially told Biedscheid that the division cannot send a qualified inspector to Sacred Gardenโ€™s facility until early next week. 

โ€œOne of the reasons we said we needed until Monday in order to be able to come back out to the facility was that we have one staff member who’s particularly qualified to assist in that type of examination,โ€ Graham told Biedscheid. โ€œHe’s out of town on vacation, which, you know, employees get to take some time off every once in a while.โ€

Sacred Gardenโ€™s attorney, David Foster, told Biedscheid that the facility that the division shut down is key to the companyโ€™s operation. Because state regulators froze the companyโ€™s access to the stateโ€™s tracking software and 95 percent of Sacred Gardenโ€™s supply comes from that facility, Foster said, the entire company is at risk of shutting down.    

โ€œThey’re about to be out of product to sell, I would say by tomorrow at the latest,โ€ Foster said. 

Biedscheid gave the Cannabis Control Division another day to review an updated independent test from Sacred Garden and said he wanted to balance public safety with the prosperity of the cannabis business.   

โ€œWe’ve got two issues here,โ€ Biedscheid said. โ€œOne is speed to mitigate any harm to this company, in terms of a determination and an open-ended โ€˜Well, maybe things will work out when people come back from vacation,โ€™ in the current environment isn’t cutting it.โ€

Biedscheid gave Graham until Thursday morning to respond to the latest test Sacred Garden commissioned and said he was prepared to schedule another timely hearing if needed. 

โ€œI’m not comfortable saying that I’m going to override the department, and it’s going to go to retail,โ€ Biedscheid said. โ€œBut I’m just very concerned about the lack of urgency I’m getting, and I understand that we live in a world thatโ€™s short-staffed quite often.

Sacred Gardenโ€™s request for an injunction came after the Cannabis Control Division mandated a recall on several of the company’s cannabis flower strains. On March 24, the division issued Sacred Garden a cease and desist letter calling on the company to shut down one of its key facilities after the division reportedly found mold in some of the companyโ€™s products. According to a press release issued the next day from the Regulation and Licensing Department, the test for mold was spurred by a complaint filed with the Cannabis Control Division, by a medical cannabis patient. 

In its request for an injunction and through Fosterโ€™s arguments during Tuesdayโ€™s hearing, Sacred Garden maintains that the general mold and yeast test that the Cannabis Control Division conducted is no longer a required test under the divisionโ€™s own rules. The division does, however, require tests for Aspergillus, which is a type of mold that can be harmful for those with a weakened immune system. Sacred Gardenโ€™s request for an injunction cited guidance from the Cannabis Safety Institute which states that all plants, including cannabis, can be a โ€œhost to many mold species,โ€ but that some of those species are โ€œubiquitousโ€ and may not present serious health risks. 

Graham argued during Tuesdayโ€™s hearing that the control division, by law, is allowed to issue a cease and desist order if โ€œan imminent health hazard may exist.โ€ 

โ€œIf you review the cease and desist letter, it nowhere says that we have found Aspergillus mold,โ€ Graham said. โ€œIt does identify that there have been tests for mold throughout the facility.โ€

While the cease and desist letter does cite an โ€œunsanitary and unsafe working environmentโ€ and โ€œmold growing on equipment, walls and ceilings throughout the facilityโ€ as reasons the Sacred Garden facility was ordered to close, it also cites high levels of โ€œyeast and mold,โ€ without specifying the types. 

Sacred Garden, in itโ€™s injunction request, argued that the Cannabis Control Division โ€œhas still refused to provide [Sacred Garden] with any evidence showing that any of [Sacred Gardenโ€™s] products constitute a threat to public health or any evidence of a medical link between any of [Sacred Gardenโ€™s] products and a patientโ€™s illness.โ€

This is only the latest case between the state and Sacred Garden. Nearly a decade ago, the New Mexico Taxation and Revenue Department denied Sacred Garden’s request for a refund of the gross receipts taxes the company paid. Sacred Garden successfully appealed the case, with a state appellate court panel agreeing that a doctorโ€™s recommendation to use medical cannabis is essentially the same as a prescription. New Mexico tax law exempts medical prescriptions from gross receipts tax, which is often incorrectly referred to as a sales tax. The Taxation and Revenue Department filed a petition with the New Mexico Supreme Court, asking justices to take another look. The tax case sat for months with the high court until earlier this year when justices ruled that it should not have accepted the case. That tax case is technically still pending with the New Mexico Court of Appeals awaiting final action. Once finalized, the state is expected to collectively refund some cannabis companies tens of thousands of dollars. 

Author