After almost five full months of recreational-use cannabis sales in New Mexico, experts say the initial revenue projections were slightly higher than what is now expected. 

During a Legislative Finance Committee meeting on Wednesday regarding revenue projections, New Mexico Taxation and Revenue Secretary Stephanie Schardin Clarke told lawmakers that the state’s general fund is expected to see about $22.7 million in revenue by the end of the current fiscal year from the state’s cannabis excise tax with an expected 10.6 percent increase each year after that. According to the committee’s chief economist though, the current projection for Fiscal Year 23 is about $5 million less than what was projected last December. The committee’s own analysis of cannabis tax revenue also projected that cannabis business licensing fees will generate about $5 million in FY 23, which began on July 1. 

There was almost no mention of cannabis revenue from committee members, but the head of one prominent cannabis producer said the new projections are a sign of overly limited cannabis production and a too-high cannabis excise tax rate. 

Duke Rodriguez, the president and CEO of the cannabis company Ultra Health, said the current limit of 20,000 plants per cannabis cultivator is still not enough to support the demand in the state, which he said contributes to higher cannabis prices that are not competitive with the illicit market. 

“Prices need to fall, quantity needs to increase and quality has to be maintained at the same time,” Rodriguez said. “But we need a per gram price of around five, pre-tax, and we’re already above 10. So, until we get a more competitive product in the marketplace, we’re not going to see that demand appear. State regulators do not track the average price of cannabis in New Mexico, but the price of cannabis generally ranges from about $8 to $14 per gram. 

The current cannabis excise tax rate is 12 percent, which is also scheduled to increase over the next several years until it reaches about 20 percent. But the cannabis excise tax is in addition to the seven to eight percent gross receipts tax. National tax experts generally agree that a 20 percent tax on cannabis is enough to generate adequate revenue but low enough to compete with the illicit market. 

Rodriguez has long been a critic of implementing plant limits for producers and an advocate of letting the market determine the right amount of cannabis in production. He said if the state were to get rid of plant limits like other states that have legalized recreational-use cannabis, he and other operators would only have themselves to blame for unsold products.  

“Instead, the state has taken the approach, for too many years, of treating us like children and continuing to regulate the market like they know best,” Rodriguez said. “And this is the result you get.”

Rodriguez’s company successfully sued the state’s Department of Health, which oversees the state’s Medical Cannabis Program, to raise cannabis production limits. 

Rodriguez also said he thinks an increase of large producers like his company will increase the amount of cannabis in the market, leading to lower prices and increased sales.   

But one of the lead sponsors of the bill that eventually became the Cannabis Regulation Act, which legalized recreational-use cannabis, said he’s “not worried at all” about the new projections.  

state House Majority Leader Javier Martínez, D-Albuquerque, said the projection from last December was based on assumptions and that now the state has some direct data to work from. 

“We had no idea back in December, nothing to base it on,” Martínez said. “I feel really good about where we’re at, and I think we’re only going to see those numbers grow, as the industry itself continues to grow.”

Much of the committee meeting on Wednesday was focused on increased state revenue and where to spend the money, but with cannabis tax revenue paling in comparison to larger revenue sources like oil and gas or income taxes, not much was said about where to spend the extra money from cannabis. But Martínez said he and his colleagues are already working to come up with a budget that can fund things like drug treatment programs and small loan programs for start-up cannabis companies. But, he said, with an expected increase of revenue in general, it shouldn’t matter which source funds those programs.   

“This is really about growing state government in a way that helps amplify and serves the needs of New Mexicans from early education, to treatment, to housing, to infrastructure and everything,” Martínez said. “And whether the dollar derives itself from cannabis sales, or oil and gas, or royalties on grazing lands, or personal income tax, truly, it’s irrelevant. We should be making the investments regardless.”

Licensed cannabis companies in New Mexico are slated to file their cannabis excise taxes by late next week for the month of July. But so far, the cannabis excise tax has accounted for more than $7 million in revenue, according to numbers provided by the Taxation and Revenue Department. In April, the first month of sales, the state reported about $2.4 million in excise taxes. In May, that number raised slightly to $2.5 million and in June the state collected a little more than $2.5 million in cannabis taxes. The numbers do not include the roughly one-third of cannabis tax revenue that goes to local counties and municipalities.