Some NM cannabis producers may face higher than expected tax bill

New Mexico recreational-use cannabis companies, for the first time, are required to file their gross receipts and cannabis excise taxes in one week. It’s unclear exactly how much the state is set to collect, but cannabis regulators reported more than $20 million in recreational-use sales for the month of April. 

Since an announcement from the New Mexico Taxation and Revenue Department earlier this month, though, it seems that most if not all recreational-use cannabis companies may have under-collected taxes from customers compared to what those companies will owe. For some companies that could mean cutting costs on things like packaging and raising prices. For at least one company, it will mean a formal appeal with the state. 

On May 5, the state’s Taxation and Revenue Department issued a press release with specifications on how the newly established cannabis excise tax will be calculated with state gross receipts taxes. The guidance from the department was to apply the 12 percent cannabis excise tax to total sales before figuring in the roughly 7 to 8 percent gross receipts tax.

Growing Forward: It’s not easy being green

The nascent New Mexico cannabis industry is generally expected to contribute tens of millions of dollars to state revenue this year, but some new cannabis businesses are learning firsthand how hard it can be to raise enough capital to operate. 

This week’s episode of Growing Forward, the collaborative cannabis podcast between NM Political Report and New Mexico PBS, examines the financial difficulties cannabis businesses face and a state program that aims to help alleviate those difficulties. 

Mathew Muñoz, the chief innovation and finance officer for cannabis microbusiness Carver Family Farm, said he and his two business partners were able to raise about $350,000 from private investors but that all three partners also contributed a large portion of their personal savings. That’s because, Muñoz said, “there’s absolutely no traditional funding in this environment.” 

“You can’t go to a bank,” Muñoz said. “Even though we have a cannabis bank, they don’t do any type of lending to cannabis businesses.”

And it’s not just businesses that sell cannabis that have felt the impacts of a lack of traditional funding. Barry Dungan, the cofounder of cannabis testing lab Rio Grande Analytics, told Growing Forward that he was unable to secure a mortgage on his home despite the fact that his business does not sell cannabis products and the process of testing cannabis renders it essentially useless. Dungan said he, like many others, had to turn to a less traditional way of financing his home, which came with “a much higher rate” than traditional lenders generally charge. 

“Because of the federal designation, banks don’t want to mess with it,” Dungan said. 

Over the past several years, a common refrain from politicians and representatives of the cannabis industry is that because cannabis is federally illegal, many traditional banks will not open accounts for cannabis businesses and none of them will issue loans to cannabis businesses. 

But Lonnie Talbert, a former Bernalillo County Commissioner and current division director of specialty banking with First Federal Bank in Jacksonville, said the reason banks generally won’t associate with cannabis businesses is not quite as straightforward as the legal status of cannabis. 

“The amount of misinformation and disinformation that is out there regarding the ability to bank cannabis customers and cannabis businesses is more than the correct information that’s out there,” Talbert said.

NM expected to pay an estimated $15 million in tax refunds to medical cannabis companies

New Mexico cannabis businesses are expected to pay cannabis excise and gross receipts taxes by the end of this month. But the state’s Taxation and Revenue Department is also expected to issue about $15 million dollars worth of gross receipts refunds to medical cannabis companies that paid those taxes prior to the enactment of the Cannabis Regulation Act, which legalized recreational-use cannabis. State Taxation and Revenue Secretary Stephanie Schardin Clarke told NM Political Report that while the estimated refund amount may sound like a lot of money, it is a fraction of the estimated $31.5 million the state is expected to collect from non-medical cannabis sales. Further, she said, the estimated $15 million in gross receipts refunds is an even smaller fraction of what the state sets aside for reserves.  

In the grand scheme of things, we have something like an $8 billion general fund budget, give or take,” Schardin Clarke said. “So there are other things that happen all the time that are just ups and downs in that revenue base.”

The tax refunds are the culmination of a years-long legal dispute between the Taxation and Revenue Department and Sacred Garden, a long-time medical cannabis producer.

Growing Forward: Cannabis testing takes center stage

The third episode of Growing Forward’s fourth season is out just in time for April 20, or 4/20, the unofficial holiday for many cannabis users. 

Growing Forward is a collaborative podcast between New Mexico PBS and NM Political Report, all about cannabis in New Mexico. This week, the podcast examines, for a second time, cannabis testing. 

Growing Forward spoke with Barry Dungan, the CEO of cannabis testing lab Rio Grande Analytics last season. But with adult-use sales that started this month, Dungan is preparing for an increase in business and a second location in Las Cruces. 

In addition to a new location and increased business, Dungan will likely soon see a new competitor. TriCore recently confirmed that a new and separate subsidiary had plans on opening a cannabis testing facility in Albuquerque. 

“They’re going to be competition, don’t get me wrong,” Dungan said of the new testing company. “I’m definitely a little worried about that.

NM judge orders cannabis regulators, producer to agree on testing ‘regimen’

A New Mexico cannabis producer asked to halt a majority of its operations by the Cannabis Control Division after reports of mold is still barred from selling its cannabis flower, for at least another week. In a hearing on Wednesday, Santa Fe state district judge Bryan Biedscheid ordered cannabis regulators and cannabis producer Sacred Garden to try and come up with an agreeable way to move forward in the ongoing case by the end of the day on Thursday. 

Biedscheid said he was not going to rule on a motion filed by Sacred Garden asking for an injunction to allow the company to continue selling dried cannabis flower. But Biedscheid did call on the state’s Regulation and Licensing Department and its Cannabis Control Division to actively work with Sacred Garden to come up with an acceptable testing “regimen” that can be completed by next week. 

“The department cannot continue to sit back. And this is the perception of this court, that it is sitting back and waiting for it to be presented, in some fashion, with results it finds satisfactory,” Biedscheid said. “It must take action to see that its concerns are addressed in a way that does not cause unnecessary delay, and other irrevocable harm to the plaintiff.”

The ongoing legal dispute stems from a cease and desist letter the Regulation and Licensing Department sent Sacred Garden just days before legal adult-use sales were to begin in New Mexico.

Judge orders state to allow cannabis producer to sell some products after reports of mold

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 state’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 “the appropriate court order” he could issue at the time was to allow Sacred Garden to sell manufactured products that are “thought to be safe by virtue of the process involved.”

Biedscheid also took issue with the reason that regulators had not been back to Sacred Garden’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 Garden’s facility until early next week. 

“One 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,” Graham told Biedscheid. “He’s out of town on vacation, which, you know, employees get to take some time off every once in a while.”

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

“They’re about to be out of product to sell, I would say by tomorrow at the latest,” 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.   

“We’ve got two issues here,” Biedscheid said. “One is speed to mitigate any harm to this company, in terms of a determination and an open-ended ‘Well, maybe things will work out when people come back from vacation,’ in the current environment isn’t cutting it.”

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. 

“I’m not comfortable saying that I’m going to override the department, and it’s going to go to retail,” Biedscheid said.

First day of NM legal cannabis sales surpasses $2 million

Friday marked the first day of legal, recreational-use cannabis sales in New Mexico, nearly a year after Gov. Michelle Lujan Grisham signed the Cannabis Regulation Act. 

Lujan Grisham spoke with reporters in Albuquerque at Everest Apothecary, a cannabis dispensary. She said she was “excited” to see New Mexico finally take part in a legal adult-use cannabis industry.  

“Today is like the fruition of a ton of work by a lot of incredible people making sure that New Mexicans have access to recreational adult-use cannabis in exactly the way they want and it’s a huge economic opportunity for the state and I’m feeling terrific,” Lujan Grisham said. Lujan Grisham told reporters on Friday that she estimates the state could see about $50 million in cannabis tax revenue in a year.  

Victor Reyes, the deputy superintendent of the New Mexico Regulation and Licensing Department, which oversees the Cannabis Control Division, praised the department’s staff for preparing for recreational-use sales in about 10 months.  

“We stood up a brand new industry for our state in less than a year,” Reyes told NM Political Report. “That is something that other states couldn’t even think about doing, and we did it because we knew that it was important from our values perspective, to make sure that recreational cannabis was legalized and done so quickly.”

According to The Cannabis Control Division, total sales on Friday surpassed the $2 million mark as of 5 p.m. 

While the Cannabis Regulation Act limits some restrictions from municipalities and counties, local governments can and have passed ordinances specifying allowable operating hours for cannabis retail businesses. In Santa Fe, for example, dispensaries were allowed to open as early as 7 a.m. and cannabis retailers could open their doors at 10 a.m., but one southern New Mexico city saw legal cannabis sales start just after midnight.

What to expect on the upcoming first day of cannabis sales in New Mexico

With legal recreational-use cannabis sales scheduled to start this Friday, questions still remain as to whether the state will see a shortage of medical cannabis, and whether those possible shortages will emerge within days, weeks or months after sales begin. 

While state regulators have somewhat downplayed the possibility of cannabis shortages while also implementing emergency rules to temporarily increase production, many in the medical cannabis industry say they are sure there will be shortages. But opinions vary when it comes to how severe those shortages will be. 

Duke Rodriguez, the president and CEO of Ultra Health, one of the most prolific and arguably the most publicly visible cannabis producers in the state, has long warned that production limits would lead to a cannabis shortage when adult-use sales start on Friday. For years the Medical Cannabis Program, overseen by the New Mexico Department of Health, limited producers to 450 plants. Eventually, that number was changed to 1,750 and now many producers are allowed to have up to 20,000 mature plants. But Rodriguez said the damage of long-time production restrictions has already been done but that his company is in a better position than many others. 

“I don’t have time for ‘I told you so,’” Rodriguez said of likely being proven right.

NM cannabis regulators recall products tainted with mold

The New Mexico Cannabis Control Division announced on Friday a recall of cannabis products sold by a local medical cannabis company. 

According to the announcement, products from Sacred Garden, a company that has retail locations in Albuquerque, Las Cruces, Ruidoso and Santa Fe, were found to have higher than acceptable levels of mold. 

The products had passed pre-sale tests, but after a medical cannabis patient reported that they received tainted cannabis flower, the control division found contaminated products during a site inspection. The division will also reportedly require all other products from Sacred Garden to be retested before it can be sold. 

The recalled products include “cannabis bud, pre-rolls and food products” from the company’s Snow Cone and Protégé ’78 strains. 

The Cannabis Control Division is asking anyone who purchased those strains from Sacred Garden in the past 30 days to check for lot numbers listed here. The division is advising patients to either return their products or dispose of them if a patient finds that they purchased products with the recalled lot numbers. 

According to the division, the reportedly tainted cannabis was tested at 35,000 Colony Forming Units. Division rules allow no more than 1,000 Colony Forming Units. 

Inhaling cannabis contaminated with mold could cause throat or lung irritation and might lead to more serious issues for some people. Sacred Garden is also the cannabis company that initiated a legal battle that ended at the New Mexico Supreme Court over taxes on medical cannabis.

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.