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.

Some Southern NM cannabis producers face conundrum with testing facility locations

Cannabis companies around the state are preparing their storefronts and bolstering their crops for the start of recreational-use cannabis sales, which will start on Friday. And while a majority of storefronts are expected to be in the Albuquerque and Santa Fe metro areas, some businesses in the southern part of the state might get held up in an important process of preparing cannabis for sales: testing. 

State law requires that the New Mexico Regulation and Licensing Department develop testing standards for commercially sold cannabis. The department’s Cannabis Control Division developed rules and regulations that require all cannabis being sold go through a series of tests that look for things like fungus, pesticides and to verify the potency level. 

But for cannabis growers in Las Cruces, it’s nearly impossible to transport cannabis products to a testing facility without the risk of federal agents seizing those products and, in some cases, any cash that is found. There are currently only two state-approved cannabis testing labs in New Mexico. One is in Albuquerque and the other is in Santa Fe.

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.

NM signs intergovernmental cannabis agreements with two pueblos

Gov. Michelle Lujan Grisham announced on Friday “historic” intergovernmental agreements with two pueblos that will allow the sovereign nations to take part in the state’s newly established recreational-use cannabis industry. 

According to the governor’s office announcement, leaders of the Picuris and Pojoaque pueblos each signed an agreement with the state that will “support the pueblos taking part in the recreational cannabis industry, driving economic development and setting guidelines for the safe production and sale of cannabis while preventing federal enforcement on their tribal lands.”

While the use, possession and home-cultivation of adult-use cannabis became legal last year and sales are slated to begin next week, cannabis is still illegal on the federal level. But the Cannabis Regulation Act, which is the law that legalized recreational-use cannabis, includes a provision that allows the state and tribal governments to enter into agreements like the ones announced on Friday. According to the announcement, the agreements between the state and the two sovereign governments are different from those in other states like Nevada. 

“These agreements not only formalize pro-tribal policies, such as a state duty to consult and incorporate tribal concepts and policies related to cannabis, but also are the only [intergovernmental agreements] in the nation that provide for ongoing meetings and consultations between state and tribe,” the announcement read. 

The Picuris Pueblo had previously tried to set up its own medical cannabis program after New Mexico legalized medical cannabis use, but the federal government shut the program down. Since then, there have been a few unsuccessful attempts by state lawmakers to pass a law allowing tribal governments to start their own medical cannabis program. Picuris Governor Craig Quanchello, through the governor’s office announcement, praised the agreement for respecting the Pueblo’s sovereignty, while also allowing collaboration between the two governments.

NM Supreme Court tosses cannabis tax case

The New Mexico Supreme Court effectively ended a years-long legal battle over medical cannabis and taxes. 

In an order filed on Wednesday morning, the court wrote that a previous decision from the New Mexico Court of Appeals that medical cannabis was exempt from gross receipts taxes prior to June 2021 should be upheld. 

“Having considered the petition, response, and briefs of the parties, the judgment of the Court is that the writ shall be quashed as improvidently granted,” the court wrote. 

In other words, the high court should have never accepted the case. 

The lawyer for Sacred Garden, the medical cannabis company that sparked the legal battle, did not respond to a request for comment. 

Duke Rodriguez, whose cannabis company Ultra Health joined the case last year, told NM Political Report on Wednesday that he was “thrilled” with the high court’s decision. 

“I think it’s a recognition that the state never had the legal authority to collect gross receipts tax on the sale of [medical] cannabis,” Rodriguez said. “This finally rights that wrong.”

The issue of gross receipts tax, which is often incorrectly referred to as a sales tax, and cannabis goes back several years, and spans two gubernatorial administrations, when medical cannabis producer Sacred Garden requested a refund for the gross receipts taxes it paid to the state. Sacred Garden’s reasoning was that medical cannabis was essentially the equivalent to other prescription drugs, which are exempt from gross receipts tax. Through an administrative hearing, the state’s Taxation and Revenue Department, under then-Gov. Susana Martinez, denied the request. Sacred Garden took the issue to the New Mexico Court of Appeals, which ultimately ruled that a recommendation for medical cannabis by a qualified medical professional was the same as a prescription for other types of medication. 

In early 2020, the department, which was by then under current Gov. Michelle Lujan Grisham, challenged the court of appeals decision and filed a petition with the state supreme court.

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.

Acequia Association, state water office hope to see changes to cannabis clean-up bill in the final hours of legislative session

After nearly an hour-long debate Monday night about water rights and cannabis, the New Mexico Senate removed a water right verification provision from what has been presented as a cannabis law clean-up bill. Even with compromise language regarding legal water access added on the Senate floor, one water advocacy group and a state water official say the bill could prove problematic if passed in its current form. 

The bill didn’t originally aim to change any water requirements in the state’s Cannabis Regulation Act, which legalized cannabis last year. But, after debate in a Senate committee and a subsequent debate on the Senate floor, lawmakers eliminated a requirement that cannabis growers verify they have legal access to water as a condition of state licensure. 

The current version of SB 100, sponsored by Sen. Linda Lopez, D-Albuquerque, includes language that allows the state’s Regulation and Licensing Department and its Cannabis Control Division to revoke a license “if a licensee is using water to which the licensee does not have a legal right.” 

On Tuesday morning, the New Mexico Acequia Association issued a statement of frustration.  

“We are disappointed that water protections enacted in 2021 have been gutted,” association president Paula Garcia said. “Having water rights verified as part of the licensing process is essential to good water management.”

The Legislature added the requirement to prove legal access to water to the Cannabis Regulation Act during the 2021 special legislative session after a push from the Acequia Association. During debate on the bill, in both a committee hearing and on the Senate floor, Sen. Cliff Pirtle, R-Roswell, argued that proving water rights during the cannabis business application process would create an unnecessary barrier to entry and added that it is already illegal to use water without proper approval from the state for any type of agricultural use. 

John Romero, who oversees the state’s Water Resources Allocation Program, which is part of the state’s Office of the State Engineer, previously told NM Political Report that his office would have a hard time finding illegal water use among cannabis growers without a requirement that growers verify water access on the front end of the process.

Senate passes cannabis law changes, adds new water rights language

The New Mexico Senate approved a bill late Monday night that aims to clean up language of the state’s Cannabis Regulation Act, increase production limits for small cannabis companies and allow those smaller companies to wholesale cannabis to and from other cannabis businesses. 

The most significant changes SB 100 proposes are increasing plant limits for cannabis microbusinesses from 200 to 1,000, allowing those types of businesses to buy, sell and transport cannabis from other companies and allow medical cannabis companies that were previously required to be registered as nonprofits to become for-profit companies. 

After an amendment in a committee hearing the day before, nearly all of the debate on the Senate floor was devoted to water issues, even though the original bill did not address any changes related to water.    

Earlier this week, a Senate committee approved an amendment that stripped a water right verification section from the Cannabis Regulation Act. 

During a Senate Judiciary Committee, Sen. Cliff Pirtle, R-Roswell, proposed removing the section, calling it “unnecessary red tape.”

“There’s one instance of a constituent of mine that was trying to get licensed and they tried to transfer ownership into a separate business so that it didn’t put his farm into liability,” Pirtle said on Sunday. “And it became problematic to prove who has the legal right, who’s supposed to have it, who’s leasing from whom.”

Sen. Katy Duhigg, D-Albuquerque, who works as a cannabis attorney, agreed with Pirtle. 

“We have hamstrung this industry with the approach that we took to water in the bill last year,” Duhigg said on Sunday. “I think we got it wrong, frankly, last year, with what we did with water.” 

Sen. Linda Lopez, D-Albuquerque, unsuccessfully tried to further amend the bill to include what she said was a compromise in verifying legal water access. Her amendment, she argued, would only require that a cannabis company “demonstrate” that it has legal access to water. But after about an hour of debate, her amendment failed on a 19-20 vote, with a number of Democrats voting against it. 

Most of the pushback on the amendment came from Pirtle who reiterated his comments from the previous day, arguing that it’s already illegal to use water for any agricultural use without legal access to it. 

“You have a water right or you don’t have a water right,” Pirtle said.