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.
With a little more than two months before recreational-use cannabis sales are expected to start, the New Mexico Cannabis Control Division issued an emergency rule change that doubles plant limits for cultivators.
The emergency rule change, which went into effect last Thursday, increases the maximum amount of mature cannabis plants for producers from 10,000 to 20,000.
In documents filed with the state’s Commission of Public Records, division director Kristen Thomson justified the emergency rule change.
“The Division has considered demand estimates provided by applicants and licensees in the cannabis industry,” Thomson wrote. “Projected market demand shows that the demand for regulated cannabis will increase year-to-year as more cannabis consumers move from the illicit market to the regulated market. The supply of medical cannabis will become increasingly threatened without an adequate supply of plants.”
Cannabis production limits have been an issue in New Mexico since nearly the inception of the state’s Medical Cannabis Program. One of the state’s more prominent cannabis producers, Ultra Health, has battled with the state in court for years over plant limits. In 2015 the New Mexico Department of Health, which oversees the Medical Cannabis Program, increased production limits from 150 to 450 mature plants, per producer.
A New Mexico state judge ruled on Thursday that medical cannabis patients cannot purchase the same amount as non-patients when recreational-use sales begin.
Second Judicial District Court Judge Benjamin Chavez, in his written ruling, dismissed a claim from a medical cannabis patient that medical cannabis patients should be afforded the same purchase limits as what is laid out in the state’s Cannabis Regulation Act, which went into effect in June.
“Petitioner has failed to establish that he, as well as qualified patients, qualified caregivers, and reciprocal patients, have a clear legal right to purchase an additional two-ounces of medical cannabis, tax free, at this time, under the Cannabis Regulation Act,” Chavez wrote.
Prior to the Cannabis Regulation Act, the only way to legally possess cannabis in New Mexico was to be a medical cannabis patient.
The state’s Medical Cannabis Program has long allowed patients to purchase up to 230 units in a rolling 90-day period. A “unit,” a term created by the program, is one gram of cannabis flower or a quarter of a gram of concentrate or extract. That means a medical cannabis patient could buy up to eight ounces of cannabis flower every three months.
The Cannabis Regulation Act, however, allows adults who are at least 21 years old to purchase up to two ounces of cannabis flower in each purchase, with no limit on the number of purchases. The new law also limits personal possession to two ounces, but there is no limit on the amount of cannabis stored at a person’s home. Essentially, once recreational-use sales begin next year, a person could hypothetically make five trips to a cannabis retail business, purchasing the maximum amount each time and have purchased two more ounces than a patient is allowed in a 90-day period.
Chavez, in his decision, cited a portion of the Cannabis Regulation Act which states that a person 21 years of age or older can buy “not more cannabis than authorized by the Cannabis Regulation Act or the Medical Cannabis Program.” Chavez also cited a portion of the law that states medical cannabis patient rules and regulations will remain under the purview of the Medical Cannabis Program until the newly formed Cannabis Control Division creates its own rules and regulations for medical cannabis patients.
Last month, the Medical Cannabis Program held a public hearing and presented proposed rule changes that would increase medical cannabis purchase limits to 425 units or 15 ounces of cannabis flower.
Recreational-use cannabis dispensaries in New Mexico are slated to open their doors in about five months, if not sooner. Medical cannabis dispensaries, many of which have been in operation for years, may end up feeling the brunt of an expected run on cannabis products next year, but legacy cannabis cultivators could have an advantage over those who are still in the queue, waiting for their applications to be approved.
While the applicants currently waiting for approval cannot start growing or manufacturing cannabis, medical cannabis cultivation companies that have been licensed for years can start ramping up production in anticipation for next year.
Some of those businesses that are awaiting approval have also, over the years, been waiting for a chance to break into the medical cannabis industry, but were repeatedly told the state was not accepting applications for medical cannabis production, a term New Mexico regulators use for cultivation. The more than two dozen producers who have historically produced medical cannabis are often colloquially referred to as “legacy producers.” But for one producer, the term “legacy” is somewhat of a misnomer. Generation Health, along with 33 other medical cannabis producers, got a fast track through the recreational-use licensing process. The idea was that since the legacy producers were due for license renewals over the summer, they would be re-licensed through the Regulation and Licensing Department, which largely took over cannabis regulatory duties from the state’s Department of Health after the Cannabis Regulation Act went into effect on June 29, 2021.
But Generation Health had only been licensed as a medical cannabis producer for about 24 hours before that jurisdictional switch happened.
Four state employees who initially filed a lawsuit against the New Mexico Regulation and Licensing Department over where they were assigned to work have asked the judge in the case to allow more claims to be added. The four plaintiffs filed a motion last week to amend their suit to include allegations that RLD and its Cannabis Control Division violated the state’s Whistleblower Protection Act. Matilde Colomo, Matthew Peralta, Martinik Gonzales and Jude Vigil claim, in their proposed amended complaint, that their bosses violated state law by ignoring concerns raised by employees regarding an illegal cannabis grow, moldy cannabis and an edible cannabis product that allegedly caused a consumer to have an “adverse reaction.”
The judge in the case still must approve the filing of the amended complaint for it to move forward and according to the new filing, RLD opposes the motion.
The four employees previously worked for the state Department of Health’s Medical Cannabis Program until Gov. Michelle Lujan Grisham signed the Cannabis Regulation Act, which essentially led to the four plaintiffs moving to RLD. The four employees alleged in the initial complaint that they were forced to report to Santa Fe three times a week, whereas they worked in Albuquerque under DOH. Now they are asking the court to consider additional allegations against the state.
According to the four plaintiffs, about two weeks after they were told they would have to report to a new office, RLD received a “consumer complaint” about mold in a cannabis product.
As the New Mexico Regulation and Licensing Department prepares to issue licenses to cannabis businesses, court records show they are also facing a lawsuit by some of the employees tasked with daily operations.
In July, about a month after the state’s Cannabis Regulation Act went into effect, four RLD employees filed a civil complaint against the department, alleging that the employees were forced to start working in Santa Fe instead of Albuquerque, where the lawsuit says they have worked for years.
The four employees were among a larger group of staff that were moved from the Department of Health’s Medical Cannabis Program to the RLD’s Cannabis Control Division as part of the new law that legalized adult-use cannabis.
According to state records, Matilde Colomo and Jude Vigil are both listed as compliance officers, Matthew Peralta is listed as an environmental science specialist and Martinik Gonzales is listed as an administrative operations manager.
According to the complaint, the four employees are “being forced to transfer their daily work operation from Albuquerque to Santa Fe and are being forced to do so against their will.”
“All Plaintiffs have experienced mental distress and anguish over being forced to commute to Santa Fe against their wishes and against their job terms,” the complaint reads.
A spokesperson for RLD said the Cannabis Control Division does not comment on pending litigation, but reiterated that both the department and the division are working towards setting up a cannabis industry.
“The CCD’s mission is to stand up and support a thriving medical cannabis program and adult-use cannabis industry in New Mexico,” RLD spokesperson Heather Brewer said. “The CCD staff is working hard to provide quality customer service and timely technical assistance to maximize the economic opportunities the cannabis industry will create for businesses, communities and our state.”
All four employees, according to the complaint, had already been working in Albuquerque under DOH, but were informed in June that the Albuquerque workspace was “inadequate to house the new Cannabis Control Division,” and that it was “determined” that the new division staff would need to be in one location.
The suit claims that in moving staff from Albuquerque, RLD violated a State Personnel Office rule regarding intra-agency transfers.
The rule in question states that employees are allowed to be transferred “without the employee’s consent to a position in the same classification within the same geographic location, which is 35 miles from the boundaries of the community in which the employee is employed or if the established requirements state that willingness to accept a change of geographic location is a condition of employment.”
Santa Fe is about 60 miles north of Albuquerque.
According to the complaint, the four employees objected to the move and requested to work remotely from their respective homes, but were still “forced to report to the Santa Fe Office.”
The complaint asks a state district court judge to issue an injunction or temporary restraining order to halt the move until the issue can be resolved in court. RLD has until late next week to formally respond to the complaint.
As New Mexico’s Regulation and Licensing Department works toward finalizing rules for non-medical cannabis sales, some unfinished business remains when it comes to the state’s medical cannabis program.
A state district judge last week ordered RLD, the New Mexico Department of Health and the governor’s office to either change their policy for medical cannabis patient purchase amounts or present a compelling argument for not doing so.
“Respondents’ purchase limitations violate equal protection principles because they will subject New Mexicans with debilitating medical conditions who are dependent on medical cannabis to lower purchase limitations than persons who purchase cannabis from the recreational (and taxed) market,” read the writ of mandamus signed by Second Judicial District Judge Benjamin Chavez. “Respondents’ unlawful rules also attempt to impose an illegal tax on any medical cannabis purchases in violation of the Cannabis Regulation Act.”
The Cannabis Regulation Act, which went into effect on June 29 and is the framework for sales expected to start next spring, allows purchasers to buy up to two ounces of cannabis at a time. But the state’s Department of Health, which is RLD’s medical cannabis counterpart, has maintained that a DOH policy limiting medical cannabis purchases to roughly eight ounces in a 90-day period takes precedence over the new law.
For years, New Mexico cannabis patients have been limited to 230 “units” in a rolling 90-day period. DOH rules define a unit as one gram of dried cannabis “flower” or 200 milligrams of cannabis extract or concentrate. Under the new law, however, non-medical cannabis purchases are limited to two ounces for each transaction.
The issue of whether taxes on medical cannabis sales in New Mexico should have been deductible prior to this year is one step closer to being heard by the state’s supreme court.
The state Attorney General’s office filed a brief on Monday with the New Mexico Supreme Court on behalf of the New Mexico Taxation and Revenue Department that argued state lawmakers did not intend to allow gross receipts tax deductions on medical cannabis sales until this year.
The issue stems from a request by medical cannabis producer Sacred Garden to deduct gross receipts taxes from its sales. The department denied the claim on the basis that medical cannabis is not prescribed like other medication. In New Mexico gross receipts taxes are deductible from prescription drugs and medical cannabis is not prescribed by a doctor, but instead recommended. A New Mexico Court of Appeals panel ruled in favor of Sacred Garden last January, writing that in terms of medical cannabis, the difference between a recommendation and prescription is negligible. TRD took the case to the state supreme court where it has been pending since last year.
Two New Mexico state agencies confirmed on Wednesday in a letter that medical cannabis purchase limits will not increase, as it was previously suggested last month by a group of medical cannabis producers.
Related: NM medical cannabis patients should not expect increased purchase limits any time soon
In an official response to the group of five medical cannabis producers, New Mexico Department of Health Secretary Tracie Collins and state Regulation and Licensing Department Superintendent Linda Trujillo wrote that until commercial cannabis sales begin next year medical cannabis patients’ purchases will be limited to roughly eight ounces of cannabis in a rolling 90-day period. The Medical Cannabis Program, which is currently overseen by DOH, limits purchases to 230 units in 90-days. The program defines a unit as one gram of dried, smokable cannabis or 0.2 grams of cannabis concentrates or derivatives.
Even after commercial cannabis sales start, Collins and Trujillo wrote, medical cannabis purchases will be constrained, but patients could still opt to buy more cannabis through commercial sales.
“Until such time as commercial cannabis activity is permitted by the Cannabis Control Division, qualified patients will remain limited to medical purchases made pursuant to the [Lynn and Erin Compassionate Use Act], i.e., purchases in quantities that are within the 90-day adequate supply purchase limit, as specified in Section 6(K) of the [Cannabis Regulation Act],” the two wrote.
The section of the Cannabis Regulation Act the two department heads referred to states that medical cannabis producers “shall continue to operate under rules promulgated” by DOH until RLD issues new rules. But Collins and Trujillo also said they soon plan to announce proposed rule changes for producers that could include production limits for both medical and recreational-use cannabis.
“That rulemaking will include revisions to existing producer plant limits, although the content of the proposed rules has not yet been determined.
Interpretation of the law
Collins and Trujillo wrote the letter in response to a letter from medical cannabis producers Ultra Health, G&G Genetics, Budding Hope, Kure and Sacred Garden, which was sent on April 14.
The group of producers argued that on June 29, when the Cannabis Regulation Act goes into effect, medical cannabis patients should be allowed to purchase two ounces of dried cannabis, 16 grams of extract and 0.8 grams of edible cannabis at a time, as the new law states.
With no limit on the number of purchases in a day, a patient could purchase double the amount that is allowed under the current law in a matter of eight trips to a dispensary. So, the producers reasoned, the state should consider an increase in production limits as soon as possible.
New Mexico medical cannabis producers that intend to continue doing business after commercial cannabis sales begin next year will not be required to renew their license this summer, according to state officials.
The state’s Department of Health and the Regulation and Licensing Department said in a letter that current medical cannabis producers can forgo the relicensing process that normally takes place during the summer months and wait to submit a request for licensure through Regulation and Licensing.
The grace period for current producers is part of a transition of cannabis sales oversight. Since the inception of the state’s Medical Cannabis Program almost 15 years ago, the program has been run by DOH. But after June 29 nearly all aspects of cannabis sales, both recreational and medical use, will be overseen by RLD, with the exceptions of medical cannabis patient registry and medical cannabis patient purchase limits.
Medical Cannabis Program Director Dominick Zurlo said in a statement that the grace period is aimed at saving current producers time and energy.
“It makes the most sense to spare the Medical Cannabis Program’s licensed non-profit producers to not have to renew their non-profit renewal paperwork when in the weeks and months ahead, they have to prepare and submit their required administrative paperwork to be licensed to sell cannabis to the general public,” Zurlo said.
The newly established Cannabis Control Division, under RLD, is required by statute to set up an advisory board that will have a role in promulgating rules and regulations for cannabis sales no later than Sept. 1 of this year. The Cannabis Control Division must also promulgate those rules and regulations by Sept.