New Mexico’s cannabis market has seen explosive growth since the beginning of recreational sales, but the state’s open approach to licensing, cultivation limits and out-of-state businesses is raising concerns that New Mexico may become the new Oklahoma, which has been plagued with oversupply issues and unlawful business practices in its medical market.
New Mexico Cannabis Chamber of Commerce executive director Ben Lewinger says the state is already seeing retail saturation around the major population centers and there are still many licensees planning to open more retail locations throughout the state.
However, Lewinger says state officials were savvy enough to learn “what not to do” from the 16 other recreational markets that opened prior to New Mexico’s launch. Those lessons paired with smart legislative changes could propel the state industry to become a model for future markets.
Lewinger sat down to talk about the current state of New Mexico’s cannabis industry, what needs to change and the unique advantages it provides to operators.
Marijuana Venture: How have regulations kept up with the rapid expansion of New Mexico’s cannabis market? Is New Mexico going to become the next Oklahoma?
Ben Lewinger: I think the biggest thing is that the ability for the Cannabis Control Division to regulate production — through plant-count limits on licenses — sunsets in 2025.
New Mexico has more than 2,000 licenses across all the different license types. I think we are very close, if not already in a state of overproduction. And that is coupled with illicit product still coming in from Oklahoma and California and being sold, or being illegally introduced into our state traceability software and being sold as if it were grown in New Mexico. We desperately need our regulators to be able to manage production, because the hallmark of the way New Mexico legalized was that there were no limits on the number of licenses. There were relatively small barriers to entry in terms of application costs and the hardest thing was getting a well approved.
The plan was to have lots of different licenses and then tightly regulate plant count. We were pushing for 5,000 plants at the maximum limit. At the rulemaking, the bill had a 10,000-plant limit at the top tier and then, through emergency rule, they doubled it to 20,000 because there was so much fear that we would have supply shortages on the first day of sales. It turns out those production limits are way too high. If we don’t do something, the state’s ability to have any production limits whatsoever sunsets in 2025.
MV: What other issues need to be addressed?
Lewinger: There are a lot of fix-it things with the way our medical operators were set up. They were state-chartered nonprofits. There’s no way in state law to transfer assets from a nonprofit to a for-profit corporation. We need a one-time temporary allowance. For these companies that, according to the federal government, were not nonprofits, but were treated in the state as a nonprofit, we need a one-time ability for them to transfer their assets to a for-profit company.
Another thing is that we’re not doing federal background checks on applicants. We’re doing state background checks, but we’re not doing federal background checks. That goes back to something getting messed up with our communications with the FBI. We need to be able to do federal background checks.
Also, we have these micro licenses, a really small tier of licenses designed to help people get started. The way the legislation was written inadvertently disallows the businesses to have wholesale transactions with each other, which was never the intention. We have to fix that because they need the ability to do business.
We also eventually need to deal with delta-8, but I don’t think that’s going to happen this session.
MV: What caused these issues?
Lewinger: Overall, we just had a very aggressive timeline. It was less than 12 months from when the governor signed the bill to create this new division, to get all these other state agencies talking to each other, and then to create the regulatory framework and have our first adult-use sale. That was in less than 12 months.
A lot of the supports that should have been in place to help the small- and medium-sized New Mexico businesses to thrive never came together. There was a loan program through our Department of Finance Authority. I think $5 million was appropriated specifically to make loans to micro businesses, and only about $200,000 was utilized because it was poorly planned and it was launched too quickly.
MV: How healthy is the state’s black market? Was adult-use legalization an effective deterrent?
Lewinger: I think it was an effective deterrent for the black market in the traditional sense. I don’t think that people growing cannabis here and selling it through the legacy market is any risk to the regulated industry because we have a decent tax rate and all the testing for products that you buy in a dispensary. I think that’s doing a great job of deterring and shifting people over from the traditional legacy market to the regulated market.
I think the gray market is a huge problem. I am talking about cannabis that is legally grown in Oklahoma, that just comes into New Mexico in a U-Haul truck. There are a couple of different loopholes where flower and trim can be introduced into our state traceability software.
There have been a couple operators that have been shut down or dinged for selling stuff that is very obviously from California, such as manufactured products that still have California labels. The two that were shut down, I don’t think even showed up to their hearings, which makes me think that because we had such low barriers to entry to get a license, there were people who never really had the intention of properly participating in the legal market. They just stood up retail and started selling California stuff, until they got caught. And then when they got caught, it wasn’t a felony — they just had to shut down their business. That’s one of the negative side effects of having a wide-open free market system.
MV: The sudden market growth must have been chaotic for your organization as well. How was the chamber’s transition into recreational?
Lewinger: Yeah, we have grown. We now have more than 200 members. We have grown our capacity. We have a couple of team members who help to create programming and events and push policy that’s good for the industry. We’re working for an industry that doesn’t necessarily understand the value of an association. But I would say that we do a really good job for our members and for non-members who are in the industry too.
MV: We covered some of the state’s problems, but what are the market’s strengths? Were there lessons learned from other recreational states?
Lewinger: I want to say that what we learned from other states was what not to do. What we learned the most from was our medical program. In California and Colorado, they allowed local ordinances to completely opt out of the industry. That was not allowed in our legislation. No county or city could completely opt out of cannabis activities. They do have a lot of control through local zoning and local ordinances to control how the industry interacts with those communities. Some of the communities across the state that were really forward thinking and could quickly get over the stigma are the ones that adopted local ordinances and local regs that really helped the industry.
An example is in Doña Ana County and the city of Las Cruces, which is in the southern part of the state. We have a couple of 24-hour cannabis businesses. That was the first place we had a consumption lounge. They actually created differential zoning, where those micro licenses could open up cultivation and retail facilities in zones that the larger commercial operators couldn’t be in. So they really took a forward thinking approach. They were thinking about what this industry is going to be like in five or 10 years down the road.
Colorado has counties that are just now seeing their first cannabis businesses open. I think that was probably the best example of what our state did really well: We learned from other states, even though the other states didn’t do it.
MV: Consumption lounges were allowed at the same time as recreational sales began. Do you have any insight as to how that model is performing?
Lewinger: I think we have close to 20 consumption lounges now. They’re all over the place. There’s one in Silver City that’s fine dining, so you can get your porterhouse steak or whatever infused. There’s a really nice one in Albuquerque called Enchanted Botanicals, which has an upscale club vibe. There’s another one in Albuquerque that does yoga classes, painting classes and has all this cool stuff that you can do inside the consumption lounge.
The consumption lounge is the one license that cities or counties can just flat-out say, “Nope, we don’t want it here.”
MV: Was it nice to see that the regulators had the presence of mind to allow consumption lounges to operate more freely than those in other states?
Lewinger: Yeah. Another thing that our state did really well is you can do anything alongside cannabis. We have some dispensaries that are also gas stations. The only thing that you can’t do alongside cannabis is alcohol. But every other kind of crazy business is allowed. There’s a plant store, just a traditional plant and flower store that sells cannabis.
MV: New Mexico recently hit a sales high of more than $46 million this August. How much of that do you believe is due to the novelty of cannabis and from out-of-state visitors? Is it sustainable?
Lewinger: I think that Texas and Mexico will continue to contribute to that. There’s this wonderful manufacturer called Headspace in Las Cruces and almost all of their stuff is very clearly marketed toward the Spanish-speaking audience. The way I understand it is if you’re in Mexico, it’s a brag-worthy thing to show off your United States cannabis to friends and partygoers. I think that’s going to continue to be a thing even after federal decriminalization, or if Texas legalizes.
I think you have folks coming across the entire length of the Texas-New Mexico border and that pretty much doubles the consumer base. You see lots of people who come across and make a purchase, but you also see the resort towns and ski areas in New Mexico, where it’s always been Texas license plates at those resorts, where we have a lot of cannabis activity. It’s Texans vacationing in New Mexico and also enjoying the fact that they can purchase cannabis legally. So I think that will continue to be a thing.
This interview has been edited for length and clarity.