Little evidence provided to support proposed rules that include limits on production, licensing fees

(Santa Fe) – The New Mexico Regulation and Licensing Department (RLD) released the first set of draft rules to govern the state’s commercial cannabis activity, including the administration of the Medical Cannabis Program and adult-use cannabis activities, on Tuesday. 

The rules include provisions on requirements for licensure, limits on production for cannabis producers, annual license fees, and per-plant fees. 

Specifically, the rules outline predeterminations for cannabis producer license types under the following classes:

• Level 1: 201 – 2,500 mature cannabis plants;
• Level 2: 2,501 – 3,500 mature cannabis plants; and
• Level 3: 3,501 – 4,500 mature cannabis plants. 

In addition, the fee per cannabis plant increases with each tier, making it cost-prohibitive to deploy the maximum number of cannabis plants allowed under the rules. The per-plant fee for Level 3 operators is more than 20% higher than the fee for Level 1 operators. While current cannabis licensees will have business activity to sustain the cost-prohibitive fees, it is unclear how new entrants will afford per-plant fees and annual licensing fees exceeding $100,000 to achieve the maximum number of plants allowed. 

The primary reference material used for both the medical and adult-use cannabis plant count predetermination is from an outdated medical-only report from 2019 that was commissioned after the New Mexico Department of Health (NMDOH) was court-ordered to raise plant limits for medical-only cannabis providers.

The court-ordered report fails to evaluate the major cannabis policy shifts pursuant to the Cannabis Regulation Act, including statutory purchase limits 22 times higher than the patient purchase limit promulgated by the NMDOH. No new evidence has been provided to support an adult-use plant count determination. Pursuant to the State Rules Act, state agencies must provide substantial evidence to support proposed regulations.

Furthermore, the court-ordered report does not evaluate the pent-up demand in the Medical Cannabis Program, the rising demand for more sophisticated cannabis products that require substantially higher levels of cannabis biomass to produce, and the ever-increasing cannabis patient population. The Medical Cannabis Program has grown by more than 40,000 patients since the court-ordered report was commissioned, yet is the primary evidence used to determine sufficient plant counts to support demand for more than 120,000 medical purchasers and hundreds of thousands of adults from New Mexico and other surrounding states.

It is still unclear how the agency intends to allow for robust cannabis production that will be needed once adult-use sales commence no later than April 1, 2022. Estimates have shown that total commercial cannabis activity in New Mexico could reach $800 million annually.

Licensees must produce substantially higher amounts of usable cannabis for medical purchasers and adult consumers, as market forces simultaneously influence the industry’s overall pricing, supply, and demand. As the price per gram of cannabis falls, medical purchasers and adult-use consumers tend to purchase cannabis at greater volumes, according to cannabis market trends seen in Colorado.

The most recent patient enrollment statistics show 115,732 enrolled patients and 9,781 reciprocal participants as of April 30, 2021, according to data released by NMDOH. 

A public hearing will be hosted online at 9 a.m. on June 29, 2021, to allow stakeholders to provide public comments on the new regulations. Public comments can be submitted to publiccomment@state.nm.us until the public hearing ends.