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Seven Reasons To Be Excited About New Mexico’s Adult-Use Cannabis Market

New Jersey, New York and Connecticut are undeniably the shiny new objects of the cannabis industry. This attention is certainly deserved, as there is a lot to be excited about in the tri-state area.

However, New Mexico– which legalized adult-use cannabis in April 2021 with the passage of the Cannabis Regulation Act– may  be an even brighter star to watch. Here are seven reasons why.  

  1. No license caps 

New Mexico’s cannabis industry will have no limits on the number of licenses available– a huge win for both the industry and consumers. As seen in states like Illinois, California, and Arizona, license caps limit access to legal cannabis for consumers and patients, bolster the unregulated market and severely restrict the market participation of minority business owners. Uncapped licenses will allow market forces to determine retail density based on supply and demand, not arbitrary and unnecessary restrictions. When legal supply meets legal demand, economic forces help drive out the illicit market, thereby allowing the legal market to capture a large share of the revenue. This is good for consumers, businesses and government entities that depend on the revenue, not to mention the beneficiaries of the increased tax revenue- the local population reaping the increased public service.

  1. No local bans on cannabis businesses

New Mexico also became the first adult-use state to limit the ability of local governments to ban commercial cannabis activity in their jurisdiction. While municipalities can still regulate the time, place and manner of cannabis businesses within their borders, they cannot ban these businesses altogether. New Mexico’s approach to local control is a notable departure from states like California, where roughly two-thirds of cities have banned cannabis retailers in their community. 

  1. Retail Consignment 

Included in the definition of “Commercial Cannabis Activity” in HB 2 (New Mexico’s adult-use legalization bill) is “consignment.” New Mexico is the first state to allow dispensaries to accept cannabis from producers on consignment. Consignment is typically when a seller accepts inventory from a producer and pays them only after the products sell to consumers. Further along in the bill is a provision that requires the Division of Cannabis Control to offer discounted licenses to retailers that accept products on consignment from microbusiness licensees. And while it’s not clear how retail consignment will take shape in the New Mexico cannabis industry, there are a number of potential benefits to retailers, producers and consumers alike. 

Consignment will allow dispensaries to stock their shelves without paying for inventory upfront. Inventory costs are expensive for any business, and cannabis operators face even greater difficulties due to limited access to traditional banking services. The option to consign at least a portion of their inventory will help smaller, less-capitalized businesses enter the market and compete against larger operators. Additionally, because consignment is less financially risky for retailers, they will be more incentivized to try out selling new products and brands. This will encourage product innovation among supply-side operators, leading to greater product diversity and a better consumer experience.

  1. Microbusinesses Licenses
    To ensure that small businesses have a seat at the cannabis table, New Mexico created an integrated microbusiness license that allows an operator to cultivate, process, distribute and sell cannabis under one license type. Though there are limitations on the number of plants a microbusiness licensee can grow at once, this model allows smaller entrepreneurs to take advantage of the benefits of vertical integration, namely lower overhead costs, greater efficiency and tighter control of one’s supply chain.

The license fees are smaller for integrated microbusinesses- intended to keep barriers to entry low for smaller operators. Depending on the number of activities a prospective microbusiness licensee wishes to participate in, an annual license will cost between $1,000 and $2,500. By comparison, a single manufacturer or retail license in New Mexico costs $2,500. And to further ease the financial burdens for these smaller players, microbusinesses are exempt from the $10 per plant fee that standalone cultivation licensees must pay.

Low barriers to entry and uncapped licenses are critical in achieving a diverse cannabis marketplace that allows small-and medium-sized businesses to flourish. Not only will New Mexico’s microbusiness licenses enable those without access to significant capital to enter the industry, a diverse pool of cannabis growers and manufacturers will also result in more product diversity and lower prices for consumers.

  1. Consumption Lounges

Consumption lounges, where people can legally consume cannabis at licensed premises, are coming to New Mexico. The inclusion of consumption lounges in the Cannabis Regulation Act is part of a broader trend of states including consumption lounges in their successful legalization bills (including New York and New Jersey). Legal consumption lounges are a relatively new concept within the regulated cannabis industry, but they will likely be a staple in all future adult-use cannabis marketplaces. 

Not only do consumption lounges address the demand for spaces to consume cannabis outside of one’s home, they also provide a solution to several public policy concerns. First, consumption lounges create a place for those unable to legally consume cannabis in their homes, whether it be because they live in federally-subsidized housing or because they live in a rental property that prohibits cannabis consumption. Second, providing designated consumption spaces will mitigate public nuisance and odor concerns associated with consuming cannabis in public and will reduce public consumption-related arrests and citations. And finally, legalizing consumption lounges will play a role in minimizing the unregulated market.

Note: For more information on consumption lounges, check out WM Policy’s latest policy paper.

  1. Automatic Expungement & Re-Sentencing

Retroactive relief is a keystone of equitable cannabis policy reform, and New Mexico passed one of the nation’s most progressive cannabis expungement bills to date. Alongside HB 2, Governor Lujan Grisham simultaneously signed legislation mandating the automatic expungement of cannabis-related criminal records. All eligible criminal records will be automatically expunged if the original offense would no longer be a crime under the Cannabis Regulation Act. The bill also allows for the resentencing or dismissal of those currently incarcerated for offenses no longer considered illegal or that would otherwise result in a lesser sentence.

Two actionable provisions make this bill great: 1) automatic relief and 2) enforceable deadlines. Automatic expungement and resentencing occur when the appropriate government agencies identify all eligible records and sentences and enact the appropriate relief. Automatic expungement and resentencing relieve individuals of the time-consuming and often costly burden of petitioning the court themselves (this is known as petition-based expungement or resentencing). Further, the bill established deadlines for implementation, which will ensure that expungement and resentencing are prioritized and carried out in a timely manner.

  1. Sales Beginning in April

And finally, something to be very excited about: cannabis sales will commence on April 1st, 2022. New Mexico will be the first state among the five that legalized adult-use cannabis last year to begin adult-use cannabis sales. While the April 2022 sales deadline was statutorily mandated, it’s no small feat to promulgate regulations, accept and review applications, and issue licenses within one calendar year. New Mexico’s Cannabis Control Division deserves kudos for their hard work, and the same goes for Governor Lujan Grisham for her continued commitment to New Mexico’s emerging cannabis industry.