New Mexico’s Medical
Cannabis Program is growing at an even more rapid pace than reported by the
public health agency tasked with regulating the industry.
Financial reports from
growers that were made public for the first time this spring show total
receipts during the first three months of 2016 topped $10.2 million—more than a
quarter-million dollars above the $9.9 million claimed by the New Mexico Health
Department on May 26. That figure does not include revenue from the 12 new
producers who are still in various stages of setting up their grow sites and dispensaries.
which reportedly have been taking up to 90 days to process, are also on the
rise. The number of people legally permitted to use cannabis for medical relief
in the state has almost doubled since February 2015, from 13,000 to more than
SFR pored over individual
profit-and-loss statements for 22 of the 23 licensed producers operating in New Mexico. (Grass
Roots in Albuquerque did not file a quarterly report.) After crunching the numbers, we built this online database.
SFR’s analysis shows that almost 60 percent of New Mexico’s 2016 first quarter 1.2 ton yield was harvested by five growers.
SFR File Photo
Tracking the cannabis growers' financial and production results is a big deal and something that wasn’t
possible before February when the agency
amended its confidentiality rules, which had shielded information since the inception of the program. The rule
change came after a public hearing and a lengthy legal battle with open
government advocates, including this journalist.
An analysis of the producers’
financial paperwork shows the health department miscalculated first-quarter sales
(or total receipts) by $256,112. SFR questioned the department’s number after determining Fruit of the Earth Organic’s $246,545 gross profit could not have been generated from $7,068 in sales listed on the group's financial summary sheet. By any accounting
process, that just didn’t add up.
A spokesman for the health
department says staff used the numbers provided by producers to add up the Q1 sales total, but It appears the regulators didn’t double-check the numbers on Fruit of the Earth's cover sheet against the grower's underlying profit and loss statement before making the statewide 2016 First Quarter Report Summary public.
Justine Freeman, the deputy
chief of staff at the State Auditor’s Office says the health department needs
to develop a method to catch errors and ensure the accuracy of their accounting before
making reports public.
“Sound financial reporting is key to the public’s understanding of how the medical cannabis program is working,” Freeman tells SFR.
Ultra Health’s Duke Rodriguez is among those who have been pushing Health
Department Secretary-designate Lynn Gallagher to remove the grower’s plant
limits. He tells SFR that if lawmakers or voters approve cannabis for social use by
adults, he predicts annual dispensary revenues could top $525 million in the first year.
That estimate is based on close to $1 billion in sales in
Colorado last year, adjusted for New Mexico’s smaller population and lower
Rodriguez, who made a presentation to Legislative Finance Committee
Director David Abbey and staff analyst Eric Chenier on Jan. 4, says if
the state taxed legal sales, it would generate between $78 million and $131 million in new tax revenue depending on the tax rate adopted by lawmakers.
The new tax revenue, Rodriguez suggests, could be used to prop up the state’s Medicaid fund and that money would then make the state eligible for close to another $325 million in
federal matching funds.
"Money spent on health care would have a
huge impact on the state’s economy," says Rodriguez. “It would generate 15,000 new jobs and fill the equivalent
of 125 football fields in office space.That would benefit not
only hospitals, but real estate agents, landlords and bankers."
Like Freeman at the auditor's office, Rodriguez says he’s concerned about the department’s first-quarter
“If you found the error during your simple macro analysis,
you can only imagine what other errors may have been easily missed,” says Rodriguez.
“These are huge numbers which add up quickly, so it is easy to get the
reporting materially off."
results, while not a trend, do provide important market insights. Production
reports provided by the health department since 2013 have indicated that not
all growers are producing large harvests. Indeed, SFR’s analysis shows that
almost 60 percent of the quarter’s 1.2 ton yield was harvested by five growers:
R Greenleaf Organics, The Verdes
Foundation, Compassionate Distributors, Minerva Canna Group and Medzen.
Percentage of Total Crop Yield
Willie Ford’s Reynold Greenleaf Associates, which manages R
Greenleaf and Medzen dispensaries in Albuquerque, produced 28 percent of the
total yield. Eric and Rachel Speegle’s Verdes Foundation, which topped the
sales charts with over $1.1 million in Q1, generated close to 10 percent of the
harvest between January and March.
Statewide, producers reported a total net gain of $986,105 between January and March on gross profits of just over $6.6 million. Red Barn, a producer in Grants, did not
report its gross profit or net income or loss. On average, producers netted almost $47,000. Mother Earth Herbs reported breaking even. Seven other producers claim they are losing money and reported an average loss of $41,045. R. Greenleaf reported the quarter's largest net income loss: $82,382.
Santa Fe growers New Mexicann Natural Medicine, Sacred Gardens, Ultra Health and Fruit of the Earth Organics generated $2.4 million in total sales during the quarter and provided patients almost 350 pounds of cannabis. The Santa Fe nonprofits also paid $203,455 in gross receipts taxes during the quarter. Overall, the tax department collected $768,605 in taxes from the growers in Q1.
New MexiCann’s $656,000 gross profit generated a quarterly income gain of $61,000, while Zeke Shortes’ Sacred Garden, which has the third highest overall cannabis staff payroll, reported a net income loss of $78,142 on its $492,536 gross profit. Lyra Barron’s Fruit of the Earth Organics, with a net income gain of $116,332, bested all the other Santa Fe-based producers.
Producers, who are still working out bugs using the health department’s new “seed
to sale” tracking software, which requires them to enter product test results
for plant potency and microbiological contaminants, reported spending
nearly $80,000 on laboratory testing services in Q1. Two producers did not report their test numbers,
and Vivian Moore’s Mother Earth Herbs in Las Cruces is exempt from testing
since her dispensary is located south of US Border Patrol checkpoints. The amount
producers spend on testing is expected to increase in the second quarter, as
testing is now mandatory for all harvest batches and cannabis-derived products.
Editor’s note: We’ve made it easy for you to look at individual producers’
Q1 results by posting each group’s Q1 datacard online. Check out our analysis,
or use Silk’s "explore" button to do your own analysis and build your own charts