State bill would remove tax on medical cannabis

A pre-filed bill in the state Legislature would allow licensed medical cannabis producers to stop charging gross receipts taxes to patients who buy their products.

If passed, the measure would settle a matter that New Mexico dispensaries have raised for several years: Whether the state has a legal right to tax medical cannabis.

The legislation, sponsored by Sen. Cisco McSorley (D-Albuquerque), would grant the same tax exemptions to medical pot that the state extends to prescription drugs. The state defines "prescriptions" as orders from a physician to a pharmacist with directions for dispensing an FDA-certified drug. Doctors cannot technically "prescribe" cannabis because it is illegal under federal law, but the state has issued more than 66,000 cards to people who doctors say qualify to use the plant.

Dispensaries paid about $9 million in gross receipts taxes on cannabis sales for all of 2018, according to Duke Rodriguez, whose dispensary Ultra Health regularly collects statistics about the state's medical cannabis industry.

The revenue generated from the tax mostly goes to the state, though municipalities and counties also take a small percentage.

Removing the gross receipts tax on cannabis "is probably the right thing to do in the interest of fairness to medical cannabis patients," says Rodriguez, who is currently appealing the Tax and Revenue Department's collection of $2.5 million in gross receipts taxes paid by Ultra Health over several years.

The Legislature did not use the term "prescription" when it legalized medical cannabis in 2007. Instead, lawmakers created an entirely new process by which patients have to obtain a written recommendation from a physician certifying that they suffer from a qualifying medical condition.

In a prior dispute between the state's Tax and Revenue Department and the dispensary Sacred Garden, the former argued that a "written recommendation" from a physician was categorically different from a prescription. Sacred Garden was seeking $530,000 in gross receipts taxes it had paid since 2011.

This past February, the Administrative Hearings Office judge hearing the case sided with the tax department over Sacred Garden, adding that cannabis' illegal status under federal law prohibits doctors from treating it like other prescription drugs.

"A physician could potentially violate federal law, state law, or other rules or regulations governing their license to practice medicine if they were to prescribe" cannabis, wrote Judge Chris Romero.

Federal law currently considers cannabis to have "no currently accepted medical use," an anachronism dating back to the early days of the nation's drug war in the 1970s.

Like Ultra Health, Sacred Garden is challenging the gross receipts tax in the state's Court of Appeals. The dispensary's owner, Zeke Shortes, says proceedings have been slow.

The passage of McSorley's bill "would be a step forward, something that should have happened when the medical cannabis was originally legalized," Shortes tells SFR.

Removing the gross receipts tax would reduce the medical cannabis program's overall economic impact on the state. The advocacy group Drug Policy Alliance has previously argued that taxes generated from cannabis sales represent a much-needed source of revenue for public coffers.

An obvious solution, according to New Mexico Drug Policy Alliance Director Emily Kaltenbach, would be to legalize cannabis use for all adults, and impose gross receipts and other taxes on their production and sale. This way, the state gains revenue from sales to recreational users, but not medical users.

"One recommendation has been to eliminate the gross receipts tax on medical cannabis so that the price for medical is lower than for recreational," Kaltenbach told SFR back in November. She cited Colorado, where the gross receipts tax for medical cannabis is lower than that for recreational cannabis—but says New Mexico should go a step further and eliminate the tax for medical cannabis altogether.

"We would like to see medical cannabis treated like any other medicine in New Mexico," she told SFR.

The 2019 legislative session begins Jan. 15, and legislators have two months to file legislation. So far, no pre-filed bills propose to legalize cannabis for adult use, although Rep. Javier Martínez (D-Albuquerque) told SFR last month that he plans to reintroduce such legislation.

It is unclear how much support exists for McSorley's bill—he did not immediately return SFR's requests for comment—but various legislators who spoke with SFR in November, including State Senate majority leader Peter Wirth (D-Santa Fe) and House Speaker Rep. Brian Egolf (D-Santa Fe), believe a legalization bill would be approved by both chambers if it came up for a vote. Gov.-elect Michelle Lujan Grisham has also said she would sign a bill that met certain criteria.

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