Testing Dispute

A well-known cannabis producer and state regulators have been battling it out in a Santa Fe courtroom since early March, when New Mexico officials ordered the business to shut down its grow operation after what they call a positive test for mold and yeast.

The Cannabis Control Division of the state Regulation and Licensing Department says Sacred Garden’s cannabis flower presents a potential public health hazard; the business owner says the state is in attack mode, using an outdated testing protocol.

The latest skirmish played out Wednesday, with First Judicial District Judge Bryan Biedscheid ordering the two sides to confer and come up with an agreed cannabis testing regimen. The division and Sacred Garden have until the end of the day Thursday, April 14, to map out the testing procedure. The division then has until April 22 to complete tests on Sacred Garden’s products, and until April 25 to approve or deny the business’s sales through the state BioTrack system.

If the producer’s legal team and the CCD can’t agree on proper testing, Biedscheid will schedule another hearing. And if the division denies sales for Sacred Garden’s product, the judge says he’ll hold a trial to determine whether the state’s grounds for denial are valid.

The fight began on March 11, when a Sacred Garden customer complained to the division about two strains of cannabis flower purchased at the company’s Albuquerque dispensary, saying they both smelled of “mold or mildew.” One of them showed signs of “bud rot,” and there was a bug in the flower, according to the customer’s complaint.

That prompted the division to issue a cease and desist order based on a testing standard officials acknowledge went out of effect on March 1. In any case, according to the state, one strain tested 35 times over the action level for yeast and mold, and the other tested 25 times over.

Sacred Garden founder Zeke Shortes says the state’s action demonstrates “extreme hostility, near hatred,” for his company. He points to the testing change, which came after a slate of public hearings in January. The general mold-and-yeast requirements were replaced with screenings for five specific fungi, all of them in the Aspergillus family.

According to Sacred Garden, neither its Snow Cone nor Protege 78 strains tested positive for Aspergillus when sent to independent, third-party labs. The company tested an additional four samples that also passed the state’s newly adopted standards.

Shortes says the results CCD provided are not applicable.

“I care about how safe the medicine is,” Shortes says. “They’re trying to make a big deal out of a standard that doesn’t exist anymore as of March 1.”

The state is “stuck on an old, irrelevant and non-required test” and is “blatantly disregarding the legal standard for microbial testing,” Shortes says. However, the company tested samples using the old standards, anyway.

David Foster, representing Sacred Garden, said in court that only the state’s results show any signs of mold.

“All the independent testing done by two of the labs show there’s no actionable mold, let alone any harmful mold,” he told Biedscheid.

The CCD says the state lab hasn’t validated its new testing standards enacted March 1, so the department instead provided the court with results against the previous measurement. RLD Deputy General Counsel Kevin Graham says the CCD’s authority is not limited to only Aspergillus testing, given that the division discovered “mold throughout the facility.”

“We are talking about mold and spores here,” Graham said during Wednesday’s hearing. “They are not limited to just what you can see on the wall, particularly when you have ventilation systems blowing that material throughout the facility.”

Shortes refutes the CCD’s description of his grow facility, saying staff routinely clean the building and that the state has no proof of any substandard conditions.

Biedscheid compared the CCD’s argument—that because tests don’t show mold present in one area of the building doesn’t mean it can’t be found elsewhere—to the “logical equivalent of proving that Bigfoot doesn’t exist.”

“He could always be behind another tree,” the judge said. “You’re saying there could always be an invisible spore on a surface that’s not been tested. Again, valid concern, but what is the threshold or path for determining whether or not that is the case?”

The CCD wants Sacred Garden to hire an industrial hygienist to conduct further testing on the facility; the cannabis producer says that could take weeks, calling the state’s demands unreasonable and unsupported by any objective evidence.

In the meantime, Sacred Garden has been locked out of BioTrack, the state’s system for tracking cannabis sales, preventing the producer from transferring product out of its grow facility. Biedscheid granted a partial injunction on April 6 to allow Sacred Garden to continue distributing and selling cannabis extracts, tinctures, compounds and other products, but not cannabis flower.

Sacred Garden’s taken a hit financially, Shortes says, as flower sales make up about 80% of his company’s sales.

“We are practically out of flower in the stores,” he says. “I’m looking for a $250,000 loan just to get us through right now, because I’ve never missed a payroll and I’m not going to start now. Even though the state’s trying to create an incredible financial hardship for us right now, I’m not going to let them shut us down.”

The cease and desist order doesn’t prevent Sacred Garden from selling inventory held at other premises, the state argues, or from obtaining product from other producers. Any harm resulting from Sacred Garden’s inability to move cannabis out of its main facility “in the short-term must be weighed against the potential for the serious harms to the health and safety of the public,” Graham states in Regulation and Licensing’s court-filed response.

With a new industry in place, it’s unclear what impact the case could have on future testing requirements for cannabis businesses. Sacred Garden has also been the subject of court dealings with the state for the last several years, stemming from a tax deduction on medical cannabis sales it filed in 2014. The New Mexico Court of Appeals ruled in 2020 that medical marijuana producers are not subject to the state’s gross receipts tax, and the New Mexico Supreme Court declined to hear the case in late February.