Green Out

The roads in legal Weedville are not all paved with gold, according to representatives of nearly 100 cannabis businesses who signed a letter asking for Regulation and Licensing Superintendent Linda Trujillo and Gov. Michelle Lujan Grisham’s help to stabilize New Mexico’s 15-month-old adult-use market.

Colorado-based company Schwazze, which bought out two New Mexico cannabis companies in recent years, spearheaded the letter, which claims, “New Mexico, and New Mexico-born cannabis businesses,” are struggling with too much competition and a “flourishing” illicit market.

“It’s easy to suggest this is an opportunity for natural economic drivers to create equilibrium through supply and demand,” the letter reads. “However, New Mexico companies and entrepreneurs are already failing due to unsustainable market conditions combined with a lack of resources to hold both the legal and the illegal market accountable.”

Caroline Sweeney, a spokeswoman for Luan Grisham tells SFR in an email statement that her office requested the letter from the industry for to “better understand the collective feedback” on what might improve the market.

“This letter provided different perspectives, recommendations, and concerns which the state’s Cannabis Control Division is carefully reviewing,” Sweeney wrote. “We will continue to work closely with the industry to identify any adjustments to the program that need to be made to curb the illicit market and ensure that the industry is properly regulated.”

The letter asks Trujillo and Lujan Grisham to “act now” to create “safety valves” on new license issuance and blames lawmakers for leaving such a provision out of the law. Licenses were severely limited under the state’s Medical Cannabis Program. Then, in an early attempt to create a legal adult-use market, lawmakers proposed giving the Regulation and Licensing Department the ability to pause cannabis business licensing based on market demand. That language was ultimately stripped from the final version of the Cannabis Regulation Act passed during a 2021 special legislative session.

“As of May 2023, thirteen months after legal cannabis sales began, over 1,000 retail licenses have been issued by the Cannabis Control Division. The number of licenses issued has increased by 65% in just the last three months with only a 10% increase in sales within the same timeframe,” reads the letter. “This is not a sustainable competitive market for cannabis operators, businesses are closing or reducing employee count as a result. Others are selling their products into the illicit market to avoid paying taxes or incurring banking fees. Some are purchasing lower priced products from the illicit market in an effort to stay open. Financial opportunities from an easily accessible illicit market create unique pressure for the regulated cannabis industry. This pressure is exacerbated when supply and demand are unbalanced and will continue to grow if policy is not enacted to create market equilibrium.”

Jessie Hunt, a spokeswoman for Schwazze—the company that ran point on gathering signatures from businesses such as Best Daze, Minerva, PurLife and Verdes—says combating the illicit market and slowing the number of businesses wouldn’t necessarily require a law change.

“I think there are a lot of ways that the government can go about addressing the number of licenses, I think statute is one way, but I also think using some regulatory power, whether it’s looking at those who are not filing taxes and looking at their licenses or other issues that exist within the agencies that are involved in the cannabis industry, that there are ways to look at it,” Hunt says.

Schwazze began as a Colorado company, but Hunt points to the two “homegrown New Mexico companies” it operates as significant investment in the state’s cannabis industry, adding that Schwazze helped coordinate signature gathering from smaller operations that don’t have resources to do so themselves.

“We have some capacity to help on these issues, whereas a lot of smaller companies just don’t. They aren’t able to pick up the phone, they’re trying to run a business. And so while we have kind of taken the charge on it, the crafting of the letter, figuring out what to ask for, was done with a bunch of people working on it,” she says.

The letter also notes that the New Mexico Cannabis Chamber of Commerce advocated for the state’s ability to control how many licenses are issued. Ben Lewinger, the chamber’s director, tells SFR the group still has its sights on changing the law to limit the number of licenses.

“I am going to work very hard to get that piece back in there, because if that were part of the Cannabis Regulation Act that passed, I’m fairly certain that the Cannabis Control Division would have paused new licensing already,” Lewinger says.

Lewinger says he agrees with “a lot of the stuff in the letter” but that he felt it more appropriate for members to sign the letter individually instead of the chamber signing on behalf of its entire membership.

Prior to the Cannabis Regulation Act, the state’s Medical Cannabis Program regulated how many licenses were available at any given time and sparingly issued more, creating a premium on the ability to sell medical-use cannabis. Lewinger acknowledges that many more New Mexicans may still be eyeing a spot in the current industry, but that it just might not be their time.

“Very early on, and I still very sincerely hope this is true, I said, there’s going to be a place for anybody who wants to be in this industry, whether it’s five or 10 years down the road. And I really still hope that’s true,” he says.

Lewinger says “mom and pop businesses,” often with a fraction of capital of more established companies are closing in the state thanks to what is now more clearly becoming an oversaturated market.

“The big out-of-state companies are going to be able to weather this storm. So it’s the smaller businesses that are going to suffer if we don’t have a mechanism to address the glut in the product, and the oversaturation of retail,” he says.

Views vary when it comes to determining who’s on top of the market and who stands to lose the most.

Eli Goodman, co-owner of Best Daze, tells SFR his father and business partner Len Goodman signed the letter on behalf of the company because they are seeing too many stores pop up around Santa Fe and the state as a whole.

“There’s way too many cannabis shops, there’s no question about it,” he says. “It’s taking a piece out of everybody, it’s made it harder for operators to go forward. Whatever legislative moves could help develop a stable market would be in the best interest of all law abiding cannabis producers.”

Best Daze is among the two dozen companies that were licensed to sell medical cannabis prior to 2022 and is currently among the top-performing companies in Santa Fe. The Goodmans recently opened a fourth dispensary in the city, also making theirs the company with the most locations in Santa Fe. SFR counts nearly 40 active dispensaries at present.

“I’ll keep opening more, because I have to stay afloat at this point, and my pie keeps getting sliced smaller and smaller,” Eli Goodman says. “The only way to maintain this business, because of the amount of shops, is to get bigger and put pressure on others.”

Even so, Goodman says even if the state imposes a moratorium on new licenses, companies such as Best Daze should be allowed to continue to expand to keep up with the likes of companies such as Ultra Health, which has long held a large portion of the market, and Schwazze, which bought R. Greenleaf through a $42-million acquisition in 2022 and Everest Cannabis Company for $38 million in early June of this year.

“The idea of not issuing any more licenses, I really just think means that the current pool is allowed to float, because I don’t know how the state could cap any given group when you have Ultra Health, when you have Schwazze that now has 40 stories between the two groups,” Goodman says. “I don’t know how they could cap anybody else.”

In some ways the letter tracks with what Ultra Health President and CEO Duke Rodriguez has been warning about for months: A low barrier to get a cannabis business license would create a flood of stores and a subsequent market oversaturation.

Rodriguez, who did not sign the letter, says he agrees that a number of businesses are set to fail because supply is higher than current demand and that some cannabis is likely illegally coming from other states, but disagrees with some specifics.

“I agree with the overall tone that we have a problem, but you’d have to have your head in the sand to have not seen that already,” he says.

Rodriguez says it’s the regulators’ fault for not creating a more rigorous application process, essentially weeding out those who are not prepared for the expensive world of running a cannabis dispensary. Further, he criticizes the letter signers for advocating for a pause on licenses after securing their own.

“They’re basically saying, ‘I am now in this chaotic market, please close the gate behind me,’ which I think is a little bit of naiveness,” Rodriguez says. “You made an intelligent decision, didn’t you? The only problem is you were misled by the state.”

Rodriguez believes the current New Mexico cannabis market is not big enough for everyone to financially survive.

“Mathematically, it is 100% impossible for the current number of open dispensaries, and even the ones that are still in the pipeline, it’s impossible for a majority of them to even survive,” Rodriguez says. “This kumbaya approach that they’re going to fail, and taking action is going to save them, and we need to protect the current operators, that’s not realistic.”

While Rodriguez blames the state for making it relatively easy to get a license, making it easy was an intentional plan by the regulation department to ensure industry equity and equality.

Goodman also says the state should make obtaining a license more exclusive.

“It would be good if people had to jump through a few hoops and show that they have the prowess, the capitalization, the ability to make one of these things work for all the reasons the letter says,” Goodman says. “Their tax obligation is bigger than they know—they should be informed of that clearly up front—and the black market is going to be competing with them and [cannabis businesses] can’t go bankrupt. They need to understand the situation they’re walking into.”

But Lewinger says he agrees with making it easy to get a license—they just shouldn’t be offered when the market is saturated.

“The way that New Mexico went about creating low barriers of entry to become an operator is exactly the right way to do it,” he says. “We should have just done it with this mechanism of the Cannabis Control Division, being able to throttle licenses.”

Editor’s note: This story was updated from an earlier version to include comments from the governor’s office.