Cannabis Math

New Mexico’s largest cannabis company says the state’s figures don’t add up

The head of New Mexico’s largest cannabis company says the state’s model for adult-use sales, which began here in April 2022, “has clearly failed.”

In two news releases issued today, Duke Rodriguez, CEO and President of Ultra Health, detailed discrepancies between the state Cannabis Control Division and Taxation and Revenue Department’s accounting of the 18-month period of adult sales here.

The state’s Cannabis Online Reporting Portal (CROP) reports more than $501 million in revenue since sales began. Based on that figure, Rodriguez says, and the Cannabis Excise Tax rate of 12%, Taxation and Revenue should have collected $60 million from adult-use retail sales. However, Rodriguez points out, “TRD only collected $47 million from the Cannabis Excise Tax,” according to an Oct. 25 news release from the agency.

The agency’s spokesman, however, points out the news release says the department distributed $47 million versus collected. In both a phone conversation and subsequent email, Charlie Moore, Tax & Rev’s public information officer, emphasizes the difference.

“The comparison cited in the Ultra Health news release is incorrect,” Moore writes to SFR. “The $47 million figure we released last week was for distributions through September, as the release clearly stated. That would reflect sales only through July, as there is always a two-month lag between the activity month and the distributions.”

Since then, he adds, the agency has “reported the October distribution (based on August sales), which was $4,467,000 in tax revenue. We don’t yet know what the November distribution amount will be, but if it is similar to October’s, tax distributed on sales through September would be more like $56 million.”

Rodriguez, however, tells SFR, the state “cannot continue to hide behind a timing issue.” Timing could account for monthly discrepancies, he says, but after 18 months “you’ve washed through all of the lag timing.” Whatever is coming in at that point is “pennies, nickels and dimes,” but “nowhere near the dollar that they’re short.” Moreover, he says, he’s been tracking the discrepancies monthly and they are growing larger each month.

In general, he says, “we have we have a model that is clearly failed…there is an overall failure of the regulatory environment.” That failure, he says, also includes “People not reporting sales properly; people certainly not paying taxes.”

Indeed, in its news release last month, Taxation and Revenue said 80 retailers had come into compliance on their tax filings since the department began reaching out last summer, but more than 100 license holders—some of which may hold multiple licenses for different locations—have not yet complied.

“We are continuing to work with Regulation and Licensing to bring other license holders into compliance on their tax returns,” Moore writes. “As taxpayers catch up on their payments, those amounts will start to show up in distributions in coming months.”

Andrea Brown, Regulation and Licensing’s public relations and marketing specialist, tells SFR via email the Cannabis Control Division concurs with Taxation and Revenue’s assessment that Ultra Health’s allegation of a discrepancy between the agencies is incorrect.

“While the data the CCD reports is self-reported by the licensees using BioTrack, the division feels confident that the sales are complete and accurate to the best of our knowledge,” Brown writes.

“Compliance continues to be a priority for the Cannabis Control Division and we are continuing to work to see that BioTrack is used properly to capture all sales,” she adds. “The division is also working with the Taxation and Revenue Department to ensure our licensees are caught up on their tax payments. Prior to renewing a license, we ensure our license holders are in good standing with the Taxation and Revenue Department.”

Brown also responded to Ultra Health’s claims of the state’s inaccurate assessment of cannabis demand. The company cites a study released in March that estimated cannabis demand in New Mexico at 161 million grams of cannabis across all sources of cannabis.

“Per the study’s calculation, sales should have reached $1.4 billion per year in New Mexico’s cannabis industry,” Ultra Health’s news release says. “As such, the state’s regulated market, as currently crafted, may be losing out on over $1 billion in adult-use cannabis sales activity.”

Rodriguez tells SFR the discrepancy between the revenue forecasted and what the state is seeing points to an illicit market.

“This is where I’m concerned,” he says. “I am clearly the biggest operator statewide. Not going to deny it. But I’m not fighting my competitor down the street. That ship has sailed. I am fighting the illicit market that they helped establish. I want that business for Ultra Health. And I want that business for the regulated licensed players who are playing by the rules. That’s all I’m saying.”

Several other cannabis business owners, in fact, sent a letter to now-retired RLD Superintendent Linda Trujillo and Gov. Michelle Lujan Grisham in June asking them to pause the issuing of licenses in order to help stabilize the market.

Brown, however, disputes the $1 billion cited by Ultra Health, writing to SFR that the study calculated the 161 million grams as coming from all sources, including “the illicit market, adult-use retailers, medical retailers, home-grow, gifting, registered caregivers, or from friends or family.”

Brown continues: “As found in the study, 37% of cannabis is obtained by illicit means. However, the division’s primary concern is the 15% that is reported to come from an illicit market dealer.” Calculations on that portion, she says, come to just over $209 million, “far less than the $1 billion in illicit activity cited,” and a figure “consistent with what other states who’ve entered into a regulated market report, particularly states that are newly legalized for adult-use like New Mexico.”

While no state with legal cannabis “has completely eradicated the illicit market,” she adds, the state’s Cannabis Control Division “is fully committed and actively working on removing illicit actors from the industry and we anticipate that the percentage of grams reported from a regulated source will increase in next year’s study.”

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