Cover Stories

Uneven Consequences

New Mexico’s Cannabis Control Division gives most businesses leeway statewide yet punishes two producers based in Santa Fe

Odessa Nix answered a call and quickly thought something didn’t seem right. A man asked Nix, the licensing manager for the state Cannabis Control Division, for help entering dried flower into the digital tracking system. That’s not how it works, Nix told the man. He should only be entering seeds or fresh cuttings, often referred to as clones. That’s when the man “backtracked,” according to a report of investigation reviewed by SFR, and told Nix he was actually trying to document clones.

Nix wasn’t buying it.

“I denied his request because after checking the issuance date of his production license I found that he had only been licensed for about two months and so suspected that he was attempting to enter illegal plants into the tracking system,” Nix told New Mexico Regulation and Licensing Department investigator William Fresquez.

According to Fresquez’s report, the investigator made a handful of trips to Golden Roots’ Albuquerque facility over the next several days and grew more suspicious when he couldn’t find any plants inside. And then there was the finger pointing between business partners: One says the other two are connected to Mexican drug cartels, and another says the man who originally placed the call was trying to launder illicit cannabis through the business.

The matter remains under investigation.

The acting head of the division says instances like this are rare, however. Compliance officers have issued 196 notices of violation as of year’s end, resolving 148 of those. The vast majority have been addressed without penalty.

SFR analyzed documents, internal emails, videos and audio recordings related to more than 100 alleged violations spanning from April through August 2022. They show regulators are mostly offering leeway to businesses when it comes to infractions the RLD’s Cannabis Control Division deems minor: inadequate signage, improper cannabis disposal and so on.

The more serious violations so far have included an allegation of moldy weed and untraceable bags of plant material. In those cases—both involving Santa Fe-based companies—the state levied hefty fines and ordered facility closures. Locked down facilities led to a pause in sales, which meant a loss of millions in revenue.

Acting Division Director Andrew Vallejos tells SFR that regulators’ main focus has been to ensure the health and safety of customers, medical cannabis patients and employees, but also to avoid scrutiny from the feds. Beyond boilerplate inspections, the division is also gearing up for sting operations targeting sales to underage buyers.

Warnings and fixes

Mr. Buds, a dispensary in Clovis, is a typical example of a company dinged for minor violations, according to SFR’s review. The company’s 13 infractions included missing employee and visitor badges, a lack of signage noting restricted areas and untrained employees. The Cannabis Control Division gave Mr. Buds a chance to address those violations, which the company did, according to a June 15 email to regulators.

A representative of Mr. Buds assured regulators the company had created employee badges (and that they would be worn), back rooms were labeled as inaccessible to the public, and employees would be brought up to speed on the latest operating procedures.

Similarly, regulators allowed Seven Point Farms a chance to address missing signs and improperly stored chemicals at its Albuquerque store. PurLife also had a chance to fix nearly identical problems, but also missteps including improperly disposing of cannabis deemed “wastage.”

“Wastage was not rendered unusable and unrecognizable by grinding and incorporating into other ground material (i.e. soil, compost material, or leaves and yard waste) so that the resulting mixture is at least 50 percent non-cannabis material by volume, prior to removal,” CCD Compliance Officer Esperanza Salazar wrote in a July 6 report.

The same report noted PurLife staff took corrective action within 60 days of notification.

“PurLife has updated its [standard operating procedures] and wastage plan to show that PurLife’s wastage will now be rendered unusable and unrecognizable by grinding and incorporating other ground material,” the company noted.

Other companies received what amounted to warnings for not having conspicuously posted building layouts, missing visitor logs and products without warning labels.

Cannabis Control Division Acting Director Andrew Vallejos is still getting familiar with the job to which he was appointed in August, but he’s also spent several years as director of RLD’s Alcoholic Beverage Control Division. He now holds both positions.

The cannabis division allows for some wiggle room when it comes to “minor” infractions by license holders instead of “hitting them with a lot of administrative citations,” Vallejos tells SFR.

“One of the things that we did from the very beginning, even predating my time here, is that we had this idea that we would go in, and if it wasn’t a major violation, we would just give them a corrective that they just don’t do it in the future,” he says.

The 2022 Cannabis Regulation Act called for a variety of rules on the new industry—including for labeling, training, security and tracking—and potential penalties for violations. The regulatory scheme built on rules already in place from the state’s Medical Cannabis Program.

The purpose of compliance standards, Vallejos says, is multifaceted. Inspecting dispensaries and grow operations is meant to benefit the health and wellness of consumers. But it also serves as a way to stay off the feds’ naughty list. He points to a memo from the cannabis industry’s Cretaceous Period—authored by then-President Barack Obama’s deputy attorney general, James Cole, outlining the deprioritization of federal cannabis enforcement. Cole wrote the memo in 2013, when state-level legalization of medical cannabis was on the rise. It partially came across as a parental warning to play nice.

“The Department’s guidance in this memorandum rests on its expectation that states and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests,” Cole wrote.

The Trump administration rescinded the Cole memo, as it’s known, and the Biden administration never officially reinstated it. US Attorney General Merrick Garland has said his DOJ will generally avoid targeting low-level federal cannabis offenses.

Vallejos says compliance enforcement in New Mexico serves two other purposes beyond running afoul of Washington, DC.

“It’s making sure that the product is fresh and doesn’t have mold or something like that, or that there’s no other improprieties or irregularities,” Vallejos says. “But it’s also, in this first year, helpful to the business owner just to have that interaction with CCD to make sure that they’re compliant and they’re improving their quality control in their business practices.”

Records show that’s the case for most New Mexico cannabis businesses, but at least two owners got a look at the pointier end of RLD’s stick.

Fines, shutdowns and feelings

Len Goodman is a seasoned cannabis business owner who’s seen all aspects of enforcement, ranging from nearly none to a facility shutdown and tens of thousands of dollars in fines. In 2015, an explosion injured two employees at New Mexicann, a business Goodman partly owned. The cause was a dangerous process for producing cannabis extract that involves butane or other volatile chemicals. The Department of Health, which oversaw medical cannabis at the time, allowed New Mexicann to continue operations.

In the next couple of years, Goodman and his wife divorced; she got the company. With Goodman no longer at the helm, New Mexicann saw another explosion in 2020 that prompted the health department to revoke the company’s license and also garnered fines from the state environment department.

Goodman now runs Best Daze, a company RLD kneecapped just after adult-use sales began last year. Goodman tells SFR the department’s actions took him by surprise because the alleged improper activity had never seemed to be an issue.

“[DOH] never had a problem,” he says. “We were just doing what we always did.”

What Goodman “always did” was wait to record the transfer of freshly lopped plants, or what he refers to as “wet weight,” from one location to another. He says BioTrack, the seed-to-sale tracking system, does not allow accurate recording of the process.

From RLD’s vantage point, Best Daze had a giant room full of bags upon bags of cannabis without tracking numbers. Vallejos says untracked cannabis usually suggests retailers might be trying to launder illicit plants.

Yet Goodman says the hundreds of pounds of weed came from his licensed outdoor grow space. In the end, the Cannabis Control Division cleared Best Daze of possessing illegal cannabis, but it did slap the company with a $30,000 fine. One-third of that amount was for “inadequate chain of custody procedures”; another third was for “improper digital video surveillance”; and two $5,000 fines were for “improper measuring and weighing” and “inadequate policies and procedures.”

Goodman says he still can’t enter the wet weight into BioTrack, but that RLD agreed that he can keep detailed records on an external spreadsheet to track the plants he moves from the outdoor grow to his drying facility.

Regulators ordered Best Daze to essentially shut down the storage facility in question while investigators worked out the origins of the untraceable cannabis. It took the division about four months to finally give Best Daze the green light to resume operations—a duration Goodman says was far too long. Even now, he says, much of the affected product is too old to be sold for anything other than extracts, and wholesale prices have dropped dramatically since May.

Goodman tells SFR the fines were “a drop in the bucket” compared to the millions he likely lost in potential wholesale deals. But he doesn’t harbor resentment toward the division.

“I think they acted appropriately,” Goodman says. “The only qualification I would put to that is it took months to resolve.”

Vallejos says he’s sympathetic to Best Daze’s loss of revenue, but that it was important the division got things right.

“The idea was, we would rather take our time and get it right than just rush into it and just levy an administrative fine that gets taken up to the District Court,” Vallejos says.

Zeke Shortes, who owns Sacred Garden, has a different disposition when asked about state cannabis regulators.

Shortes had the displeasure of being the first cannabis business owner to face harsh consequences from RLD under the Cannabis Regulation Act after the department alleged his company was selling moldy weed. Shortes maintains Sacred Garden has never sold anything with mold on it.

Shortes and Sacred Garden also hold the honor of successfully suing the state’s Taxation and Revenue Department over the application of gross receipts taxes on medical cannabis. Shortes’ victory arguably put tax exemptions for medical cannabis on the minds of lawmakers, who went on to include those exemptions in the Cannabis Regulation Act.

One month after the state Supreme Court sided with Shortes and just days before adult-use sales were slated to begin, RLD issued Sacred Garden a cease and desist order. Shortes says that wasn’t a coincidence. He thinks Gov. Michelle Lujan Grisham’s administration retaliated against him and his business after his lawsuit allowed for tax refunds from him and other producers.

“I think I was on [Gov. Michelle Lujan] Grisham’s radar with the whole Tax and Rev lawsuit,” Shortes says.

Nora Meyers Sackett, a spokeswoman for Lujan Grisham, called Shortes’ claim “a ludicrous accusation.”

“The governor’s office does not in any way influence independent legal compliance enforcement by any state agency,” Meyers Sackett says. “The law is the law.”

Shortes, like Goodman, was forced to shut down one of his facilities for weeks while investigators worked. By the end, Shortes says, he shelled out $100,000 to the Occupational Safety and Health Administration to get the facility up to snuff for issues RLD had not initially raised. He says he lost about $1 million in sales.

“I’m fed up, but it really hurts my feelings,” Shortes says. “It really hurts our business and we’re still recovering and it’ll probably take a couple of years to recover.”

Future enforcement

Bobbi Martinez has held a number of jobs in the cannabis industry. She worked for a grow equipment supply company, before managing cultivation for a New Mexico company. She later worked as a compliance manager for the Cannabis Control Division and now works as a compliance specialist for Weeds, a New Mexico-based cannabis consulting firm.

During her time as a compliance manager, she oversaw all the violations SFR reviewed. But it was prior to her time with RLD when she says she saw a culture of non-compliance.

“I feel like then the enforcement really wasn’t there,” she says. “So I think a lot of people decided that if it wasn’t going to be enforced, it wasn’t something that they had to really work towards.”

Going forward, she says, business owners should set a new tone and culture.

“I think the industry really needs to spearhead that and encourage safe practices within their own businesses and promote that through the industry statewide,” Martinez says.

She expects over time “the steep learning curve” will flatten out and what’s expected of growers and retailers will become more apparent.

Even Cannabis Control Division Director Vallejos says giving business owners a chance to fix mistakes in lieu of a fine will only last so long.

“If we keep coming back to it time and time again, and we’re seeing the same problem over and over again, you will get cited at some point,” he says.

The division, according to Vallejos, is also gearing up to conduct sting operations designed to sniff out underage sales, but he calls them something different.

“It’s called minor compliance operations,” Vallejos says. “That’s the technical term.”

The division plans to hire a person older than 18, but younger than 21 (the legal age to buy and use cannabis without a medical card in New Mexico) to try and make a purchase with a state-issued ID—a similar tactic long used by RLD’s alcohol regulators.

The division, Vallejos says, will also take some cues from our neighbors to the north.

“In an effort not to reinvent the wheel, we will be sending up, in the next couple of weeks, a handful of compliance officers to shadow Colorado compliance officers to go do manufacturing inspections, grow inspections, retail inspections, and generally just pick the brains of the regulators up in Colorado,” he says.

For higher-level Cannabis Control Division investigations, the work continues, albeit without much transparency.

Records the division provided on the case out of Albuquerque show investigators in May interviewed at least one business partner with Golden Roots, but did little else. What of the alleged cartel ties or accusations of illicit weed laundering? According to the CCD’s online license database, Golden Roots still has an active license.

“All I can say is, it’s still an open claim,” Vallejos says. “It has been referred. We take those kinds of allegations super seriously at our division. It’s an ongoing investigation, but every case like that, every allegation like that, will involve law enforcement at some point.”

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