It’s not entirely accurate to say New Mexico will create a brand new industry with the legalization of adult-use recreational cannabis.
Sure, it’s new to the state. But New Mexico has had a multimillion-dollar medical marijuana industry for nearly 15 years now. But plenty of other states legalized adult-use recreational cannabis years ago.
Each of these other states offer lessons for New Mexico, Gov. Michelle Lujan Grisham and legislators, who went into a special legislative session to get legalization over the finish line.
With the stroke of a pen on April 12, Lujan Grisham created a market for countless businesses and tens of thousands of potential consumers over the age of 21.
That market — the recreational cannabis market and its associated effects, opportunities and, yes, consequences — figures to touch upon so many established economic sectors and industries.
Business First reached out to real estate, technology and economic development leaders to get an idea of what they expect from a legalized recreational cannabis market in New Mexico. We asked how legalization could affect them, their business or the state. We read through the Cannabis Regulation Act. We came to understand how the legislation carves out areas for different categories of cannabis businesses.
As you can imagine, optimism is high, and details are emerging from the haze. Here’s what we learned.
— Chris Keller
How is this all going to work and what are the benefits?
Now that Lujan Grisham signed the Cannabis Regulation Act, a series of deadlines and milestones come into play as the New Mexico Cannabis Control Division and other state entities begin building a licensing and regulation framework for businesses.
Commercial retail sales can’t take place until at least April 1, 2022, however the exact language states “no later than.” But between now and then, an advisory committee must be established, licensing criteria must be put into place and applications developed to apply for those licenses.
Right now, New Mexico’s Cannabis Regulation Act identifies 12 kinds of permits or licenses. That’s 12 different sets of criteria and processes to authorize someone to act as a cannabis server — like a bartender for weed — or establish a Vertically Integrated Cannabis Establishment, which could be a jack-of-all-trades courier, manufacturer, producer and retailer.
The state is betting that people will want to.
Then there’s the potential tax revenue, which proponents point to as a key benefit of recreational cannabis.
In addition to sales tax, New Mexico will place a 12% excise tax on sales of recreational cannabis to start. The excise tax will eventually increase to 18% by 2030.
According to a fiscal impact estimate, the state could add an additional $19.1 million to its general fund revenue in fiscal 2023. Local revenue could exceed $9.4 million in FY23, according to the estimate.
Nearby states might offer some forecasting for New Mexico. Cannabis tax collections in Colorado and Washington, which both allow recreational use, had exceeded initial estimates, according to the Tax Foundation data from 2016.
Nevada, which charges a 10% retail excise tax on cannabis products sold for adult use and not to a patient cardholder, generated $105 million in cannabis excise taxes during fiscal 2020, according to the state. Colorado, which has seen consistent growth in cannabis sales, saw $387 million in cannabis tax revenue last year, according to the Colorado Department of Revenue.
Both states have larger populations than New Mexico, which had an estimated population of 2,096,829 people as of July 2019, according to the U.S. Census Bureau.
The New Mexico Economic Development Department estimates that employment in dispensaries could lead to nearly 1,600 new jobs, according to a fiscal impact estimate. An additional 11,000 or more jobs could be added in production, manufacturing and complementary businesses, according to the estimate. These ancillary businesses include professional services, construction, cultivation supplies and equipment for production and consumption, according to the estimate.
— Collin Krabbe and Chris Keller
Take a peek inside those workplace policies and employee handbooks
New Mexico has had a thriving medical cannabis program since 2007, so employers in the state shouldn’t be caught off guard.
Still, if an employer hasn’t addressed marijuana use in their hiring and employment policies, they have a handful of months to address it, said Christopher Moody, a founder of the employment and labor law firm Moody & Stanford P.C. in Albuquerque.
Moody said employers who hire for safety-sensitive positions would do well to focus on crafting policies to account for recreational use among workers in these roles. Among these kinds of positions are those where driving or operating machinery are key functions, he said.
“If I were advising a client, I would suggest they start to try to distinguish between these positions,” Moody said.
The Cannabis Regulation Act doesn’t restrict an employer from prohibiting or taking employment action against an employee who is impaired, in possession of or using intoxicating substances at work or during work hours, unless there is an agreement between the employer and employee.
However, medical cannabis laws approved by New Mexico lawmakers in 2019 prohibit employers from terminating employees for consumption outside of work, as long as they are not impaired on the job. It’s unclear if these provisions extend to the Cannabis Regulation Act.
“In most situations, New Mexico employers are now prohibited from refusing to hire, discharging or taking any adverse action against a job applicant or employee solely on the basis of the individual having a prescription for and/or using medical marijuana,” according to the Society for Human Resource Management.
SHRM has an entire topic page devoted to marijuana and the workplace to help businesses keep up to date on a landscape that is dynamic and changing quickly.
Protections carved out in New Mexico do not extend to those who work in safety-sensitive positions or those impaired while working. And exceptions apply for businesses that could incur monetary or licensing penalties under federal law or regulations for hiring those who use or test positive for use, according to the SHRM.
This federal exemption stands to factor into the equation in New Mexico, given the level and quantity of defense and other federal contracts that come to businesses here.
Ernie C’de Baca, president and CEO of the Albuquerque Hispano Chamber of Commerce, said his chamber held a forum on cannabis in the workplace just last year. A concern that could be at stake is if someone accepts a job offer, but can’t ultimately start because of a positive drug test despite cannabis being legal in the state.
“People may say, ‘Hey, it’s legal in New Mexico’ — and we have so many federal contracts here in Albuquerque and New Mexico — people need to be educated and trained,” C’de Baca said. “I think there’s that opportunity, which would be helpful to our membership and the business community at large.
“There needs to be a whole training for all that stuff.”
Jerry Schalow, Rio Rancho Regional Chamber of Commerce president and CEO, said local employers may be adversely affected if they need to hire employees for a drug-free environment, using industries like automobile service repair and federal contractors as examples.
— Ron Davis and Chris Ke
Growth opportunities extend outside cannabis producers
Recreational cannabis legalization may create opportunities for companies that provide services to producers. In the case of Terra Vera, an Albuquerque firm using technology to kill viruses and bacteria on plants, legalization presents an opportunity to bring some operations back home.
While based in New Mexico, most of the company’s focus has been outside the state. But that may change if cannabis companies in the state increase production to meet a higher demand driven by recreational use.
[Legalization] generally has a pretty profound impact in increasing the market size, said Carlos Perea, CEO and cofounder of Terra Vera.
In the case of Colorado, retail cannabis sales topped $303 million in 2014, the first year that the state allowed recreational cannabis sales. Medical sales accounted for $380 million that year, according to the Colorado Department of Revenue.
That has a compounding effect because people have to grow product. And that’s where his company fits in, Perea said. He thinks it will significantly increase its market opportunity in New Mexico.
One estimate says the state might need five to seven times the current production of medical cannabis to meet recreational demand.
In the fourth quarter 2020, there were 29,370 mature plants in production by licensed nonprofit producers, according to the New Mexico Department of Health.
Non-cannabis adjacent businesses also stand to benefit.
Paul Stull, president and CEO of the Credit Union Association of New Mexico, said a recreational cannabis industry could have an impact that moves into everything from tourism to accountants and tax advisers, who will be called upon in a new uncharted industry.
And Rob Black, president and CEO of the New Mexico Chamber of Commerce, said legalizing recreational cannabis can help the state recruit and retain its young workforce.
“To grow and diversify our economy, we need to recruit and retain 20- and 30-year-olds to New Mexico,” Black said. “For those coming from places like California, Washington, Colorado or Arizona, legalizing cannabis in New Mexico may make relocating to the Land of Enchantment more inviting, benefiting industries across the spectrum.”
— Collin Krabbe and Ron Davis
Local lenders and banks could get a boost
Jerry Walker, president and CEO of the Independent Community Bankers Association of New Mexico, said his organization is paying more attention to Washington, D.C., than Santa Fe. Why? Because even when recreational cannabis is legalized in New Mexico, federally insured banks legally cannot provide services to cannabis-related businesses, he said.
Walker, along with banking leaders in other states that have legalized cannabis, has been working on safe-harbor legislation out of Washington to make it permissible for commercial banks to lend to businesses in the industry. Without it, businesses in the cannabis industry would have limited options on where to deposit revenue or take out loans.
“As more states move toward legal recreational use, something has to give,” Walker said. “If the bill passes in Santa Fe, absent legislation at the federal level, it’s going to put the banks in more of a Catch-22 position than they’re in now.”
Stull from the credit union association said there are blurry guidelines for credit unions as well. Unaccounted-for cash circulating, he said, could have an adverse effect on crime.
“Having conflicting state and federal laws make banking difficult, but credit unions with staff who specialize in this process can and do provide this service in New Mexico,” he said.
— Ron Davis
Recruiting business
Aerospace and defense and film-related businesses continue to be at the top of Danielle Casey’s wish list. But the president of Albuquerque Economic Development said legalization stands to impact business recruitment.
“On this issue, it puts us on an equal playing field with other states that have done so and are also home to some of our top competitor regions and target business attraction locations,” Casey said. “We are pleased to serve and assist any firms seeking entry into the market and look forward to doing so in this industry as well.”
Rich Brown, City of Santa Fe economic development director, said the city has no plans for recruiting recreational cannabis businesses as of yet, adding that instead they are looking at the production, manufacturing and complimentary services for the industry — and in coming weeks will have more insight into how to move forward.
“Right now we’re not necessarily looking to recruit cannabis businesses,” Brown said. “We’re actually waiting for the rest of regulations and licensing folks to sort of provide insight. Once they know what that guidance is, then we’re going to develop some sort of strategy around those three categories.”
Gabriel Vasquez, a city councilor in Las Cruces, said he and the city are well positioned to capitalize on recreational cannabis.
“I think Las Cruces is one of the communities that stands to gain the most from the legalization of recreational cannabis,” Vasquez said. “Our proximity to a big market — El Paso, Texas, and Juarez, Mexico — I think creates the conditions for us to be very successful in this effort to create jobs in our community.”
Vasquez added that Las Cruces has a “robust” outdoors scene and said that it can attract not only tourists, but recreational cannabis businesses.
Gross receipts taxes from cannabis-related businesses will benefit local economies, said Kristen Gamboa, Village of Los Lunas senior economic developer.
The additional revenue stands to boost community infrastructure projects and workforce training initiatives
“It would be adding to our economy, not being exported or taken out,” she said, adding that village officials would evaluate proposed cannabis businesses like it does all proposals — based on known or anticipated costs and benefits.
— Matt Narvaiz
Real estate considerations
Area real estate brokers are already fielding calls from those in the cannabis industry, ready for New Mexico to legalize recreational cannabis. The demand is in both industrial space for storage and retail space for dispensaries.
Despite early demand for real estate by cannabis groups, property owners have considerations that could evolve over the next year as the state prepares for legalization.
Chris Anderson, a senior adviser at NAI Sun Vista, said property owners leasing to cannabis businesses have several considerations. Among them are insurance costs, laws regulating minimum distance from churches, schools and day cares and financing.
The lack of available industrial warehouse space to accommodate cannabis storage could push companies to look on the outskirts of town off Interstates 40 and 25, Anderson said.
A way to address those concerns will need to be through property redevelopment to flip underutilized retail spaces to make way for an emerging industry like recreational cannabis.
“On the retail side of things, it doesn’t seem like there’s a rhyme or reason for what these groups are picking anymore,” said Daniel Kearney, assistant vice president at Resolut RE. “It’s definitely creating a lot of demand for both [retail and industrial] asset classes.
“There are going to be leases signed all over the city and inventory gobbled up. It’s making it a more competitive market for everybody else because now they have to compete with the big money that’s moving in.”
— Ron Davis
