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Last week, The Paper. spoke to producers who said a number of cannabis businesses — including legacy operators that have been in the industry for years — are shutting their doors because there are too many licensees in New Mexico. They are calling for the state to issue a licensing cap to combat what they say is an oversaturated market. Now, a number of producers are speaking up to say that licensing caps would actually harm small businesses and give large, out-of-state operators an open road to monopolize the market.
Matt Kennicott, CEO and co-founder of cannabis industry association The Plug, says licensing caps would make it impossible for new blood to enter the industry and would limit the growth potential of current small weed businesses.
“We’ve been talking with folks who are starting off as microbusinesses, and they’re saving up to get larger licenses further down the road,” Kennicott says. “Our concern is that they won’t be able to do that. Or maybe you have folks that are under 21 right now that really want to get into the industry and start their own business. You put a licensing cap in place, and they won’t be able to do that.”
Kennicott says that the only businesses that will benefit from a licensing cap would be established legacy operators and out-of-state corporations that are already in New Mexico.
“We’re seeing out-of-state companies come in, and they’re largely the ones that are pushing for these licensing caps,” he says, “While small businesses like your mom-and-pop’s, your micro businesses — people with under 50 employees — they’re looking at it, saying, ‘We like the opportunity that this presents, and we want to keep it open.’”
Cannabis advocate Chad Lozano tells The Paper. that calls for licensing caps to protect local small businesses from encroaching out-of-state mega-operators are misplaced.
“They say they’re going to try to help the locals by closing it and make sure these corporate companies don’t come in,” Lozano says. “Well, they’re already here. If you close licensing, it’s just going to get worse.”
Lozano says the biggest businesses with the deepest pockets already have a stake in the industry. Future licensees will mostly be small businesses that have saved up for the opportunity.
“Historically, in all the industries — but especially the ones that had closed licenses — the businesses that are still there are the ones who had the money,” he says. “They’re able to get started at the beginning. We shouldn’t punish people for being poor.”
Lozano says that keeping the licensing door open will also fuel innovation, while closing it will only allow legacy operators to succeed without having to improve their practices.
“I’ve noticed that some of the businesses [that are downsizing] haven’t updated anything — the packaging, their customer experience — their products got worse,” he says. “I’ve seen them operate, and some of them just didn’t change. Or they came from a closed market, and they expected the licensing to close here in New Mexico. That didn’t happen, so now they’re leaving.”
Lozano says oversaturation is never a concern in other industries.
“If you look at restaurants, they close and open and close constantly, all the time, and no one seems to care,” he says.
Amnesia dispensary owner Julieta Vega agrees that other industries appear to do fine without licensing caps.
“When you’re at the Coronado mall, they’re not just allowing certain people to sell shirts,” Vega says. “Everybody has the same opportunity to sell shirts.”
“There will not be room for any new businesses to come in,” she says. “And I believe that’s what keeps the industry going and keeps the quality high — to allow other people to compete.”
Vega says there are parallels to be drawn from the history of liquor licenses in New Mexico.
“It’s very difficult to get a liquor license, and they’re highly, highly expensive,” she says. “That’s what I think would end up happening with the cannabis licenses that we have now, which originally were going to be something that everybody had access to.”
Kennicott points out that the state’s liquor license caps led to unforeseen consequences.
“It actually created an entire sub-industry,” Kennicott says. “There were liquor license brokers around the state making a lot of money. You had liquor licenses worth over a million dollars.”
When liquor licensing limits were eased during the pandemic, Kennicott says people lost fortunes.
“In some cases, people had sunk their life savings into it. It was their retirement plan,” he says. “Then the Legislature came along and opened liquor licensing, which, in essence, made the liquor licenses that were out there not at all valuable to the people that were then holding them. Quite frankly, it wrecked a lot of people.”
Kennicott says those people would never have lost their money if the liquor licensing caps had never been initiated in the first place.
But those who are calling for a licensing cap say that weed businesses face unique challenges that make it difficult to compete in an oversaturated market — challenges like lack of access to financial services and an inability to claim tax deductions for normal expenses.
“We knew what we were getting into when we got into it,” Kennicott says. “We knew that there were hurdles that other businesses don’t have to face. We knew that there were challenges there that aren’t necessarily presented to other entrepreneurs. That was part of getting into this business.”
Lozano says what we’re seeing is the natural progression of a new industry.
“Businesses come and go,” he says. “Some are going to make it. Some aren’t. That’s just the nature of business. We all joined this industry understanding what we’re doing, and no one really owes us anything.”