Last month Regulations and Licensing Department (RLD) Superintendent Linda Trujillo raised the alarm that New Mexico could be facing a massive cannabis shortage by the time the state opens the doors on the adult-use marijuana market. But plans have been put into place that are meant to protect the availability of supplies for medical cannabis patients.
“It’s highly likely we will run out of cannabis in the first week, if not the first two weeks,” Trujillo told the Economic Development and Policy Committee. States that have already been through the process have faced this problem, and none were able to solve it.
“We’ve had the good fortune of speaking with other states who have already implemented adult-use cannabis to learn what’s worked and what’s not worked,” RLD Deputy Superintendent John Blair told reporters. “What we’ve learned is that every state has likely run out of cannabis on the first day.”
According to Trujillo, the state will require 500,000 mature plants to meet consumer demand when the adult-use cannabis market opens next year. The superintendent estimated that the failure rate for growing marijuana could potentially be as high as 18 percent, pushing that figure even higher.
Experts say that the shortage will result from what’s known as the “Krispy Kreme syndrome.” “If a new restaurant comes to Santa Fe or Albuquerque or Las Cruces, it’s the new hot thing,” said Blair. “Everybody wants to go try the new margarita—get the new tacos.”
The Numbers
In June the Cannabis Control Division (CCD) of the RLD published a market study estimating the demand for marijuana in New Mexico in the first year of sales. It found that 88 percent of New Mexico medical cannabis patients reported that dispensaries were “sufficiently stocked,” but predicted that limits would need to be raised to meet the demands of the adult-use market.
The report examined pot consumer consumption patterns in Colorado, Washington and Vermont alongside a survey of over 1,000 New Mexico residents. Its authors found that demand was similar in all three states at around 30 grams per user each month. The report determined that each producer would need to produce 1,553 to 2,231 plants per harvest cycle next year to meet the demand of the adult-use market and 474 to 1,525 plants per harvest cycle next year to meet the demand of the medical cannabis market.
The report was used to inform state regulators, who increased limits in the final rules for producers. Initially, producers were limited to growing 4,500 plants. Under the new system, licensee will be given tier-based limits. Level 1 producers will be allowed to grow between 201 and 1,000 mature cannabis plants; Level 2 businesses can produce 1,001 to 3,000 plants; Level 3 producers can grow 3,001 to 6,000 plants; and Level 4 businesses can produce 6,001 to 8,000 plants. Producers will also be able to ask for permission to grow more than 8,000 plants with a 10,000-plant cap.
“The current study is the most scientifically rigorous state cannabis demand study to our knowledge,” wrote the report’s authors.
Shortages Drive Illicit Sales
In April a letter written by five of New Mexico’s medical cannabis producers expressed concerns that legalization would threaten patients’ access to the drug. The letter argued that when supplies of marijuana are short, patients are forced to turn to the black market to access their medicine.
“They buy what they are legally allowed to buy, they buy what is available, and they buy what they can afford. The illicit market provides the rest,” wrote the authors. “If patients can lawfully buy more from licensed producers, they will buy more.”
According to national data, supply shortages inevitably lead to increased black market activity—especially in states that have legalized home cultivation as New Mexico has. In its 2019 annual National Drug Threat Assessment, the U.S. Drug Enforcement Administration reported that illicit cannabis cultivation continues to be a problem even in states that have legalized the drug.
“The average black market price for high-quality indoor marijuana is $800 to $1,000 per pound, meaning growers can potentially earn $19,200 to $24,000 per year from six ‘legal’ plants,” wrote the authors.
RLD Plans Ahead
Near the end of August—a week ahead of deadline—the RLD published its final rules for cannabis production. The new regulations included requirements that are meant to protect medical cannabis patients’ access to marijuana by ensuring that producers hold back a portion of their products for medical sales only.
In a section titled “Addressing a Shortage of Medical Cannabis,” the rules state that, “Cannabis retail establishments shall make reasonable efforts to sell 25 percent of their monthly cannabis sales to qualified patients, primary caregivers and reciprocal participants, or to other licensed cannabis retail establishments that meet or exceed the 25 percent sales [quota].” The rule also requires that, “Licensed cannabis producers, including cannabis producer microbusinesses, vertically integrated cannabis establishments, and integrated cannabis microbusinesses, and cannabis manufactures shall make reasonable effort to sell wholesale to licensed cannabis retail establishments that meet or exceed the 25 percent sales [quota].” Regulators hope this will give patients uninterrupted access to their medication in case the market is overrun in the first week, as predicted.
These requirements are set to expire Dec. 31, 2022. The RLD will be required to report on the state of New Mexico’s cannabis supplies to legislators every year in September—at which point, plant limits can be raised if deemed necessary. If shortages continue to be a concern through next year, regulators are given the option of reducing plant fees for medical cannabis or even halting new commercial cannabis licenses for at least six months. This appears to be a measure that will be taken only in the most dire circumstances, however.
Hopefully, those circumstances will never be met. The RLD reportedly received 897 producer applications in the first week alone. And Trujillo told KOAT that the department doesn’t plan on limiting the number of applications it takes. If enough companies take interest and the RLD continues to move as quickly as it has so far, then New Mexico might make history and meet the demands of consumers high on the Krispy Kreme effect.