Monday, May 29, 2023

Green Rush: What Businesses Need to Know About Legalization

Many rules not yet set


Earlier this week Gov. Michelle Lujan Grisham gathered the faithful to witness her signing of HB 2—Cannabis Regulation Act. After years of back-and-forth, New Mexico has finally legalized cannabis. It feels like some sort of victory, even if it was too long coming.

The state was so excited by the prospect that even before she put pen to paper, the Regulations and Licensing Department had already put up a page on their site dedicated to the new Cannabis Control Division, listing special dates in the timeline and licensing fees. The site also includes a helpful economic development toolbox that provides entrepreneurs with basic resources for starting a local business.

Commercial cannabis sales are set to begin April 1, 2022. (That’s not an April Fool’s joke.) If you’re an entrepreneur, champing at the bit to get your new cannabis business off the ground, then it’s time to look over the new law and see exactly what it has in store for us.

Cannabis Control Division

Many of the rules and regulations for setting up a cannabis biz are still on the horizon. Those regulations will be decided by the Cannabis Control Division (CCD), a new agency created by the law. The division will be in charge of determining qualifications for licensure, security requirements, inspection and monitoring requirements, record-keeping and enforcement of seed-to-sale tracking, preventing underage consumption, determining labeling requirements, product display, developing health and safety standards, developing standards for quality control and inspection, establishing environmental protection protocols and collecting demographic data on license applicants for public knowledge.

Except for administration of the medical cannabis registry, the “power, duty and authority” of the Department of Health related to the medical cannabis program is now being transferred to the CCD, meaning there will be a central agency dealing with both medical and recreational cannabis regulation.

Social Justice

Before we venture too deep into licensing and tax rules, we should take note of the fact that lawmakers went out of their way to give small businesses a chance to start strong in the industry.

The law differentiates between cannabis “businesses” and “microbusinesses.” Microbusinesses are ones that operate from a single licensed location and produce less than 200 plants at a time. They are given priority in licensing and discounts on fees. Presumably, this is to protect the interests of those who are attempting to enter the market for the first time and give them a chance to compete with bigger companies that will inevitably come swooping in.

Recognizing the need for small business protection is only one way that the law addresses social injustice. The CCD is also tasked with developing procedures that “promote and encourage full participation in the cannabis industry … by representatives of communities that have been disproportionately harmed by rates of arrest through the enforcement of cannabis prohibitions in law and policy, rural communities likely to be impacted by cannabis production and agricultural producers from economically disadvantaged communities.”

The division will also be developing a process whereby products from microbusinesses and those owned by members of under-represented communities will be clearly labeled to give them an edge in the retail market.

Cannabis Regulatory Advisory Committee

By Sept. 1, 2021, the CCD will be required to create the “Cannabis Regulatory Advisory Committee.” The group will advise the division on policy and must include the chief public defender or a designee, a district attorney appointed by the New Mexico District Attorney Association, a municipal police chief appointed by the New Mexico Association of Chiefs of Police and a county sheriff appointed by the executive director of the New Mexico Association of Counties. The group must also include experts in a number of fields related to the industry.

The group will monitor the supply and demand of cannabis and report their effects on illicit cannabis sales. The committee will also undertake studies aimed at improving the CCD’s operations.

Commercial Cannabis Activity Licensing Rules

CCD is in charge of licensing consumption areas, courier services, manufacturers, producer microbusinesses, producers, research labs, testing labs, retailers, servers, training and education programs.

By Sept. 1 the agency will have to start processing license applications for cannabis producers, cannabis producer microbusinesses and properly licensed medical cannabis producers. It must begin accepting applications for all other licensing types no later than Jan. 1, 2022. This will give small businesses and current medical cannabis businesses a four-month head start.

Every license application has its own fee associated with it, and they can become a bit steep when stacked. According to the law, a cannabis courier license costs $1,500 a year, plus $1,000 for each additional licensed premises. The fees for cannabis testing license, cannabis research lab license, cannabis manufacturer license, cannabis producer license and cannabis retailer license each cost $2,500 a year, plus $1,000 for each additional licensed premises. A vertically-integrated establishment license (for establishments that will act as producers, couriers and retailers) application fee will put a company back $7,500 a year, plus $1,000 for each additional licensed premises. The license application fee for setting up a cannabis consumption area will cost $2,500. For all of these licensees who are cultivating plants, an additional annual fee of no more than $50 will be applied to any mature plant owned by the licensee at the time of licensing or renewal.

The fees are a bit cheaper for microbusinesses, though. A cannabis producer microbusiness application fee is only $1,000 a year, and the fee for an integrated microbusiness license is only $2,500 a year plus $500 for each additional licensed premises. Microbusinesses are also exempt from the additional mature plant fees.

A cannabis activity license is valid for 12 months. Renewals can only happen after the CCD has received confirmation that the licensee is up-to-date on their taxes and has filed all of the tax returns associated with their cannabis business. Applicants must submit to a criminal history and background check by the FBI and the Department of Public Safety. Once the application process is complete, the CCD has up to 90 days to issue the license or deny the applicant.

Applications can be denied over missing information or because an applicant has a criminal record that’s related to the qualifications (e.g. felonies involving fraud or embezzlement or employing a minor to illegally sell drugs). The law specifically says that any other cannabis conviction for which the sentence has been completed is not to be considered “substantially related to the qualifications.”

If a person’s license is revoked, they have to wait at least three years before they can apply again.

Medical Cannabis

The law was also written with protections for the state’s medical cannabis industry in mind.

A medical cannabis business owner in good standing may continue to operate under their current medical cannabis license until licenses for commercial cannabis activity are available. The license should be able to switch over without a hitch, and the law says licensee will be entitled to “continued and uninterrupted operations.”

Patients are especially protected by the law. “Nothing in the Cannabis Regulation Act shall be construed to limit a privilege or right of a qualified patient, a primary caregiver or a reciprocal participant,” it says.

Supply Issues

Again and again leaders in the medical cannabis community have complained that the state’s medical cannabis supplies are overly limited, and the industry has been suffering through a shortage for years. To battle the problem, lawmakers will require that all licensees reserve 10 percent of their inventory every month for medical cannabis patients.

The CCD may initially take measures to incentivize increased production or require licensees to produce a specific quota of mature cannabis plants just for medical marijuana patients to address any shortages of medical cannabis. If this still doesn’t fix the issue, then the state could exclude commercial cannabis activity from the scope of new licenses for producers, producer microbusinesses, vertically integrated establishments, integrated microbusinesses or manufacturers for six months.

General plant limits will be decided on no later than Sept. 21, 2021. The limits will be based on the national average market demand in states where cannabis was legal in the preceding year. That limit will be reevaluated every September after that.

Cannabis Server Permits

A special cannabis server permit will be required of anyone offering, selling or serving marijuana in a commercial consumption area. These permits will cost $35, and a server has to get one within 30 days of employment. To qualify for the permit, a server has to complete a state-authorized cannabis education course that will instruct them on the effects of marijuana, the side effects of mixing marijuana with other drugs, how to recognize cannabis abuse disorder, harm reduction practices, how to spot a fake ID and licensure regulations.

The permit will be good for three years and can be renewed when the applicant provides proof that they’ve received at least four and a half hours of continued cannabis education.

Consumption Areas

One of the most exciting aspects of the new law is its allowance of consumption area licenses. Marijuana businesses will be able to designate certain indoor or outdoor areas as places where consumers can smoke cannabis in a public setting. This is crucial to bringing in tourism, as some places with recreational weed failed to take this step and made it functionally impossible for non-residents to legally consume the cannabis that they purchased in the state. As counterintuitive as it sounds, disallowing public consumption areas just drives users to consume in spots deemed illegal—like in the car or in public parks.

The public consumption areas will have to be inaccessible to anyone under 21, and it will be up to local jurisdictions to decide how far the areas must be from schools and daycares—although the law bars them from setting limits higher than 300 feet.

Marketing Rules

As is common with bills like this one, lawmakers have taken steps to ensure that children aren’t exposed to cannabis marketing.

Advertising and marketing marijuana is prohibited on the radio, TV or other broadcast media, in internet popups and on mass transit vehicles. Exemptions are made for subscription-based broadcast media or customer-requested direct-to-consumer advertising. Marketing in print is fine as long as the audience can be “reasonably expected” to be over 21.

No billboards, posters or other visual advertising is allowed where it “can be viewed within three hundred feet of a school, daycare center or church.” Advertisements cannot include cartoon characters, individuals who appear to be under 21 or use predatory marketing aimed at minors.

And of course, it is illegal to advertise “false, deceptive or misleading” claims.

Excise Tax

The cannabis excise tax will slowly raise over the next few years, starting at 12 percent until July 1, 2025, when it raises to 13 percent. It raises by a percent point every year in July until it caps at 18 percent in 2030. The tax will apply to the sale of all recreational cannabis, but not medical cannabis. It will be due on the 25th day of the month following the product’s sale.

Looking Forward

It’s an exciting time to be a New Mexican. Let’s just hope that the governor’s plans to infuse the state’s dwindling assets with some much-needed funding from recreational cannabis sales pays off. At the very least, it might give some hope to entrepreneurs who were burned by the lockdowns and are looking for some relief.


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