Monday, May 29, 2023

Water Rights Create Hurdles for Cannabis Producers

Recreational Cannabis Applicants Have Unanswered Questions on Water Rights


The New Mexico adult-use cannabis market is preparing to spring into action within the next few months. But lack of direction on regulations regarding ownership of water rights is holding back some entrepreneurs looking to take part in the marketplace. With only weeks left until regulators must begin processing cannabis business license applications, there are still some unanswered questions about water rights that need answering.

While New Mexico’s temperate weather and long growing season in many ways make it the perfect place to grow cannabis, the state has been in the throes of a record-breaking drought. Last year’s rainfall in Carlsbad was the lowest since the Weather Service opened its station there in 2005, and weather scientists say that the western U.S. is suffering through a 20-year “megadrought”—the worst one in 1,200 years, according to a study published in the journal Science. Current projections predict that the crisis is far from over, and the megadrought is expected to continue for years.

This is terrible news for potential recreational cannabis producers in New Mexico who are required by the state to prove that they have rights and access to an adequate supply of water before they can be licensed to grow cannabis for commercial sale. Water access will be expensive and hard to come by as the drought continues, and if state regulators choose to adopt stringent water rules, it could keep prospective pot businesses from ever taking off.

Water Troubles

The state Regulation and Licensing Department has yet to finalize its rules for licensees, but the state already has manufacturing standards for medical cannabis that require producers to use “potable” water in their grow operations. If recreational growers are subjected to the same standards, many rural farmers who use well water or have irrigation rights only—both of which are safe for plant production—will have to find other sources of water or forget about joining the industry altogether. Producers located in the larger metropolitan areas of the state will be able to access the municipal water supply, but the cost will cut into overhead. Rural producers without water rights will be forced to purchase or lease rights before they can start operations.

“Some of these people who want to get in to the program—who are low-income or minorities—they don’t have water rights or the money to get into this business. It takes tens of thousands of dollars to get started,” says Ed Griffin at Zia Health and Wellness.

Proof of Water Rights

Water right laws in a drought-prone desert region can be confusing and complicated. New Mexican residents used to be able to declare water rights by simply diverting water to their land and using it in some fashion. But in 1907 the state began to require permits from farmers who wanted to initiate water rights. Those who had already procured water rights before 1907 were allowed to keep them, but would be required to prove their legitimacy if asked. At any time landowners could register their water rights with the Office of the State Engineer and obtain a “Declaration of Ownership of Water Rights,” but many have failed to do so. If challenged by the state or another entity, these landowners might be unable to prove their water rights and be denied licensing.

Many potential producers will be tied up trying to gain or prove their water rights when the state begins processing license applications. Last month Director of the Water Resource Allocation Program of the OSE John Romero said cannabis producers looking to secure water rights will be facing a massive backlog. He told The Santa Fe New Mexican that they will have to submit their requests to the OSE and get in line behind 500 water permit applications—a number that will grow as cannabis companies start to submit applications. Romero told reporters that it could take eight to 10 months before some companies secure water rights, and up to two years if the rights are contested. He also said that water resource allocation agents were fielding up to 50 questions about cannabis water rights a day. “We’re doing the best we can,” he said.

Romero said marijuana producers who don’t have agricultural or commercial well rights must purchase them from someone who does. The owner must then transfer the rights to the producer’s well through a permit from the OSE. He warned that before potential producers buy or lease water rights from an acequia system, they need to make sure the acequia commission does not have bylaws that prohibit or limit rights transfers. “Most acequia commissions do have bylaws,” Romero said. “And they often have the right to refuse transfer.”

Can Pot Hurt Food Security?

In April Poki Piottin wrote an opinion piece for the Albuquerque Journal warning that large-scale cannabis production operations could threaten water rights of rural landowners. Piottin points out that New Mexico law protects accused water thieves during disputes over water rights until the courts resolve the issue.

“Developers, billionaires setting up hunting lodges and out-of-state commercial cannabis growers have unlimited financial resources to hire attorneys to defend, or prolong, their cases,” wrote Piottin. “Traditional water rights farmers are currently engaged in a war of attrition against commercial interests with a lot of financial resources and absolutely no respect for traditional culture.”

Piottin said he was concerned that commercial cannabis producers will purchase water rights from land owners “who do not think of future generations but only have self-interest, or desperation, for money in mind.”

The RLD must have regulations in place for licensing cannabis businesses by Sept. 1. The clock is ticking and many rural growers are wondering if they will have to wait in line behind larger, out-of-state growing operations that will have the capital to easily bypass water rights hurdles. Depending on how state regulators handle the situation, it could be the deciding factor in whether or not local microbusinesses will be able to compete.


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