Recreational cannabis is here. As of June 29, adults over the age of 21 are able to possess recreational cannabis (up to two ounces), and home grow it (up to six mature plants per adult, but not to exceed 12 mature plants per household).

State agencies and local leaders are now in the process of standing up ordinances, ironing out procedures and hearing from the public on best practices going forward for the Cannabis Regulation Act, which was passed by the New Mexico state Legislature and signed into law by Gov. Michelle Lujan Grisham in April 2021.

The New Mexico Regulation and Licensing Department (RLD), which is responsible for establishing new protocols and procedures for the nascent recreational cannabis industry, recently met with local leaders of the Intergovernmental Council, and hosted an online informational workshop with other state agencies, in order to bring the public up to speed.

Three deadlines

The law mandates deadlines for producer licenses, to be issued beginning no later than Sept. 1, 2021; all other licenses, including testing, distributing, selling, consumption hosting and more, to be issued beginning no later than Jan. 1, 2022; and adult-use purchasing, beginning no later than April 1, 2022.

Another important deadline was June 29, 2021, when the licensing of medical cannabis manufacturing transferred from the New Mexico Department of Health over to the RLD.

"If you still want to have a registry card that you can purchase medical cannabis, you still are going to have to go to the Department of Health. That's their area of expertise," said Linda Trujillo, superintendent of the New Mexico Regulation and Licensing Department.

"But the licensing of folks who provide the cannabis -- who grow it, who manufacture it, sell it -- that responsibility rolled over to the Regulation and Licensing Department on that day."

Public input

The first of several public-rule hearings took place Tuesday (June 29) -- it focused on the general licensing requirements for cannabis producers.

After consulting with other states that have implemented recreational cannabis programs, including Colorado, California and New York, the RLD put together a preliminary set of rules.

The department plans to incorporate public comments made at the rule hearing and publish a final set of rules in the coming weeks.

Economic development

During an informational workshop hosted by the RLD Tuesday (June 22), the New Mexico Economic Development Department (EDD) explained its role in helping members of the community join the recreational cannabis industry with guidance from its regional representatives.

"These are the people that can guide you -- how to get your business started, how to navigate the various traps," said Mark Roper, division director of the EDD. "And also help guide you into the potential incentives that may be available to you throughout the process of setting up your business."

For businesses involved in the production of cannabis, the EDD could reimburse worker's wages through its job training incentive program. Eligible businesses could recoup between 50-85 percent of their employees' wages for a period of up to six months.

The division can also offer cannabis producers Local Economic Development Act (LEDA) funding, for infrastructure investments including buildings, roads, utility extensions and more.

To help with the purchase of new equipment, the EDD offers businesses a Collateral Assistance Program, which could provide collateral for up to 50 percent of a loan, with a cap of $250,000.

"You do have to have a lender -- we are not a lender, we just provide the collateral assistance," said Roper.

Construction codes

Businesses looking to buy, build or renovate structures for the cannabis industry will need to follow existing state building codes.

"New construction and remodeling require plans, permits and inspections," said Clay Bailey, director of the RLD Construction Industries Division. "In order to get a plan or an inspection, you have to get a permit. You have to have a licensed contractor."

Bailey said the turnaround time for requested permits is between 2-3 weeks. "Any general building code questions will be submitted to my General Construction Bureau Chief Martin Romero."

Older buildings converted for cannabis growing and manufacturing often include a change in the certificate of occupancy.

"You're taking an office building, making it into a warehouse, using the warehouse, making it into a distribution facility, or taking a warehouse and turning it into a laboratory. All this stuff is going to take permits and plans," said Bailey.

Banking considerations

"The number one question we get asked is, 'Why can't I find a cannabis-friendly bank?'" said Rebecca Moore, acting director for the RLD Financial Institutions Division.

At the federal level, cannabis is an illegal substance -- banks, credit unions and other federally insured financial institutions don't want to break federal laws by doing business with state authorized cannabis companies.

"In 2013, the Department of Justice saw that there was a disconnect between state authorization and what was illegal at the federal level and tried to fill that gap - what we call the Cole Memo," said Moore.

The memo limited the investigative and prosecutorial efforts of the federal government and sent a signal to banks that they could do business with cannabis companies without fear of prosecution. Banks remained reluctant, though.

In 2014, the U.S. Department of the Treasury Financial Crimes Enforcement Network again tried to fix the problem.

"It outlined the due diligence and reporting requirements that banks have to do in order to assess and mitigate the risk of providing services to marijuana-related businesses," said Moore.

To offer even greater support to banks, Congress introduced the SAFE Banking Act in 2019. It failed to pass, and was reintroduced in 2021. The bill passed in the House of Representatives, and now faces an uncertain vote in the Senate.

"It doesn't get rid of all the stuff that banks have to do under the guidance from 2014," said Moore, explaining that banks need proof of licensure, beneficial owner identification, and a list of products and services offered before they can open an account with a cannabis company.

"When you're talking about financial institutions, it's all about an appetite for risk," said Moore. "Cannabis has typically been a cash-intensive business. Cash intensive businesses have, in the past, been used for illicit activity. So that increases the risk."

"That's a lot of monitoring that they have to do every day in the bank. Not all banks can specialize in this," said Moore. "It takes a lot of knowledgeable staff to oversee and manage a program like this, and as everybody knows, experts aren't cheap."

Venture capital

New cannabis businesses can also tap venture capital to invest in their startups efforts.

"We know that this can be a moneymaker, both for new businesses, and for the state to get revenue," said Drew Tulchin, president of New Mexico Angels, Inc., a venture capital firm.

The firm brings, on average, $200,000 to each of five companies each year through national investor ecosystems. "It allows us to take New Mexico investment opportunities, to give them a larger platform, larger relationships, larger capital opportunities," he said.

"We'd like to demystify this capital investing world, with opportunities such as crowd funding, RBI (revenue based investing) and other ways to see the capital needed for growing companies beyond the standard image of what a venture capitalist looks like," said Tulchin.

Cannabis Control Division

Robert Sachs, Deputy Director of Policy for the RLD Cannabis Control Division (CCD), presented application requirements and proposed annual licensing fees for various roles in the cannabis industry.

The proposed annual fee for a courier license is $250, and $100 for each additional license. For testing laboratories, manufacturers, producers, retailers, and research laboratories, the proposed annual license fee is $2,500, and $1,000 for each additional license.

For a vertically integrated cannabis establishment that contains any number of roles within a single company, the proposed annual license fee is $7,500, and $1,000 for each additional license.

A cannabis producer microbusiness license fee is $500 a year for 100 plants or less, and $1,000 for 101-200 plants. An integrated cannabis microbusiness could see an annual license fee of $1,000-$2,500, depending on specific business activities.

A cannabis consumption area license fee is $2,500 per year.

"The licensing fees, a lot of those were determined statutorily. If we receive public comment about some of those fees, there's not a lot that we can do," said Sachs.

"But we do appreciate feedback for plant fees -- this is something that we do have discretion on." Proposed plant fees for cannabis growers increase as the number of harvested plants increase. Fees average around $20 per plant for adult use and around $10 per plant for medical use.

"There are requirements with licenses, whether they're cannabis or in other industries, will require similar information," said Sachs. "We'll need to know the personal contact information of the individuals forming the business."

"You'll need operations plans for certain types of cannabis businesses, you'll need to make sure that you're a particular distance away from schools and daycares -- that's 300 feet," he continued. "You'll also have to ensure that your land requirements are met -- you have a building, you have access to water. If you are a producer, you will have to let us know how many plants you anticipate growing to determine your fees."

Sachs outlined other requirements for licensure including security and workplace safety.

"And a big thing will be a diagram of the premises -- we want to make sure that the area is secured. Part of the rules, as they stand, is that any area that is producing cannabis cannot be visible to the public. So if someone's walking down the sidewalk, and they look into your property, they can't see you growing the plant, or harvesting, or extracting," said Sachs.

Questions and answers

Nearly 500 people attended the CCD online presentation, which allowed for public questions.

Iris from Las Cruces asked, "Is there a limit on how many licenses are going to be in the state? Or is that per region? There are some states that have an unlimited number of licenses to producers, as long as they meet all of the qualifications. And then there's some states that issued, like, 12, for the whole state."

Sachs replied that there are no caps on the number of licenses for producers, manufacturers, couriers or any other role in the cannabis industry.

Another attendee asked, "With the medical cannabis program, you had to have a nonprofit. Are we allowed to structure our business in any way?"

"You're not restricted to nonprofit, like the medical producers prior. So yeah, you can have an LLC, S corporation, C corporation. However you want to structure," said Sachs.

There also was a Q & A at the Intergovernmental Council meeting. Town of Taos Council Member George "Fritz" Hahn asked, "What can be done to increase the municipality's share of tax revenue to increase our capacity to better enable enforcement?"

"When the bill was first considered during the regular session, there was an opportunity for local communities to go up to 4 percent. And after meeting with the Secretary of Taxation and Revenue, it became really clear that that was going to be a logistical nightmare," said Trujillo.

"So the decision was made unanimously, and supported by the legislature, the tax is across the board. You won't have authority to increase it, but you also are automatically going to get it."

"Is the state going to regulate companies from out of state coming in and dominating the market, and not giving local New Mexicans the opportunity for this?" asked Christof Brownell, Mayor of Taos Ski Valley.

"The legislature did not prohibit out of state companies from coming in and starting up in New Mexico," said Trujillo. "But we can encourage local residents, minority residents, residents from communities that are underrepresented, historical communities. And I would really appreciate some input from you on ideas as to how we can do that."

For more information, visit ccd.rld.state.m.us.

This article is one in a series exploring the state recreational cannabis industry. More can be found at taosnews.com/news/business/local-leaders-prepare-for-legalized-weed/article_3345556a-b9ff-5f78-a5c7-56b65ea332a2.html.

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