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New Mexico renewed its push to legalize adult-use cannabis this year, but efforts ultimately stalled when a Senate committee voted to block a legalization bill from advancing. However, Marissa Novel, chief marketing officer for Ultra Health, one of the state’s licensed medical cannabis businesses, says this might not be a bad thing.

While Ultra Health supports adult-use cannabis legalization as a basic policy position, the company had several issues with S.B.115, this year’s legalization proposal.

“I think that was an outgrowth of how the bill matured over time,” Novel tells Cannabis Business Times.

RELATED: New Mexico Lawmakers Introduce Legislation to Legalize Adult-Use Cannabis

After two competing adult-use legalization bills stalled last year, Gov. Michelle Lujan Grisham recruited policy experts to serve on a committee tasked with providing recommendations on legalization in the state. The work group submitted its recommendations to the governor last fall, and many of these suggestions were incorporated into S.B.115.

“They had a whole host of recommendations that wasn’t necessarily representative of the industry,” Novel says. “I think there were maybe one or two industry operators in that work group among people from all other industries, so I think the bill did have some major issues from an operator’s standpoint. As the session went on, we found ourselves disagreeing with more of the amendments that we saw. It was a case of too many cooks in the kitchen it seems like—everyone had different asks for what the legalization bill would do and in that, we lost sight of the bare minimum of making sure that a regulated industry is passed.”

Under the legislation, adults would be allowed to purchase up to 2 ounces of cannabis or 16 grams of cannabis extracts at one time, she says, while patients enrolled in New Mexico’s medical cannabis program are only legally able to purchase 8 ounces of flower in a 90-day period.

“We had a primary issue with not addressing what patients can purchase because if an adult can purchase up to 2 ounces of cannabis a day and they’re not tracked, then that would be unfair to patients who enroll in the program, go through all the necessary administrative steps to get certified, and yet they can buy less than an adult on the adult-use market,” Novel says. “That was a major area that we found was unaddressed, and to leave it unaddressed would obviously cause issues for medical cannabis patients.”

Another point of contention in S.B.115 was vertical integration, she adds. New Mexico’s medical cannabis law mandates vertical integration by requiring that licensed businesses produce, manufacture, distribute and dispense medical cannabis products, but the adult-use bill would have created 10 different license types, which no longer allowed cannabis businesses to be vertically integrated.

“There are currently 34 medical cannabis operators, and we did about $130 million in sales last year, so you’re not going to get a lot of agreement if you’re advocating for dismantling the current business structure that exists today,” Novel says. “[From] a policy standpoint, we do support vertical integration because we think [it] allows for more innovation on the operator’s side. We can typically price goods at a lower cost to the patient or consumer, and we will need these larger operators to really absorb a lot of the adult-use demand.”

The legislation also lacked clarity on the supply of cannabis in a forthcoming adult-use market, she adds, and plant count has always been a pain point for the state’s medical cannabis businesses.

“There have been misunderstandings about what it takes to achieve an adequate supply,” Novel says. “An adequate supply is a definition in the medical cannabis law that states that patients should have the ability to purchase an uninterrupted supply of cannabis for three consecutive months. We had a lot of supply issues in the state. We actually took the state to court along with a mother of a cannabis patient—she’s a caregiver—to resolve this issue that plant count does affect the supply of medicine that patients can buy and patients should be able to buy what they can on the current market.”

When Ultra Health did not see any language in S.B.115 about how many plants cannabis producers would be able to grow, it sent up a red flag.

“That’s a huge issue because there are a lot of people in the industry now who say that there is a shortage already,” Novel says. “There have been reports of shortages in the most recent patient survey commissioned by [the New Mexico Department of Health] last year. So, when we don’t address how many plants a licensee is allowed to cultivate, that’s inviting a shortage on the market. We’ve seen shortages in almost every state that has legalized cannabis for adult use, and that has really put a strain on patients, [and] on retaining enrollment in the medical cannabis program, too.”

In the end, it was nearly impossible for Ultra Health to support this year’s legalization proposal, Novel says.

“We found ourselves in a difficult situation where, yes, we support legalization from a policy standpoint, but we also realize that you have to have three major parts in place for legalization to work from an operator’s perspective,” she says. “The patient purchase limits need to be equal to or greater than the adult’s purchase limits. Vertical integration needs to be allowed, especially in light of the medical cannabis law mandating vertical integration. And finally, there needs to be specific language that prevents a shortage for medical cannabis patients, and we believe that language should come from allowing producers to cultivate an adequate number of plants.”

Public support for cannabis legalization in New Mexico continues to rise, Novel adds, although, unfortunately, the New Mexico Constitution prohibits citizens from filing petitions to place initiatives on the state’s ballot. Therefore, any cannabis policy reform efforts must funnel through the state legislature.

“If there were a ballot issue in New Mexico today, I think we would already have legalization, but this is the route that we have to take,” Novel says.

Looking ahead, she is hopeful that a more palatable legalization proposal will be introduced next year.

“It was a very long bill—it was over 170 pages with amendments—and in alignment with our policy position, we do believe that cannabis legalization through the legislature does not need to be a difficult thing,” she says. “It becomes difficult when you have different interest groups requesting different language and different items to be included, and it seems like that’s what this bill morphed into. It seemed like there was a good platform for what we needed to do before the session started, but as the bill was drafted and became longer and longer, it was clear that we lost sight of the goal. The goal was to legalize cannabis in this session for adult use, and we can still do that during the next session. It can be done during an emergency session. It can even be done by proposing a constitutional amendment. But I think the process should be streamlined to where we have a robust framework that protects medical cannabis patients and also provides for an adequate supply for both adults and patients, and the rest we’ll have to fine-tune as the industry matures as a whole.”

The illicit market and overregulation are the legal cannabis industry’s two biggest enemies, Novel adds, and she would like to see a legalization bill in the future that works to combat those two areas.

While this year’s bill proposed a tax rate of around 21%, for example, Novel would like to see that come down so the state’s legal cannabis market can more effectively compete with illicit-market sales.

“I think what we need to keep in mind during these conversations and during future sessions is that our biggest enemy is the illicit market,” she says. “The illicit market does not pay taxes, they cut corners and they are lower in price. We need to try to meet that price while also providing for clean, safe and effective medicine.”

Regulators and the cannabis industry should also try to work together to avoid overregulation, as well as regulations that simply do not work for the market, Novel adds.

“There seems to be a great disconnect between operators and regulators in almost every legal cannabis state,” she says. “Some of it is understandable—it is a completely new industry. But I think if the industry and regulators start working together more harmoniously, the regulators will have more contact with and more understanding of the cannabis business, and the cannabis businesses will feel that they are understood and heard if these regulators start to see things from their perspective. What might seem like a good idea in a vacuum may be something that completely wrecks the cannabis industry as we know it.”

In the meantime, until the next legalization push in the state, Ultra Health plans to continue its efforts to expand its operations in preparation of an adult-use market.

“We are continuously looking at the numbers that Colorado provides,” Novel says. “They have a good amount of data, probably the best in any legalized cannabis state. We routinely look at their sales numbers, the volume of cannabis sold, where it’s being sold, how it’s being sold and what form [is being sold] to really forecast what we think the New Mexico model will need to support.”

Ultra Health currently operates more than 20 medical cannabis dispensaries in the state, and it aims to have 30 open by the end of the year.

“We think that setting up the distribution network for adult-use is going to be huge, so that’s something that we’ve been working on for a couple of years now,” Novel says. “We are preparing our cultivation spaces [and] we’re building out more infrastructure, greenhouses, cold frames [and] production buildings because we realize that New Mexico is looking at [needing] least five times the amount of volume that it’s doing now for any sort of adult-use program.”