Ultra Health CEO predicts ‘year of reckoning’ for New Mexico’s cannabis market
Article by Algernon D’Ammassa, Deming Headlight
April 1 marked one year since New Mexico’s adult-use cannabis marketplace made its debut. It was marked by Gov. Michelle Lujan Grisham with the exuberant announcement that adult-use sales (as opposed to medicinal products sold to enrolled patients) hit $300 million over the year — meeting a goal set by her administration.
“In just one year, hundreds of millions of dollars in economic activity has been generated in communities across the state, the number of businesses continues to increase, and thousands of New Mexicans are employed by this new industry,” the governor wrote in an April 4 statement.
State lawmakers legalized cannabis for possession and use by adults in 2021 and charged the Regulation and Licensing Department with creating a new Cannabis Control Division and constructing a regulated marketplace of dispensaries selling products for both medicinal and non-medicinal use. (New Mexico legalized medical cannabis in 2007, with patient enrollment administered by the state health department.)
The state reports that approximately 633 cannabis retailers are licensed, along with 351 growers, 415 micro producers and 507 manufacturers of products, amounting to nearly 2,000 cannabis licenses altogether.
The state reported that March saw a record $32.3 million in adult-use sales and $15.4 million in medical sales, leading to $27 million in cannabis excise taxes for the state’s general fund and local governments. That’s in addition to gross receipts taxes collected for adult-use sales. Medical cannabis is tax-free.
The sales data is reported by the Cannabis Control Division on its website, which has also taken on an unusual role in promoting the new industry that it regulates.
“From the governor’s signing of the legislation, to standing up the Cannabis Control Division and rolling out this new industry, the New Mexico cannabis industry has shown great promise,” RLD Superintendent Linda Trujillo stated in the anniversary announcement. “We’re looking forward to even more growth in year two.”
Yet Duke Rodriguez, CEO of Ultra Health, the largest cannabis operator in the state, told the Headlight $300 million was always a conservative benchmark: “You couldn’t miss it if you tried.”
Over the past year, he has frequently voiced warnings that New Mexico’s cannabis market is underperforming and cannot support the number of operators entering the market. He has also pointed to declining participation in the medical cannabis program as an issue of concern.
Ultra Health CEO Duke Rodriguez. (Courtesy of Ultra Health)
In a new interview with the Headlight, he again cautioned the public and industry professionals to view RLD’s monthly sales reports, often been accompanied by celebratory news releases from Santa Fe, as a preliminary outlook. The meat in the sandwich, so to speak, is in the number of active operators filing returns and actual tax revenues collected, he argues.
For instance, New Mexico’s cannabis excise tax rate is 12 percent. $27 million suggests taxes have been collected on just $225 million. While reporting from the state Tax and Revenue Division may lag a month or so, Rodriguez said that doesn’t account for the gap in figures. While he did not go so far as to suggest the gross sales number is deliberately fake, he said he doubts the total; and even if it is accurate, sales to adults are still lower than they ought to be.
Meanwhile, enrollment in the medical cannabis program is declining. Asked why, Rodriguez said, “The purchase limits are unattractive. They can buy more as an adult. Sometimes participation (in the medical cannabis program) was a get-out-of-jail card. The benefit of the card is very limited now, other than the tax scheme.”
Among lawmakers’ rationales for legalizing cannabis was decriminalizing it and establishing a regulated and safe marketplace to compete against the illegal market. Yet the price per gram in New Mexico remains high compared to street prices and even the legal market in neighboring Colorado. (Cannabis remains illegal under federal law.)
“The price per gram has not fallen,” Rodriguez said, estimating that it has dropped less than a dollar since legalization and remains close to an average of $10 per gram.
“If you use the regulated market, you get the benefit of being able to pay about 20 percent taxes on top of it,” he continued, combining GRT and the state excise tax. “We have made buying from ‘homie’ even more attractive. Times are tight and the illicit market has been given great latitude to grow.”
Yazmeli Martinez-Jaquez, one of the founders of Deming Cannabis Company, agreed with that assessment to an extent, but remarked, “As in any other emerging market, that is how it is at the beginning. New Mexico is only one year into recreational cannabis and the prices will continue to drop as they have in other states.”
She and her two partners opened their dispensary on Deming’s west side last October.
Yazmeli Martinez-Jaquez, center, with partners Heraclio Martinez and Fermin Jaquez as seen at their business, Deming Cannabis Company, in January. (Headlight staff photo by Billy Armendariz)
Rodriguez went on to comment that transfers of sales from medical to non-medical products amounted to “taking from our left pocket and putting it in our right.”
“In my mind, we probably picked up new sales of somewhere closer to less than $200 million, maybe more like $150 to $180 million in new cannabis sales. because we had so many people in the medical program already,” he said.
While he hopes for growth, Rodriguez said “a year of reckoning” is likely in store for New Mexico, in the form of market corrections that put smaller operators out of business in oversaturated markets.
“I understand the desire by our leadership to raise people’s hopes and dreams of great fortunes ahead; that’s the nature of politics,” he said. “But I don’t think they are being truthful and kind. There’s going to be, ultimately, a lot of people hurt. If you do a market analysis of New Mexico’s population and its potential demand, compare to other states doing this longer, a reasonable estimate … is probably under 200 stores.”
Market corrections coming in year two?
Deming reportedly sold $3.8 million in cannabis products in March, averaging about $38 per transaction, per CCD data. That includes $2.5 million in adult-use sales and $1.4 million for medical cannabis.
According to the most recent monthly distribution report from TRD, the city of Deming collected $7,848 in excise taxes in January on top of gross receipts taxes.
Deming currently is home to four dispensaries, including Ultra Health, Canna Company, Deming Cannabis Company and Deming Ganja Lounge.
Rodriguez said Deming dispensaries have grown at a “rational” rate compared to many other New Mexico communities where he said retailers have proliferated far beyond what the market can support. Even so, he predicted: “Deming cannot support four dispensaries.”
While that is in part a calculation of supply and demand, he added that the illicit market’s presence, and its lower prices, provide an additional factor that could tempt some operators to break the rules.
Terry Brenner, seen in April 2022, shortly after the opening of the Canna Company dispensary in downtown Deming. (Headlight staff photo by Billy Armendariz)
“If you build too many coffee shops, some will go away. Cannabis will behave differently,” he said. “In this industry, there are these intermediate steps you can take which are unfortunately not proper or lawful. … If you find yourself falling behind, maybe this month I don’t submit my gross receipts tax — maybe that’s one reason the numbers are lower. Maybe this month I don’t submit my excise tax. Maybe next month I start paying my employees in cash.”
Moreover, he said producers could be tempted to unlawfully import product from outside New Mexico to circumvent state limits on cultivated plants.
New Mexico’s Cannabis Regulation Act called for a marketplace where smaller operators may coexist with larger industrial operators like Ultra Health. Rodriguez said the goal was laudable, but argued reducing the price per gram will require production to scale by larger operators, pushing smaller and local business aside in the process.
“The price will come down,” he said. “We’re inching down. We’re pushing and we will make it — we’re just not there, yet.”
Martinez-Jaquez, operating her smaller enterprise in Deming, suggested dispensaries could compete in other ways.
“Retailers that are customer focused, meaning that they are willing to take the time to talk to their customers and patients about their specific needs, offer education and follow up, should not worry,” she said. “Those are the companies that will continue to thrive and build relationships with the people in their communities.”
Algernon D’Ammassa can be reached at [email protected].