November 28, 2018

New Mexico District Judge Rules Plant Limit Set on LNPPs is Not Valid; New Rules to Be Drafted in Q1 2019


Medical cannabis businesses in New Mexico have long complained that the 450-plant limit on their cultivation operations stymies them from meeting the demand from an expanding patient base. As of October 31st, there were just under 58,800 patients registered in the state, according to data from the state Department of Health (NMDOH). That figure is up by about a third compared to the just under 44,100 patients counted in New Mexico at the same time a year ago.

On November 1st, state District Court Judge David Thompson ruled that the 450-plant limit on Licensed Non-Profit Producers (LNPPs) set by the NMDOH is not valid. According to a report from the Albuquerque Journal, the judge’s decision stated that NMDOH’s, “regulatory mandate of 450 plants is not based on fact or reliable data and is not rationally related to its regulatory authority.”

The report notes that NMDOH now has 120 days to formulate new rules on plant and production limits, although whether the state might appeal the decision is not yet known at this time. The Journal’s report points out that the number of patients in the state has ballooned in recent years, from 9,760 in 2013, which was the last time that plant count limits were assessed by the state, resulting in an increase from 150 to the current cap of 450 in 2014.

A report on the matter from the Santa Fe New Mexican quotes Duke Rodriguez, CEO of Ultra Health, the state’s largest LNPP, as stating that he could see prices falling by as much as 50%. New Mexico’s medical cannabis system has consistently been observed to have among the most expensive wholesale prices in the country, on par with much smaller medical cannabis programs in states on the East Coast. As of last week, New Mexico’s Spot Index has ranged between a low of $2,607 and a high of $2,978 per pound in 2018, while averaging $2,854 per pound year-to-date.

There are 35 LNPPs in New Mexico’s medical cannabis system. LNPPs are vertically integrated but may buy and sell wholesale between one another. Some operate more than one dispensary, while not all grow the maximum 450 plants permitted in state law. LNPPs being allowed to cultivate additional plants could certainly lead to lower wholesale prices and greater efficiencies in the production process. Of course, any effect on supply side rates in New Mexico will depend on how much producers will ultimately be allowed to increase their plant counts, the timing of when new rules are issued and put in place, and how quickly producers might be able to expand their operations.

Finally, it is worth noting that Democrat Lujan Grisham was recently elected governor of New Mexico, replacing the current Governor Susana Martinez, who did not run for reelection due to term limits. Martinez, a Republican, has been hostile to the state’s medical cannabis program during her tenure, vetoing numerous pieces of legislation that would have expanded it. A report from the Albuquerque Journal states that Grisham intends next year to sign numerous bills previously vetoed by Martinez, although whether any pertaining to medical cannabis are among them is not noted. Additionally, Grisham has previously stated that she is in favor of legalizing cannabis for adult-use, according to the Las Cruces Sun News.