New Mexico's HB 2, The Cannabis Regulation Act

New Mexico’s HB 2, the Cannabis Regulation Act, legalizes and regulates cannabis for adults 21 and older. It passed the legislature on March 31, 2021 during a special session called for that purpose by Gov. Michelle Lujan Grisham. Gov. Grisham signed the bill on April 12, 2021.

 Adult-Use Possession and Cultivation Limits

• Adults who are 21 and older will be allowed to:
  • possess, purchase, and give other adults up to two ounces of marijuana, up to 16 grams of concentrated marijuana, and 800 milligrams of edible cannabis;
  • cultivate up to six mature and six immature cannabis plants, with a maximum of 12 mature plants per household;
  • create cannabis-infused foods at home or perform extracts that do not involve volatile solvents;
  • possess greater amounts of cannabis, if it is stored in a locked space at the person’s residence that is not visible from public spaces; and
  • possess, manufacture, and give away paraphernalia.

State Cannabis Licensing 

• A Cannabis Control Division will be created within the Regulation and Licensing Department to license and regulate cannabis businesses.
• The Division will license 10 types of cannabis businesses: couriers, producers (growers), manufacturers, retailers, microbusinesses, cannabis consumption areas, vertically integrated establishments, and integrated microbusinesses.
  • Producer microbusinesses may grow no more than 200 mature plants at a time.
  • Integrated microbusinesses may cultivate cannabis, produce infused products, and/or operate a single retail location.
• Any qualified applicant can apply for a license. Within 90 days of deeming an application complete, the Division will grant or deny the license.
  • Applicants may not have prior convictions “substantially related to the qualifications, functions or duties.” This includes felony convictions involving fraud, embezzlement, or deceit, or involving a minor in drug sales. It does not include cannabis convictions.
• Multiple licensees may operate at one premises, and licensees may operate many premises.

Cannabis Business Requirements and Regulations

• The Cannabis Control Division will develop rules — which must be consistent with industry standards — on advertising, health and safety, testing, labeling and packaging, regarding additives (including banning nicotine), quality control, and environmental protections.
  • Packaging cannot be designed to appeal to minors and must be child-resistant. Warnings must be included on possible adverse events, along with the number for New Mexico’s poison control.
  • Advertising is banned on TV, radio, and mass transit, and other than to adults who opt in or who subscribe to subscription-based media.
  • Advertising cannot use predatory marketing targeting minors, use cartoon characters, or mimic other brands.
  • The Division will develop rules for cannabis training and education programs.
• The Division will provide a discount for retailers agreeing to accept microbusinesses’ products on consignment.
• Cannabis business employees must be 21 or older.
• By September 1, 2021, and once per year until 2025, the Division will limit the number of plants a producer may produce. “The rule shall set the number of allowed cannabis plants per licensee to meet an average national market demand for cannabis products in states where adult and medical cannabis are authorized during the preceding year using a consumer base of no less than twenty percent of the adult population of New Mexico.”
  • Producers could increase their number of plants by 500 at the time of renewal and one other time each year.
• Cannabis servers would be required to get permits and take education courses.
• The Division will issue rules for training for cannabis servers’ permits, which will include training on the effects cannabis products may have on a person, state laws on cannabis, how to spot a fake ID, cannabis harm reduction, and methods to recognize and intervene with problem cannabis users.
• If a cannabis business breaks the law, the Division may suspend or revoke licenses, issue a correction plan or intermediary sanctions, or issue fines of no more than $10,000 per violation.
• The Division “may suspend a license for repeated violations of the same, serious and substantial rule promulgated pursuant to the Cannabis Regulation Act pertaining to public health and safety.” 

Tribes and Pueblos and Cross-Border Commerce

• The Cannabis Control Division may enter into intergovernmental agreements with tribes and pueblos.
• All cannabis must originate in New Mexico, until either federal law changes or the U.S. government issues a memo or opinion tolerating interstate commerce.
• Once federal law changes or the U.S. government issues a memo or opinion tolerating interstate commerce in cannabis:
  • the governor shall enter into agreements for delivery of cannabis across borders. The agreements must include enforceable public health and safety standards, tracking, and packaging, testing, and labeling pursuant to New Mexico law.
  • couriers may deliver cannabis from New Mexico to another state where doing so is legal.
  • licensees may receive cannabis from other states and countries.

Diversity and Inclusion in the Cannabis Industry

• Rules must include “procedures that promote and encourage full participation in the cannabis industry governed by the Cannabis Regulation Act by representatives of communities that have been disproportionately harmed by rates of arrest through the enforcement of cannabis prohibitions, rural communities likely to be impacted by cannabis production and agricultural producers from economically disadvantaged communities.”
• Rules must include procedures to encourage diversity among applicants, licensees, and staff.
• The Cannabis Control Division will develop a certification for cannabis produced by microbusinesses or licensees that are owned by someone from a community that was disproportionately harmed by cannabis prohibition.
• The Division will produce annual reports on diversity in the industry.

Public Health and Education

• The Department of Health will monitor information on cannabis use and monitor changes on use of cannabis products, opioid use, and alcohol use patterns.
• The health secretary will appoint a public health and safety advisory committee with experience on cannabis work or research related to health, epidemiology, occupational safety, emergency medicine, or similar fields. The committee will:
  • report on the health effects of legalization, including related to child access, workplace safety, road safety, consumer safety, and other issues, starting by December 1, 2024; and
  • report on the affordability and accessibility of medical cannabis.

Medical Cannabis Provisions

• Medical cannabis business regulation, other than patient registration, will move to the Cannabis Control Division.
• Removes the provisions for personal production licenses for medical cannabis. (All adults 21+ will be allowed to cultivate without a specific license.)
• The requirement that a patient’s first exam by a certifying practitioner must be in-person will be eliminated, allowing telemedicine for first and subsequent certifications.
• Until December 31, 2022, 25% of monthly sales from cannabis businesses must be to registered patients, out-of-state patients, and caregivers.
• Regulators will develop rules on requirements to reserve products for medical cannabis.
• The Cannabis Control Division may take action in the event of a medical cannabis shortage (which is defined as substantially fewer plants being grown per New Mexico-registered patient than-pre-legalization), such as requiring at least of 10% of stocked cannabis to be designated for sales to medical patients (including caregivers and patients registered in other jurisdictions), working to incentivize increased production, requiring a specific percent of cannabis to be designated for medical, or — after exhausting other methods — issuing new applicants licenses only for medical, for most license types.

Cannabis Regulatory Advisory Committee

• A Cannabis Regulatory Advisory Committee will be convened to advise on rules, including to protect public health and safety while avoiding unreasonable barriers that would perpetuate the illicit market. Recommendations would include best practices and guidelines to promote diversity.
• Advisory Committee members will include representatives of the chief public defender, a district attorney, a county sheriff, a police chief, a cannabis policy organization, a tribe or pueblo, a labor organization, a state or local agency, a medical cannabis patient, and someone with prior experience in the cannabis industry. It will also include experts in small business, water issues, public health, and environmental science.

Local Control 

• Municipalities and counties may:
  • “adopt time, place and manner rules” including “rules that reasonably limit density of licenses and operating times consistent with neighborhood uses;” and
  • allow indoor and outdoor cannabis smoking and vaping in locations for those 21+ (unless they have a medical license).
• Local jurisdictions may not:
  • “completely prohibit the operation of a licensee;”
  • prohibit transportation of cannabis through the locality;
  • restrict signage at licensed cannabis businesses that identify them; or
  • prohibit home cultivation.

Taxation, Revenue Distribution, and Fees

• A cannabis excise tax is levied on retail sales. It starts at 12% until July 1, 2025, and then increases by one percentage point per year, maxing out at 18% on July 1, 2030. The tax does not apply to any sales to registered patients, caregivers, or visiting patients from other states.
• One-third of the cannabis excise tax revenue will go to the municipality where the sales were made. Another third of the cannabis excise tax revenue will go to the county where the sales were made.
• Gross receipts taxes — which range from 5.125% to 8.8125%, depending on the location in the state — would apply to adult-use, but not medical, cannabis.
• Future budget bills will include additional revenue distribution. They are expected to include funding for community reinvestment.
• Fees for most license types are $2,500 per year, plus $1,000 for each licensed premises. However:
  • Courier fees are up to $1,500 per year and $1,000 for each additional licensed premises.
  • Producer microbusiness fees are up to $1,000 per year.
  • Producers, other than microbusinesses, will also be charged up to $50 per plant.
  • Integrated microbusiness fees are up to $2,500 per year and $500 for each additional licensed premises.
  • Vertically integrated cannabis establishment fees are $7,500 per year, plus $1,000 for each licensed premises.
  • Vertically integrated cannabis businesses’ initial application and annual renewal fees cannot exceed $125,000 per license for both medical and adult use.
  • Fees are reduced by half for medical only.
• Cannabis server fees are no more than $35.

Legal Protections

• Provides legal protections for accountants, lawyers, and others providing professional services related to state-legal cannabis.
• Prevents discrimination:
  • a person cannot be denied parental rights based on their lawful cannabis activities, but the state may still act in the “best interests of the child;”
  • public benefits and health care cannot be denied due to legal cannabis conduct, unless doing so is required by federal law;
  • parole, probation, and pre-trial released cannot be revoked for cannabis, unless the use of cannabis is a specific condition of their release; and
  • in professional and occupational licensing.
• Except in the case of suspected DUI, provides the following are not grounds for a search: the odor of cannabis, suspicion of possession of more than two ounces, or possession of multiple containers of cannabis.
• Allows cannabis research under state law.

Employment Law

• Employers may continue to enforce written zero-tolerance policies, including those that allow discipline or termination for a positive test for THC or its metabolites.

Prohibited Conduct and Penalties

• Smoking cannabis in public is punishable by a $50 fine.
• Possession in public of more than two ounces but less than eight ounces of cannabis, 16-65 grams of concentrates, and 800-3,299 milligrams of edibles carries up to 364 days in jail. Greater quantities are a felony.
• Underage possession carries a penalty of four hours of community service or a four-hour drug education and legal rights program.
• Driving under the influence of marijuana remains illegal.

Law Enforcement Reporting and Expungement

• A separate companion bill — SB 2 — provides for automatic expungement. It has been signed into law.

Miscellaneous

• Cannabis-related contracts are enforceable.
• Requires reporting by local police and sheriffs department on cannabis arrests and citations, with breakdowns by race, ethnicity, age, and gender.
• Creates a business expense deduction from income taxes at the state level, notwithstanding 280E, which prevents the deduction at the federal level.
• Removes cannabis from drug scheduling under state law.
• The legislative finance committee will study the fiscal and economic impacts of the law and provide a report by December 1, 2027.

Timeline

• The fiscal impact note says, “There is no effective date of this bill. It is assumed that the effective date is 90 days following adjournment of the Legislature.” That would likely be around July 1, 2021.
• Legal sales begin on a date set by the Division, which can be no later than April 1, 2022.
• On the effective date, the medical cannabis program would transfer over to the Cannabis Control Division, other than the medical cannabis registry.
• By September 1, 2021, the cannabis regulatory advisory committee will be convened.
• By September 1, 2021, the Cannabis Control Division will start accepting applications for producers, microbusiness producers, and from medical cannabis businesses.
• Rules are due by January 1, 2022.
• By January 1, 2022, the Division will accept applications for all other license types, including for cannabis education and training programs.