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$110 million discrepancy in NM recreation cannabis sales

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$110 million discrepancy in NM recreation cannabis sales
Figures vary significantly between reports from Cannabis Control Division and Taxation &
Revenue Department

News-Sun Staff Report

ALBUQUERQUE — Data from the New Mexico Cannabis Control Division and Taxation and Revenue Department shows significant discrepancies during the 18-month period since the state’s regulated recreational cannabis industry has been in operation.

The CCD’s reported sales are $110 million greater than the figures from TRD, based on published data.
According to CCD’s online reporting tool, New Mexico’s recreation cannabis industry has generated more than $501 million in revenue since sales began in April 2022.

Based on the $501 million figure and the Cannabis Excise Tax rate of 12 percet, TRD should have collected $60 million from recreation retail sales.
However, the TRD only collected about $47 million from the Cannabis Excise Tax, according to a press release
on Oct. 25.

The release touted  the TRD bringing some 80 recreation cannabis license holders across the state into tax compliance. The release stated, “more than 100 license holders have not yet complied, though in some cases, one operator may hold multiple licenses for different locations. Tax and Rev is working with the Regulation and Licensing Department to confirm which license holders are actually operating, and both agencies may perform in person compliance checks.”

Based on the 12 percent Cannabis Excise Tax rate, and the $47 million collected, New Mexico’s recreation cannabis industry sits at only $391 million in revenue generated – $110 million dollars less than the sales claimed by CCD.

The revenue differences create a muddy picture of New Mexico’s recreation cannabis industry.
While CCD touts a total number of $501 million, TRD’s tax collection points to a considerably smaller number of $391 million.

It is unclear exactly how the $110 million discrepancy unfolded. Yet, noteworthy inconsistencies have been present since CCD and TRD first began reporting data on recreation cannabis sales.
For the first month of adult-use sales, CCD reported about $39.5 million in April 2022.

Based on this figure and the 12 percent Cannabis Excise Tax rate, cannabis retailers should have filed returns amounting to about $4.7 million.

Instead, TRD announced collecting roughly half of that – $2.4 million – for April 2022 activity.
Consistently, CCD’s numbers have been exaggerated when compared to those reported by TRD, with variances growing month-to-month.

“All these people jumped in believing in a green rush that hasn’t appeared to materialize,” said Duke Rodriguez, CEO and president of Ultra Health. “Operators, including small business owners who are putting up their life’s savings, are making investment decisions that will likely go awry if they continue to believe revenue figures that are already off the mark to the tune of $110 million statewide, and growing.”

The CCD’s questionable sales data collection has further considerations, including tax implications and a general misunderstanding of the industry and its demand.
The CCD’s reported recreation cannabis sales of $501 million are subject to New Mexico Gross Receipts Tax.

This tax fluctuates depending on the locale where recreation sales occurred, averaging at about 8 percent. Cannabis businesses are required to file GRT and cannabis excise tax returns, even if they have no sales.

When applying the average NMGRT to the $110 million inflated sales touted by CCD, the regulated industry is short another $8.8 million owed to the residents of New Mexico, a release from Ultra Health stated.

In addition, the data the CCD has issued via its online portal and other published reports contain inconsistencies.
In March 2023, the CCD hired a consultant to determine the actual demand for cannabis in New Mexico.

The study found the actual demand for cannabis was about 161 million grams per year, at an average price of around $8.66 per gram.

Per the study’s calculation, sales should have reached about $1.4 billion per year in New Mexico’s cannabis industry. With that number, the state’s regulated market, as currently crafted, may be losing out on more than $1 billion in recreation cannabis sales activity.

“The regulator has been unsuccessful in monitoring the progress of the program, whether financially or operationally,” Rodriguez said. “In reality, we have crafted a model that has resulted in an underperforming regulated market which diverts $1 billion into the illicit market annually. We have created a travesty for New Mexicans who were promised a cannabis industry that we could be proud of.”

“Cannabis is a relatively new industry with many new players who may be struggling to get their businesses up and running,” Taxation and Revenue Secretary Stephanie Schardin Clarke stated in the Oct. 25 release. “We are here to assist taxpayers to voluntarily comply with the tax law, but cannabis retailers must also make a good faith effort to comply.”

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