New Mexico’s cannabis industry is calling on regulators to pause the issuance of new business licenses amid “extreme instability” in the market.

In a June 27 letter signed by nearly 100 of the state’s cannabis business operators, the group argues that a lack of license caps and a still-thriving illicit market have put them under duress.

“Our industry is competing with a long-established illicit market which is flourishing due to a lack of resources for compliance, enforcement, and established consequences to deter individuals and organizations from participating in illegal cannabis activities,” the operators said in the letter. “An unfortunate byproduct of the free-market approach that our state took for licensing new operators is a saturation of regulated and illegal cannabis products in New Mexico. These two factors combined are resulting in homegrown small and medium-sized cannabis businesses being forced to close their doors or lay off staff. Our local businesses simply cannot compete with the illicit market and the immense oversupply.”

Limited enforcement resources allocated to addressing illegal cannabis activities must stretch further as the state continues to issue new licenses, they wrote, with new licensees entering “an industry that is already experiencing an unsustainable economic environment for those following the rules.”

New Mexico launched its commercial adult-use cannabis market in April 2022. As of May 2023, the state’s Cannabis Control Division (CCD) has issued more than 1,000 cannabis retail licenses, according to the letter. There has been a 65% increase in licenses issued in the past three months, the business operators wrote, but there has only been a 10% increase in cannabis sales within the same timeframe.

“This is not a sustainable competitive market for cannabis operators, businesses are closing or reducing employee count as a result,” they wrote. “Others are selling their products into the illicit market to avoid paying taxes or incurring banking fees. Some are purchasing lower priced products from the illicit market in an effort to stay open. Financial opportunities from an easily accessible illicit market create unique pressure for the regulated cannabis industry. This pressure is exacerbated when supply and demand are unbalanced and will continue to grow if policy is not enacted to create market equilibrium.”

The business operators outlined three policy changes they believe must be enacted to address the illicit market and reduce the number of businesses forced to close their doors amid unsustainable market conditions:

• First, we believe the Cannabis Control Division should have a mechanism to both pause new cannabis licensees and provide regulators with a safety valve to turn the application acceptance process back on when the regulated market has stabilized and has proper resources to ensure compliance for all operators.
• Second, we believe the state should commission a market study to determine when the above-mentioned safety valve should be turned back on to ensure ongoing opportunity for entrepreneurs to access the cannabis industry.
• Finally, the State of New Mexico should dedicate significant resources to the compliance and enforcement of licensees and prosecution of illegal actors with the goal of reopening the safety valve.

“We ask that you recognize the current market challenges of regulated cannabis and act now,” the business operators concluded in their letter. “Create safety valves to allow regulators to pause issuing licenses and focus on enforcement. Together, the industry and regulators will eradicate the illegal market and continue to build a diverse, regulated cannabis industry in New Mexico.”

Caroline Sweeney, a spokesperson for Gov. Michelle Lujan Grisham, told the Albuquerque Journal that the governor’s office has received the letter.

“This letter provided different perspectives, recommendations, and concerns which the state’s Cannabis Control Division is carefully reviewing,” Sweeney told the news outlet. “We will continue to work closely with the industry to identify any adjustments to the program that need to be made to curb the illicit market and ensure that the industry is properly regulated.”

Currently, there are nearly 600 operational dispensaries in New Mexico, the Albuquerque Journal reported, with more than 1,000 total retailers licensed for storefront operations. There are more than 200 operational dispensaries in Albuquerque alone, according to the news outlet.

It is unclear whether the CCD is authorized to put licensing on hold or whether that must be taken up by state lawmakers, the Albuquerque Journal reported.

“Ultimately, having legislative guidance on this would be helpful to us as an agency,” Robert Sachs, legal counsel with the CCD, told the news outlet. “All of our authority is really derived from what the Legislature tells us—what we can and cannot do. And if they would like to explicitly give us the power to put a license moratorium in place, I think we’d be most comfortable with the Legislature making that decision.”

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