Cannabis law in New Mexico started in 2007 under the “Lynn and Erin Compassionate Use Act”. This act allows businesses to grow and distribute medical cannabis under specific regulations. Adult use or recreational marijuana became legal in New Mexico in 2022 through the New Mexico Cannabis Regulations Act (CRA) which was signed in law in 2021 by Governor Michelle Lujan Grisham. The CRA also created the Cannabis Control Division (CCD) within the Regulations and Licensing Department (RLD). The CRA legalizes the cultivation, manufacturer, purchase, possession and consumption of adult use cannabis (marijuana) for adults 21 and older. The CCD issues the cannabis licenses to businesses that qualify who are required to establish a Cannabis Excise Tax Account through the Taxation and Revenue Department. Businesses subject to the Cannabis Excise Tax are those businesses that have a Cannabis Retailer License. The excise tax is 12% in 2022 and will eventually increase to 18% in 2025. The business must also pay gross receipts tax on all adult use cannabis sales. Medical cannabis sales are not subject to either excise tax or gross receipts tax. The CRA combined the administration of both adult use and medical cannabis into one framework administered by the CCD. Medical cannabis is cannabis available to patients who are experiencing certain debilitating medical conditions approved by the Department of Health.
Some of the most common cannabis licenses available in 2022 through the CCD are the following:
Other cannabis licenses available through the CCD are Integrated Cannabis Microbusiness License, Cannabis Laboratory License, Cannabis Research Laboratory License, Cannabis Courier License and Cannabis Consumption Area License.
Compliance is strictly enforced in this industry especially because marijuana is considered illegal under federal law which is found in 21 U.S.C. Section 801 et seq., the “Controlled Substances Act” (the “CSA”). Section 844(a)(1) of the CSA provides “Except as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally…to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance.” The CSA classifies and regulates drugs from cough syrup to methamphetamines. Marijuana, along with heroin, LSD and others, is included in Schedule 1 of the CSA which is considered to be a high potential for abuse and medical use. As a Schedule 1 substance, marijuana possession, distribution and use are felonies and carry a mandatory prison sentence. Of particular importance is section 280E of the Internal Revenue Code which states that that no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business consists of trafficking in controlled substances which are prohibited by Federal Law or the law of any State in which such trade or business is conducted. Although section 280E denies deductions for ordinary and necessary business expenses, it excepts the cost of goods sold from this rule. Section 280E has been litigated extensively in recent years with the results involving denials of ordinary and necessary expenses. Despite the brief description in Section 280 E, the calculations for this exception are complicated and extensive.