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New Mexico recreational cannabis supply challenges ease as production ramps up

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More recreational cannabis cultivation production is coming online in New Mexico, and new retailers are establishing the connections they need to secure supply.

At the same time, some warn that production could soon outpace demand and the coming fall “Croptober” outdoor harvest could flood the market and depress prices.

Ben Lewinger, executive director of the New Mexico Cannabis Chamber of Commerce, a 140-member, statewide organization based in Albuquerque, said the market has shifted dramatically in the past four to six weeks.

The wholesale price per pound is evidence of that, Lewinger said, where six to eight weeks ago a wholesale pound of flower was in the $4,000 range.

“Now it’s in the $2,200-$2,500 range, because there’s more availability and people have connections to support a vibrant wholesale market,” he said. “I think that’s only going to get better.”

Most recent state sales data shows that the market is gaining momentum, with sales for July at $40.3 million, the strongest since the adult-use program launched in April.

Despite a relatively small population of 2.1 million, New Mexico’s recreational marijuana market is expected to achieve annual sales of up to $125 million in 2022, growing to as much as $400 million by 2025, according to projections from the 2022 MJBiz Factbook.

The state calls the cannabis companies that carried over from the medical market “legacy producers.”

Those legacy producers helped to ease the transition from medical to recreational and keep the supply relatively steady, Lewinger said.

Another factor is the state increasing the allowed plant count from 1,750 marijuana plants per grow license to 20,000 mature plants per permit as of January.

A key dynamic is at play in the border areas – in particular, the south and east – where New Mexico borders Texas, which has only a very limited medical marijuana market.

“In the southern part of the state, places like Sunland Park and Las Cruces, I definitely see lots of Texas licenses plates at those dispensaries,” Lewinger said.

“Those communities near the border are working hard to leverage that.”

Ample supply

When New Mexico’s adult-use market started in April, some cannabis retailers opened up shop with little to no products to sell.

But supply is starting to catch up to demand and retailers are asking for better deals on wholesale cannabis, said Tony Martinez, co-owner of Lava Leaf, a marijuana cultivation operation in Aztec, New Mexico.

Wholesale pounds of flower are selling for about $2,750, down from about $3,500 in April, according to Martinez.

“There is definitely ample supply of flower,” Martinez said, adding that he went on a wholesale run last week and saw full shelves everywhere.

“The minimum variety I saw was probably 15 strains,” he said.

That’s without the fall harvest that’s on its way in October.

Martinez has been growing licensed cannabis in the state for seven years. Lava Leaf is growing about 2,500 plants, both outdoor and in a climate-controlled greenhouse.

As far as access, Martinez said that “the market doesn’t need more stores. It’s like you can’t throw a rock without hitting a dispensary.”

Retailers are making more connections with flower producers and diversifying their supply chain.

In the Farmington area, in the northwest part of New Mexico, a gram of marijuana is selling for about $13-$15 at a retail store, according to Martinez.

That relatively high price means some people are still driving across the border up to Durango, Colorado, for cheaper cannabis.

Ultimately, the legacy producers have a leg up on the marijuana companies that are trying to enter the market, according to Martinez.

The new companies are building out facilities, establishing connections, “everything from scratch, whereas the legacies just kind of got to roll into this program with a massive head start,” he added.

But that’s not a reason to get overconfident, according to Martinez.

“A lot of the legacies are going to burn themselves out,” he said. “Because they severely underestimated the competition.

“They thought, ‘We’re so far ahead, we can’t lose.’”

Demand met

Despite the initial concerns about long lines at retail stores and not enough supply when adult-use sales began, that wasn’t true for everyone.

So says Robert Jackson, executive director of Seven Point Farms, a legacy operator with a cultivation facility in Socorro and retail locations in Albuquerque, Cedar Crest and Socorro.

“The existing licenses were able to scale enough to meet demand,” he said. “But I would say just barely.”

Product variety and the availability of different strains did suffer some because of lack of supply, Jackson said, but that’s gotten better.

As for the wholesale market, Jackson said he’s seeing pounds of flower selling in the $2,500-$3,400 range, depending on quality. Flower is selling for $7-$20 a gram at retail stores in his area.

The average customer spends about $60 per transaction in his store, which is up about $12 per transaction since April.

Croptober looms

According to one of the major players in the New Mexico market, Duke Rodriquez, CEO and president of Ultra Health, based in Bernalillo, marijuana consumers are feeling the pinch of macro-level economic factors such as rising inflation.

That’s leading to a “deterioration” of the market, as customers are not as willing to spend as much at the retail level, he said.

“We’re seeing that deterioration actually accelerate,” Rodriquez said. “That should scare people.”

Even with the increased plant count, New Mexico’s cannabis growers are still not fully ramped up, according to Rodriquez.

“The reality is it takes time and money and effort to deploy those plants,” he said. “This plant cap was ridiculous, and it got us into a deep hole.”

Although there’s no question of access for customers in the state – as there are plenty of retailers, according to Rodriquez – that relatively high price per gram, at least $10, usually more, for flower, is preventing the market from really taking off.

That steep retail price is also helping to fuel a robust illegal market that can offer flower at much lower prices, Rodriquez said.

“We’ve seen a real enhancement of the illicit market,” he added. “They’re bringing in quality products.”

The legal market will be tested again this October, according to Rodriquez, when the fall outdoor harvest hits and prices drop. He anticipates he’ll be able to buy outdoor-grown flower for as low as $80 a pound.

“That reality hasn’t set in,” he said. “Cannabis is not a very kind lover.

“We’re going to break a lot of hearts in the fall.”

Source: https://mjbizdaily.com/new-mexico-recreational-cannabis-supply-challenges-ease-as-production-ramps-up/

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