NEW MEXICO (KRQE) – By signing the Cannabis Regulation Act into law, Governor Michelle Lujan Grisham has opened the state to a brand new industry: legalized cannabis. The act promises new jobs — including roles such as growers, servers, and cannabis educators. And the act carves out opportunities for both small business operators and large producers alike.

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To learn what the economy for recreational marijuana may look like in the coming years, KRQE News 13 examined the numbers and spoke with Kelly O’Donnell. She’s a professor at the University of New Mexico School of Public Administration and an economist who has created several reports on the potential market for marijuana in New Mexico.

“There’s vast potential for legalization to generate jobs and economic activity,” O’Donnell says. But how well the state taps that potential will come down to how regulators, like the Cannabis Control Division, interpret the new law, she says.

“As a state-regulated market, the devil is always in the details,” O’Donnell says. “It has to be done right and it has to be done in a way that really seeks to maximize the economic advantages while still obviously protecting the public.” 

A key concern, O’Donnell says, is making sure that supply meets demand. “It’s really going to come down to how they regulate plant count,” she says. “Providing adequate supply for the market, but not creating oversupply, is going to be important,” she adds. 

If the state can do that, she says, New Mexico has the potential to benefit in several ways. Her most recent calculations suggest that the market for legalized cannabis in New Mexico ranges from about $342 million (a year after the new law is fully implemented) to around $1 billion by 2026. The numbers reflect a total demand between 34.19 and 177.22 metric tons of cannabis. 

For comparison, New Mexico’s chile crop totaled about 69,000 tons in 2020 — more than 2,000 times the expected weight of cannabis demanded in the first year. But here’s the catch: Cannabis is far more valuable, per ton, than chile. Those 69,000 tons of chile were worth only about $52 million, according to the United States Department of Agriculture.

Illegal cannabis, on the other hand, currently has a street value of roughly $10 per gram in New Mexico, according to anonymous data collected and reported by O’Donnell’s marijuana demand estimate of 34.19 tons multiplied by the street price gives a value of $341.9 million — or six and a half times the value of New Mexico’s 2020 chile crop.

The marijuana has the potential to far surpass New Mexico’s chile as an agricultural product. Data from O’Donnell Economics & Strategy and the United States Department of Agriculture.

The value translates into tax revenue for the state. The new law stipulates that marijuana sales are subject to the “cannabis excise tax,” which begins at 12% and is supposed to increase to 18% by July 1, 2030. Cannabis retailers will have to pay this tax for each cannabis product they sell. This is on top of the gross receipts tax businesses have to pay, meaning that the total tax cannabis retailers will have to pay comes to around 20%, O’Donnell points out. 

“A robust market for regulated cannabis,” O’Donnell says, will “generate in the 10s of millions of dollars in revenue.” That’s similar to the amount of revenue the state generates from its liquor excise tax, according to fiscal tracking documents from the state.

But focusing on tax revenue alone is “very short sighted,” New Mexico Senator Jerry Ortiz y Pino, who co-sponsored the Cannabis Regulation Act, told KRQE. Job creation, he says, is the big benefit.

“We’re not talking about college educated jobs,” he says. “We are talking about entry level employment for what is estimated to be up to 10,000 people.”

In addition, he expects marijuana to boost real estate and construction. “You’re gonna have a huge influx or increase in construction as people renovate storefronts into new dispensaries, where they build grow facilities, or they buy vehicles to transport, or they do all sorts of things,” he says. “Colorado has realized that the cannabis market itself is simply the stimulus for a huge real estate boom construction boom. The people that work in those businesses are going to want to buy their own houses or rent new houses,” he says. “It’s going to be a real upward pressure on the entire economy.”

Clay Azar, the president of the Commercial Association of Realtors New Mexico, says that he’s already seen some interest in New Mexico real estate from out-of-state marijuana businesses. “We are starting to see a few tire-kickers,” he says. “I’m hoping that the demand will increase lease rates in industrial [real estate] that will justify building again.”

“We heard rumors of what happened in Denver when they went from medicinal to recreational,” Azar adds. “I don’t know if we’ll be as ‘boom-y’ so to speak, as that market, but we are excited.”

As our neighbor to the north, Colorado seems to provide an example of what New Mexico can expect the marijuana industry to look like. As of 2019, Colorado’s marijuana industry was worth $1.75 billion, according to a report by MPG Consulting and the University of Colorado Boulder. That billion-dollar marijuana industry translates to more than 30,000 jobs, according to a Leafly report.

But O’Donnell warns that New Mexico may not be directly comparable to Colorado: “Our economy is somewhat less developed than that of Colorado,” she says. “By population, we’re a smaller state as well.” Perhaps most importantly, Colorado beat us to legalization by almost 10 years.

“Colorado, as a state that legalized early, frankly got a lot of cross-border sales,” O’Donnell says. “And we’re coming to the table somewhat later. And so we shouldn’t anticipate revenue gains as quickly as Colorado experienced them.” On the other hand, O’Donnell adds, we can expect some business from Texas.