The head of the state agency charged with overseeing New Mexico's upcoming recreational cannabis industry told lawmakers to prepare for the "Krispy Kreme syndrome."
"It's highly likely we will run out of cannabis in the first week, if not the first two weeks" after legal sales begin, Linda Trujillo, superintendent of the Regulation and Licensing Department, said Monday during a hearing before the Legislature's Economic Development and Policy Committee.
Comparing expectations of the new market, expected to start by April, to reports of people waiting in line for hours before the opening of a new Krispy Kreme franchise, Trujillo said the initial demand will diminish over time.
Based on data culled from other states where recreational cannabis is legal, the state will need nearly 500,000 plants to meet the expected need, Trujillo said.
She cautioned lawmakers they should brace for a growth failure rate of at least 18 percent, which will affect the supply. "It could be higher," she added.
Trujillo and others gave lawmakers an update on the state's preparations for the commercial production and sales of cannabis products, making clear much remains to be done before a Sept. 1 deadline to begin issuing licenses for entrepreneurs.
The Regulation and Licensing Department has not yet released proposed rules for retailers, and its Cannabis Control Division has not yet completed appointments to the Cannabis Regulation Advisory Committee, which is tasked with providing guidance on the industry's rules.
Though a few members of the committee have been named, Trujillo said she is waiting for all members to be chosen before making a final announcement.
“I thought we would have done this months ago," she said. "It's a little disappointing to me that it has taken so long to do it.”
Lawmakers, who voted to approve the legalization of cannabis during a special session earlier this year, set a tight deadline for the state to get the rules approved for producers, manufacturers, laboratory test sites, retailers and others in the business, Trujillo said.
The Cannabis Control Division revised proposed rules for producers following a public hearing in June. One of those changes increased the number of plants each producer can grow, to 8,000 from 4,500, with a provision allowing 500 additional plants per year over four years for a total of 10,000 plants.
The division will hold another public hearing on the rules Aug. 6.
Trujillo said the industry is expected to bring in at least $50 million in new revenue in its first year and create 11,000 jobs. Over time, the cannabis business should generate up to $300 million for the state each year, she said.
But Trujillo expressed a growing concern that New Mexico residents with limited financial means may struggle to get into the business.
"Access to capital is almost not available," she said. "My fear is that individuals who are interested in getting into this industry are going to take measures like cashing out their retirement or taking out second mortgages on their homes or taking out their family life savings."
Matt Muñoz, a partner in the Carver Family Farm, which plans to start a cannabis microbusiness, spoke about the financial constraints.
The costs to get a license and set up an operation make it both more affordable and more lucrative for businesses with higher plant counts, he said. Trying to rent a building in Albuquerque, where the vacancy rate is about 2 percent, also is difficult and expensive, he added.
Muñoz said the state should ensure New Mexicans get first priority in the application lineup before any already established out-of-state cannabis companies apply for approval.
Trujillo said the bill signed into law does not give her department any power to do that.
Muñoz pointed to news reports about a growing black market for cannabis in Oklahoma three years after the state approved legalization. Law enforcement officials there are contending with illicit operations and those who run legal operations but illegally move money and goods out of state.
The Oklahoman, among other media outlets, has recently reported on the issue.
Sen. Cliff Pirtle, R-Roswell — who introduced an unsuccessful cannabis legalization bill — said that will become a problem in New Mexico, too.
"The unfortunate truth is you are going to see the black market infiltrating into the legal grows," he said.