In a crowded market, Ultra Health closes dispensary in Farmington after landlord dispute

The owner of a cannabis company that operates 40 locations throughout New Mexico says he is closing his only dispensary in Farmington, although he hopes to reopen before the end of the year in another location in the city.

Duke Rodriguez, the owner of the Ultra Health cannabis dispensary in the Park Plaza shopping center at 4251 E. Main St., said issues with his landlord led him to make the decision to close the store at the end of September. Rodriguez said he already is looking for a new location for the dispensary and plans to begin doing business in Farmington again in the next couple of months, even though he said he believes the city has too many dispensaries and is due for a market adjustment.

“It’s not a good situation for (the landlord) or me as the tenant,” Rodriguez said. “We’ve been haggling back and forth, and we’ve agreed to just shake hands and walk away.”

Rodriguez described his relationship with his landlord, Pam Carbajal, as stressful. He said some of the other tenants in the small shopping center were unhappy about being located in proximity to a marijuana dispensary and that some of them complained about the smell coming from the store and about the dispensary’s clientele and the amount of traffic it generated.

Rodriguez opened Ultra Health at that site in January 2018 as a medical marijuana dispensary. In 2020, he expanded the business into an adjoining suite. The lease for the first suite was due to expire before that of the second suite, but Rodriguez said he and Carbajal agreed it would be better if he simply shut down the business and moved out of both suites.

When asked to confirm Rodriguez’s version of events, Carbajal said, “They wrote me a letter and told me they were closing their store in this area because there was too much competition, and that’s all I have to say,” before hanging up the phone.

An unfortunate first for Ultra Health

Ultra Health employs five people at its current location, and Rodriguez said all of them would receive a severance package that would carry them financially into November. He said his payroll in Farmington is $200,000 a year, with his lowest-paid workers making $32,000 annually.

Rodriguez said he hopes to be able to hire the five employees back soon, adding that he already has been approached by other cannabis operators in the city who have indicated they might be willing to sell to him.

“Being the largest operator in the state kind of puts us as the lead dog in this industry,” he said. “This is another first for us — we’ve never had to leave a location. But based on the situation with our landlord, there was simply no alternative.”

Rodriguez said his preference would be to find a new location in a stand-alone building to eliminate the possibility of another nearby tenant complaining about his dispensary. But he acknowledged that limiting his search to locations that meet that description would significantly reduce his options.

Rodriguez said Ultra Health is based in Bernalillo County but maintains an office in Scottsdale, Arizona, for financial reasons. He said none of the company’s other locations in the state — including those in Albuquerque, Santa Fe, Alamogordo, Las Vegas, Roswell, Ruidoso, Las Cruces and Carlsbad — have ever been the subject of complaints by neighboring tenants.

“My first concern is maintaining our service levels to our customers,” he said about the possibility of opening a new store in Farmington. “It’s also about making sure our employees don’t suffer from a decision they really had no hand in.”

Rodriguez emphasized that his company is not abandoning Farmington.

“We are simply putting it on pause until we can find a better solution,” he said.

Too many dispensaries, not enough customers

Rodriguez said he wants to open a new Farmington dispensary despite his belief that the local market is saturated and cannot support the number of stores that exist here already. He estimated there are 27 or 28 marijuana-related businesses in Farmington already, a number he described as the “highest density of dispensaries per capita in the state.”

“It’s impossible that a town of 47,000, 48,000 people can support 27 or 28 dispensaries,” he said.

Rodriguez said he believes Farmington can support no more than 10 or 12 dispensaries, given its population and its proximity to Colorado, which legalized recreational marijuana a decade before New Mexico did and already has many well-established cannabis operations.

According to the New Mexico Cannabis Control Division there are 11 cannabis businesses licensed to operate in Farmington: two are listed as cannabis producers, one as a producer microbusiness and eight are licensed as retailers.

Data made available by the Cannabis Control Division showed in Farmington $12.7 million in adult-use sales since cannabis became legal in April 2021.

“There is a lot of pain ahead, potentially,” he said.

He said New Mexico has issued approximately 2,600 licenses to cannabis operators in various forms — retail, manufacturers and producers — but many of those licensees operate multiple locations, as Ultra Health does.

“We estimate there are 600 to 700 dispensaries open throughout New Mexico,” he said. “That is more than McDonald’s, Taco Bell and Starbucks combined.”

The Cannabis Control Division reported that in August 2023 alone adult use cannabis sales totaled $48.2 million among 1,021 dispensaries in the state. Those sales account for just 28% of the overall market which includes medical sales.

Since recreational cannabis became legal in New Mexico, the state estimates it has resulted in over $400 million in total sales.

By contrast, Rodriguez estimated there are only 560 dispensaries operating in Colorado, a state with a population of 5.8 million, compared to New Mexico’s 2.1 million.

Rodriguez said the ideal number of dispensaries in New Mexico would be approximately 200 locations.

Many of Rodriguez’s concerns were echoed by Jason Little, the owner and founder of Farmington’s New Mexico Alternative Care, which opened its doors as a medical marijuana dispensary in 2010, becoming the city’s first cannabis business.

“There are too many people fighting for the same few dollars,” Little said, noting that his retail business has declined by 80% to 85% since April 2022, when recreational pot sales began in New Mexico and the Farmington market started to become far more crowded. “It’s forced me to go outside San Juan County and go wholesale.”

Little had a slightly more generous assessment of how many dispensaries Farmington reasonably could support than Rodriguez, pegging the number at 12 to 15. But he shares his counterpart’s gloomy outlook about what lies ahead, especially since he believes the U.S. economy is poised to slide into a recession soon.

“There’s going to be a lot of carnage,” he said, indicating he believes a lot of the existing cannabis operations in Farmington will not survive.

Little said he is confident New Mexico Alternative Care will make it through those tough times until the market finds its equilibrium, given the fact that it operates two extraction labs and is a producer in addition to selling cannabis products.

“We diversified instead of being just retail,” he said.

Little said the way New Mexico’s recreational marijuana law was written, government officials have little choice but to grant a license to any operator who meets the state’s requirements. He acknowledged that is how the free market operates, but he and Rodriguez said they believe there has been a gold rush mentality among cannabis operators in New Mexico that is about to come to a crashing halt.

“We’ve taken a very promising industry of cannabis and turned it into this beast that is not sustainable,” Rodriguez said.

Mike Easterling can be reached at 505-564-4610 or measterling@daily-times.com. Support local journalism with a digital subscription: http://bit.ly/2I6TU0e.

This article originally appeared on Farmington Daily Times: Ultra Health Farmington location closing