In New Mexico, a crowded cannabis market emerges

Nov. 13—It's around lunchtime on Tuesday, and customers begin parking at the shopping mall off San Mateo Boulevard where Amnesia Dispensary & Accessories is open.

A few hours later, a customer chats with a budtender at Cinder Cannabis in Downtown Albuquerque.

Similar scenes play out over and over throughout Albuquerque and the rest of the state. Customers, daily, head to cannabis shops to purchase marijuana products from the hundreds of shops now operating.

In just a year-and-a-half of legalized recreational cannabis sales, the state has more than doubled the number of operational pot shops. More than 600 shops reported sales through the state's track-and-trace system BioTrack in October. More than 200 alone are in Albuquerque, the state's largest city, where shops densely populate some areas of town.

To some, the large number of marijuana shops represents a promise of a free market — an opportunity for the American dream, where even those with a limited amount of money can start a business that can one day become successful.

But to many, as the market has matured in just a short time, the number of pot shops is a cause for concern. Both established businesses and smaller ones alike are feeling the squeeze from the rising number of dispensaries.

"I love the fact that the marketplace is open, but I think one of its biggest deficiencies is the fact it's too open," says Bill Sluben, president of The Data Heard, a company that has closely tracked cannabis data in New Mexico. "It's like a race to the bottom here."

A growing number of cannabis shops

The Cannabis Regulation Act, which passed during a special session in 2021 and was signed into law by Gov. Michelle Lujan Grisham, didn't cap licenses — an important point for legislators in support of legalizing recreational cannabis.

They had painted the newly approved industry in the state as an opportunity for all, creating the framework for both large established legacy operators and new small business owners to carve out sections of the space of their own.

That led a whole new crop of entrepreneurs to join the industry in some capacity — but especially in the retail space. There are more than 1,000 licensed dispensaries.

In April 2022, the first month sales began for adult-use cannabis, roughly 230 stores reported sales to the state. By January, more than 470 stores were reporting to the state.

Recently, 645 storefronts reported sales, according to data compiled by Sluben.

But with new businesses likely to continue opening up — the state so far has licensed 1,035 retailers, though not all are operational — some in the industry, like Duke Rodriguez, president and CEO of Ultra Health, believe the number of operating stores will continue to increase.

"I think we are at the high tide of the number of applicants, number of locations and I think we are going to cap out at about 1,000 locations," he said. "We did everything we could to shoot ourselves in the foot and then wonder why it got so messed up. The (Regulation and Licensing Department) believed under marching orders that new retail locations were an economic driver.

"That model was not well thought out, whether it's Albuquerque or statewide — it's the same problem."

Finding success in a crowded market

Julieta Neas, who owns Amnesia, which also has another location in the South Valley, is one of the new entrepreneurs to enter New Mexico's burgeoning cannabis industry.

Following the signing of the CRA, she sold her house to get the funds needed to start her new business, a bold move that others have also made in the months following legalization and as licensing opened up.

But Neas, who has a background in business with an MBA from the University of Phoenix and has owned other businesses, like a paleteria, had calculated her steps into the new industry.

It has so far paid off. Last month, her shops did a combined $324,000 in sales. And she has captured her share of shoppers, many of whom continue to return, through what she says is the customer service she and her team provide — like remembering the names of customers.

Still, that doesn't mean she hasn't felt the pressure of market saturation. In just a short walking distances from her San Mateo location, there are a handful of dispensaries all fighting for a share of the limited customer base Albuquerque has to offer.

"It's very, very competitive," she said. "I think that the belief is that eventually, these places will shut down. But for me, what is hard is to have that mentality because people are putting so much of their money, their livelihood into it."

Oasis Cannabis Co., a business that has a handfull of stores, has also seen much success in the time since its shops have been opened. The Oasis location on Juan Tabo did $654,664 in sales last month. And its Farmington store did $488,496 in October sales — numbers that have put them far above the competition.

But that success can be attributed to a brand reputation started more than a decade ago by the company's CEO, Kane Oueis, who also had started the business Oasis Vape. Oueis said the transition to the cannabis industry was a "natural progression."

"This reputation did not emerge overnight but is the result of constant evolution and a responsive business model that adapts to the fluid market conditions," he said.

Cinder Cannabis Director of Manufacturing Mitch Anderson said the company, which is based out of Washington but has one shop in Albuquerque, wholly believes in the free-market approach to licensing but said the large number of shops across the city and state has made it harder to capture returning customers.

Still, the business has found its way and since opening has seen a steady rise in customers coming to shop at its location Downtown.

"We like competition," Anderson said, whose shop in October did $107,313 in total sales. "It drives us forward. It forces us to innovate. And there's always going to be competition — it doesn't matter what industry we're in, that will always be the case."

By the numbers

But despite the success of Oasis Cannabis Co. and Amnesia in a market that already included roughly three dozen established medical cannabis companies, both business leaders have noted the "intense" saturation in New Mexico's cannabis retail market.

And the numbers don't lie.

According to data compiled from the Cannabis Control Division's Cannabis Reporting Online Portal by Sluben, the numbers paint a grim picture for cannabis retailers who are currently reporting sales.

Stripping out medical sales, roughly 43% of New Mexico retailers reported less than $25,000 in sales last month. And of that 43%, the median number for sales was just over $10,000.

In Albuquerque, median revenue for retailers was just over $28,000. Of the reporting dispensaries in the city, 67% of them reported less than $50,000 in sales last month. And of that 67%, median revenue was just under $14,000.

To make matters worse, sales for recreational cannabis have remained relatively flat across the state in the past five months, according to Sluben's data, while the number of mom-and-pop storefronts has increased by 21% since April. Twenty three storefronts have opened since August.

The growing number of stores, says Pat Davis, a city councilor and cannabis consultant, is leading to some turnover — and will lead to more if the saturation issue continues.

"There's not enough money in Albuquerque being spent on cannabis to support all of these stores," Davis said. "And they're all gonna have to shrink to meet their market at some point."

A pause on new licenses?

Back in June, a group of cannabis businesses, including multi-state operator Schwazze, sent a letter to the governor's office that said the industry was facing "extreme instability" due to a lack of regulatory oversight and an exclusion of license caps.

Jessie Hunt, a spokeswoman for R.Greenleaf and Everest Cannabis Co., helped spearhead that letter. In a recent interview with the Journal, she said the companies, owned by Schwazze, still believe a pause in licensing would give the market a chance to stabilize and allow regulators to catch up and enforce rules and regulations on bad actors.

"We have the ability to really look at the numbers and recognize how strained the market is and we just really want to give everyone a chance to survive, and think that this is the best way to allow that to happen," she said.

Hunt said the company expects there to be legislation introduced this upcoming legislative session specifically related to a potential pause, adding that if something of the sort is implemented it should "have a finite time of the pause just to let everyone get a handle on the market a little bit."

Asked for an interview with the CCD Director Todd Stevens, a spokeswoman for the division said the "state is still analyzing the market and the topic of saturation in the industry," adding that it doesn't have a final stance on the issue yet.

But some, like Rodriguez, see a pause as a move that would prove ineffective.

"The genie is out of the bottle," he said. "A pause should have been at 400, not where we are today."