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HB 2 CANNABIS REGULATION ACT

Current Location: SGND
Referrals: HTRC/HJC/SCW

[1] HTRC/HJC-HTRC [2] DP/a-HJC- DP/a - fl/aa- PASSED/H (38-32) [4] SCW-SCW- DP/a [5] PASSED/S (22-15) [4] h/cncrd

HB 2 PDF  |  HB 2 FIR


Scheduled on - Date:  Time:   Location:

3/31/2021 [2]HAFC - Do Pass as Amended House Calendar (HCal)
3/31/2021 [2]HCal - Floor twice amended House Calendar (HCal)
3/31/2021 [2]HCal - Passed the House of Representatives Senate Introduction (SINT)
3/31/2021 [4]SINT - Sent to location Senate Committee of the Whole (SCW)
3/31/2021 [4]HAFC - Do Pass as Amended Senate Calendar (SCal)
3/30/2021 [1] - Sent to location House Taxation and Revenue (HTRC)
3/30/2021 [2]HAFC - Do Pass as Amended House Judiciary (HJC)
3/16/2021 [16]HAFC - Do Pass as Amended Senate Calendar (SCal)
2/24/2021 [7]HCAL - Passed the House of Representatives Senate Introduction (SINT)
2/24/2021 [9]SINT - Sent to location Senate Finance (SFC)
2/22/2021 [6]HAFC - Do Not Pass - Committee Substitute Do Pass - Temporary House Temporary Calendar (HCAT)
1/19/2021 [1] - Sent to location House Appropriations and Finance (HAFC)
Synopsis:

 House Bill 2 (HB 2) enacts the Cannabis Regulation Act (CRA) which legalizes cannabis for recreational use by adults over the age of 21. HB 2 creates the Cannabis Control Division (division) within the Regulation and Licensing Department (RLD). The division will implement an extensive regulatory framework to govern the commercial marketplace for the production, distribution, sale, and use of recreational marijuana. This bill allows for home cultivation with unlimited home possession. The division will establish the limit of plants each year from 2022 through 2025. 

HB 2 levies an excise tax of 12% on sales, with the exception of medical cannabis sales that are untaxed. Municipalities and counties are distributed 33.33% of tax revenues. 

Small producers (microbusiness) are limited to 200 plants in possession and a single retail store. Purchase of cannabis is limited to two ounces, 16 grams of extract, and 800 milligrams of edibles. Amounts exceeding these limits may be exceeded but are to be hidden from public view in their private residences.

Retail sales of recreational cannabis will begin no later than April 1, 2022.

HB2 provides a repeal date of CRA of December 31, 2025.


Analysis:

 House Bill 2 (HB 2) enacts the Cannabis Regulation Act (CRA) which legalizes cannabis for recreational use by adults over the age of 21. HB 2 creates the Cannabis Control Division (division) within the Regulation and Licensing Department (RLD). The division will implement an extensive regulatory framework to govern the commercial marketplace for the production, distribution, sale, and use of recreational marijuana. 

This bill allows for home cultivation with unlimited home possession. The division will establish the limit of plants each year from 2022 through 2025. 

HB 2 levies an excise tax of 12% on sales, with the exception of medical cannabis sales that are untaxed. Distributions of the excise tax will be made to municipalities and counties in the amount of 33.33% of revenues.

Small producers (microbusiness) are limited to 200 plants in possession and a single retail store. Purchase of cannabis is limited to two ounces, 16 grams of extract, and 800 milligrams of edibles. Amounts exceeding these limits may be exceeded but are to be hidden from public view in their private residences. For all producers except microbusinesses, the division will issue rules annually that sets the number of permitted cannabis plants based on nationwide market demand adjusted by population.

Retail sales of recreational cannabis will begin no later than April 1, 2022.

Notable provisions of HB 2:

Cannabis THC limit
The cannabis total concentration is limited to 0.3 percent of tetrahydrocannabinol (THC); the current standard for hemp established by United States Department of Agriculture.

Oversight
Division is responsible for rules, licensing, security and inspection at cannabis establishments, recordkeeping, labeling, packaging, advertising and marketing restrictions, and preventing cannabis diversion by those under 21. The division will create training and education programs. The division must create rules, procedures, and certifications that encourage full participation in the cannabis industry by those in communities particularly harmed by arrests, rural communities, and producers from economically disadvantaged and underserved areas including tribal and rural historic communities. Additionally, procedures must encourage racial, ethnic, gender, and geographic diversity.

New Mexico Department of Agriculture (NMDA) and Department of Environment (NMED) 
will assist in product quality control and environmental protections. NMED is responsible for developing and managing a testing program for cannabis products and establishing licensee compliance with food and product safety standards. 

The state fire marshal and Homeland Security Emergency Management Department will assist the division in establishing health and safety rules.
 
The Economic Development Department (EDD) will develop technical resource guide to establish cannabis businesses.

By January 1, 2022, the division must create rules consistent with industry standards related to training and education programs, licensing, security, and compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The division will establish standards to ensure medical marijuana is available including requiring commercial businesses provide 10% of stock and up to 25% of plants for medical use, incentivize participation by businesses, and limit licenses if necessary.

Department of Health (DOH) will monitor emerging information related to health effects. Duties and authority are limited to the medical cannabis program and includes an annual evalution of the affordability and accessibility of medical cannabis.

Revenue Distributions 
Distributions from CET of 33.33% will be made to local governments. The Taxation and Revenue Department may keep 3% of CET for administrative fees.

Licensing fees are deposited in the Cannabis Regulation Fund (CRF) which is created and subject to legislative appropriation to carry out CRA duties and medical cannabis program administration. Funds at the end of a fiscal year will revert to the General Fund (GF).

Committees
Created by September 2021 the Cannabis Regulatory Advisory Committee (CRAC) will advise the division on best practices and guidelines that promote safety and economic and cultural diversity in industry. CRAC membership will include law enforcement (county sheriff), judiciary (public defender, district attorney), labor, policy, medical cannabis patient, an agency with relevant expertise, tribal member, public health, regulatory, lab science, environmental science, small business development, and water resources experts, and a former cannabis business owner (non-voting). Members cannot own cannabis businesses; however, one non-voting member may be appointed from the cannabis industry.

DOH will create the Public Health and Safety Advisory Committee with various health, occupational safety, and environmental safety professionals responsible for annual reporting of health effects of legalized cannabis use and demographics.

Medical Cannabis
By January 1, 2022 standards for products sold for those in medical marijuana programs (qualified patients, primary caregivers, and reciprocal participants) will be developed.
If necessary, the division may require up to 25% of licensees’ cultivated plants to be used for the medical marijuana program per month regardless if the shortage in the medical cannabis program is eliminated. The original bill limited the plants to not more than 5%.
All retailers must reserve at least 10% of their stock for medical marijuana users each month.
Department of Health (DOH) will monitor emerging information related to health effects; retain oversight of the medical cannabis registry only. Duties and authority are limited to the medical cannabis registry all other duties are transferred to the division. Measures to protect adequate production and distribution of medical marijuana is included in HB 2.

Licensing and Licensees
The division will develop procedures and fees for licensure including vertically integrated establishments and vertically integrated microbusinesses; defined as businesses that act as courier, manufacturer, producer, and retailer. 
Other licenses include those for research labs, couriers, producers, manufacturers, educational programs, retailers, and servers. Discounted licenses are available for microbusinesses selling cannabis products on consignment.
Licensees seeking renewal cannot be delinquent on taxes.
Only licensed vertical businesses, retailers, and integrated cannabis microbusinesses may transport (courier) cannabis. operate consumption areas.
Types of licenses are not limited per business or premises.
Licensees may conduct any other activity including those related to the Hemp Manufacturing Act and excepting alcoholic beverages. 
Those licensed under the Lynn and Erin Compassionate Use Act will continue to be licensed until commercial ones are available.
Applicants must undergo fingerprint (if applicable) and criminal background checks.

The division must begin processing medical cannabis licenses by September 2021 and January 2022 for all others.
Disciplinary actions for violation of licensure may result in suspension, civil penalty up to $10,000, or directed plan of correction. Penalties are deposited in the school fund. 
Applicants must provide evidence of adequate and accessible water rights to be licensed with consideration to natural resource efficiencies.
Licenses may be denied if controlling person has been convicted of fraud; employment of minors when conducting any controlled substance activities; and any others determined by the division. If revocation has occurred, applicants must wait three years before relicensing.
Base annual fees for licenses are $1,500 (courier), and $2,500 and $1,000 and for each establishment or premises for all others except vertical businesses. Vertical business fee is $7,500 plus $1,000 per premise and capped at $125,000. Microbusinesses producers will be assessed up to $1,000. Growers except small businesses, will be assessed additional annual fee of no more than $50 per plant. Medical cannabis only businesses will be assessed 50% of commercial licensees.  

Cannabis server permit is $35, requires an education program, and are valid for three years. Renewals require ongoing education. Violations, i.e., serving minors, may cause license suspension or revocation and fines.
The bill provides for protection of licenses complicit with CRA from criminal, civil, or forfeiture penalties under state or local law or acting in good faith during business transactions.
Licensees may not employ anyone under 21 unless permitted under current medical marijuana statues.
Cannabis training and education program provided by higher education for students to participate in the industry are permitted. Programs will be licensed beginning January 2022. 

Sales
Users 21 years old and over may purchase up to two ounces of flowers and 16 grams of cannabis extract daily and 800 milligrams of edibles at one time. Consumers cannot possess more than those amounts outside their residence. Amounts in excess must be stored out of sight at a person’s residence.
HB 2 permits import and export of cannabis products when permitted by federal law or Justice Department opinion to national or international locations. Cannabis products must originate in New Mexico unless the governor enters into an agreement with other jurisdictions for importing and exporting. 

RLD is authorized to enter into intergovernmental agreements with Indian Nations, Tribes, and Pueblos relating to the use of cannabis products regarding medical marijuana and CRA. Agreements may provide for law enforcement, regulatory issues concerning possession, delivery, production, security, exchange of cannabis products between tribal and non-tribal lands, taxation, and conflict disputes.

Taxpayers who comply with CRA are prohibited from claiming business expenses or credits on their federal income tax returns. However, they may exclude expenditures from reported income on their state personal and corporate returns.
Receipts from the sale of medical marijuana products are deducted from GRTs like the sale of prescription drugs.

Local Jurisdictions
Local governments are permitted restrict time and place limitations as long as rules do not conflict with CRA. Local governments may allow for cannabis use if a consumption area is restricted to adults at least 21. They cannot limit transportation, operations, signage, location more than 300 feet from schools or daycare centers, or production of homegrown cannabis provided by CRA.

Decriminalization and Protections under CRA
Protected from adverse action by state professional standard boards, licensures, or associations are CRA-compliant services provided by attorneys, accountants, insurance agents, real estate agents, and security guards. Professionals may not be disciplined based of federal prohibition of cannabis use as long as rules governing CRA are followed.
Parental rights and access to public assistance are protected and parolees or those participating in state supervision will not be penalized based on conduct under CRA.
Lawful conduct of users who are at least 21 will not be subject to search, seizure, or arrest if possessing, being under the influence of, smoking in authorized areas, purchasing, licensed selling, or transporting of not more than two ounces of marijuana or 16 grams of extract or related paraphernalia. 
Growing less than six plants per person or 12 per household is allowable.
Protections do not extend during investigation of operating a vehicle while under the influence or impaired by alcohol or drugs.

Criminal Sanctions and Authorizations
Trafficking, i.e., distribution, sale by non-licensees and between 18 and 21 to underaged is prohibited and penalties range from treatment as misdemeanor to fourth-degree felony that are subject to fines, jail time, community service, and enrollment in drug education programs. 
Users smoking cannabis in public except in an authorized consumption area are guilty of a misdemeanor and subject to a $50 fine.
Production or possession by those 18 and older of more than six and up to 12 cannabis plants may be committing a misdemeanor or felony depending on quantity and subject to fines and/or up to 18 months in jail, community service, and attendance at drug education programs.
Minors violating CRA are subject to fines, community service, and attendance at drug education programs.
Possession of more than what is allowed under CRA for adults 21 and over range from misdemeanors to fourth-degree felonies punishable by fines and up to 18 months in jail.
Unlicensed manufacturing of extracts is a fourth-degree felony.
Annually, law enforcement must report cannabis-related violations.
Employers retain the right to prohibit, implement a zer0-tolerance policy, or take adverse employment action against employees for possession or use of intoxicating substances at work even if permitted by CRA.
Employers are not required to meet CRA provisions that would lead to violation of federal law.
CRA does not diminish or prevent collective bargaining.
Exempted from CRA provisions are employees of airlines.

Advertisement and Labels 
Product advertisement cannot target children and includes the barring of cartoon characters or depiction of product use by those under 21.
Marketing of cannabis is prohibited on billboards, radio, broadcast media, internet pop-ups, and mass transit unless subscription-based or requested by consumers that are at least 21 years old. 
Packages must be resealable and child resistant and made from recyclable material or can be recycled.
Labels must include health warnings, identification of producer, type of product, date packaged, expiration date, possible allergens, potency, pesticide use, and other typical requirements established by the Food and Drug Administration.

HB2 provides a repeal date of CRA of December 31, 2025.

Amendments:

Amended March 31, 2021 by SCW

SCWa/Hflaa/HJCa/HTRCa/HB 2: Senate Committee of the Whole amends HB 2 makes one change:
•	Prohibits current legislators as of the date CRA passes from applying or being approved for a license for any cannabis activity until July 1, 2026.

Amended March 31, 2021 by House Floor #1

Hflaa/ HJCa/HTRCa/HB 2: House Floor Amendment 2 of amended HB 2 makes the following change:
•	Reporting required. The Legislative Finance Committee will study the economic impact of CRA for fiscal years 2023 through 2027 and report to the Revenue Stabilization and Tax Policy Committee by December 2027. Economic impact includes information on revenue, budget changes, staffing, job creation, and tourism. Additional reported data will describe effects of cannabis legalization on the medical cannabis program and law enforcement.

Amended March 31, 2021 on House Floor

Hfla/HJCa/HTRCa/HB 2: House Floor Amendment 1 of amended HB 2 makes the following change:
•	Representation on the Cannabis Regulatory Advisory Committee increases by one member, a municipal police chief.


Amended March 31, 2021 in HJC

HJCa/HTRCa/HB 2: House Judiciary Committee amendment of HTRCa House Bill 2 makes the following substantive changes:
•	Introduces language to ensure methods (solvents) not approved by the division are not used for extraction for commercial or homegrown cannabis.
•	Technical language changes to align cannabis consumption areas on licensed premises with the provisions in Dee Johnson Clean Indoor Air Act (Clean Indoor Air Act). Cannabis may be smoked in designated areas but is prohibited as is tobacco in the Clean Indoor Air Act.
•	Clarifies that while cannabis use cannot impinge on parental rights or custody, nothing in the proposed act prevents law enforcement, the Children, Youth and Families Department, or courts from acting in the best interest of the child. This will enable compliance with other statutes such as emergency 48-hour removal of minors from parents as permitted by law.
•	Possession of a legal amount of marijuana as a basis reasonable suspicion of a crime is clarified to mean that either two ounces of cannabis or 16 grams of extract or 800 milligrams of edibles do not constitute reasons to stop, detain, or search a person. Without this amendment, the bill’s language implies that all three forms of cannabis have to be present.
•	Allows all drug paraphernalia to continue to be subject to forfeiture. 

Amended March 30, 2021 in HTRC

HTRCa/HB 2: House Taxation and Revenue Committee amendment of House Bill 2 makes one change:
•    The Cannabis Excise Tax is 12% prior to July 2025. The rate is incremented annually 1% until it reaches 18% beginning July 2030.

Current Law: