Holiday Leftovers | 12.1.20
This week, we conclude Season 1 with a good ‘ole batch of holiday leftovers. We covered a lot in this first season, but there are still plenty of issues left to discuss when it comes to New Mexico’s existing medical cannabis program and the potential for a recreational-use market if lawmakers approve legalization in 2021. Hosts Andy Lyman and Megan Kamerick discuss everything from revenue projections, to banking challenges for cannabis-related businesses and much more!
Episode Music:
Blue Dot Sessions – “Lupi”
Blue Dot Sessions – “Pastel De Nata”
Chad Couch – “Wilsons Snipe”
Christian Bjoerklund – “Hallon”
Poddington Bear – “Good Times”
Growing Forward Logo Created By:
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“Growing Forward” is a collaboration between New Mexico Political Report and New Mexico PBS, and is funded through a grant from The New Mexico Local News Fund.
FULL TRANSCRIPT
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Andy Lyman: I’m Andy Lyman, a reporter with New Mexico Political Report
Megan Kamerick: I’m Megan Kamerick, a correspondent with New Mexico PBS and this is Growing Forward, a collaboration between New Mexico PBS and New Mexico Political Report
Andy Lyman: This week, in our final episode of the season, we’ll be tackling some things we just didn’t get to.
Patty Lindley: I do expect there to be some extra scrutiny on the program. So, we’re prepared for that. We have all of our ducks in a row and we don’t expect to see any problems with that. But I do think they’re going to be watching this program pretty closely.
Kelly O’Donnell: I think that part of the appeal of cannabis taxes for states is that although, certainly, state residents will be consuming a large portion of the product that’s marketed, it’s also a significant tourism draw.
Megan Kamerick: Here we are, our final episode… We’ve covered so much so far, but there’s still so much we didn’t get to.
Andy Lyman: Even with ten episodes, we just couldn’t squeeze everything in. I think it’s safe to say, Megan, you and I have learned so much about cannabis in New Mexico.
Megan Kamerick: You already knew a lot, Andy, but I was a neophyte and our hope in joining forces to do this podcast was for me to stand in for the listener while you kind of guided us through this world.
Andy Lyman: Well, I have been covering medical cannabis for a while now, it’s been mostly reporting on the political arguments. And, I know it sounds cliche, but I really do find myself learning new things about this world all the time.
Megan Kamerick: You know, one issue we didn’t get to dive really deep into is how banking fits into all of this.
Andy Lyman: It’s a tricky subject and even though we may not have included it in our previous episodes, a lot of the cannabis industry folks seemed a little leery about discussing how they deal with money.
Megan Kamerick: Banking in the cannabis industry gets complicated by the fact that cannabis is still federally illegal and as such, banks have historically tried to distance themselves from the industry. In the first states that legalized recreational cannabis there were crazy stories of entrepreneurs driving around with tens of thousands of dollars in their car trunks. We spoke with Patty Lindley, the director of compliance and quality at U.S. Eagle Federal Credit Union, which is trying to serve this industry with some niche products.
Andy Lyman: Patty, thanks for joining us.
Patty Lindley: Thank you for having me.
Andy Lyman: Can you give us a history of the problems with cannabis in the banking industry and explain why the banks have may have been hesitant to take on cannabis companies as clients?
Patty Lindley: Well, I think the toughest challenge that we face is, of course, the federal regulations that we have to comply with. The main one is the Bank Secrecy Act and the Bank Secrecy Act says that a financial institution should not be involved with any individuals who could be involved in any illegal activity, so we cannot take funds from illicit activity either. So, it’s a fine line because cannabis is legalized in New Mexico. But we also have to follow those federal guidelines as well.
Andy Lyman: That fine line seems to have created issues with the medical cannabis producers and some of them got, let’s say… creative. Through my reporting, I’ve heard, anecdotally, that some producers basically told their banks they were selling flowers or that they ran a botanical business.
Patty Lindley: We’ve seen that as well in our in our organization, where they open an account under a name that it is not obvious that they’re connected to the cannabis industry and they don’t really tell us exactly what they do. There are risks with that. And the thing that they don’t realize, though, is that we have some pretty advanced monitoring systems that we use. Most businesses today don’t deal in large amounts of cash where, of course, in the cannabis industry, because they’re limited on their banking services, they tend to deal more in cash. So, large amounts of cash going through an account is usually a huge red flag that something else is going on. And it will bring that account to our attention so that we can look at it more closely. The risk there is, if they haven’t been truthful with us when they open the account, they risk getting those accounts shut down. And that’s what they’ve been facing for years. So, we wanted to offer them a solution to where they could be completely open and honest with us. In fact, it’s expected and we’re going to let them just do what they need to do so that they can focus on their business and they’re not constantly focusing on their banking issues.
Megan Kamerick: Patty says her organization has been looking into this issue for quite a while, with the goal of providing a safe place for medical cannabis companies in New Mexico to keep their money.
Patty Lindley: So, we began our process of evaluating whether we wanted to get into offering these services about two years ago. And we contacted other experts in the industry. We did just a lot of due diligence before we even took it to our board for approval. So, it’s been about two years in process. About a year ago, we got approved to move forward with it, and then we had the difficult task of finding staff, training them on all the regulations and actually building the program. The due diligence process for these is where we focused on. We really wanted to build this on a foundation of compliance. We wanted to make sure that we were going to be here for the long haul. We wanted to make sure that five years, 10 years down the line, we weren’t being shut down by our federal regulators. So, we wanted to make sure everything that we do is very compliant and very transparent, transparency between us and our customers. We call them members and then very transparent with us and our regulators. There is quite a due diligence process in order to have these accounts and make sure that we are monitoring the money that’s coming in so that we can report back to the government that nothing illicit is going on.
Andy Lyman: Patty also told us that the credit union is not only providing a place to keep their money, but also provides an armored car pick-up service and even special debit cards associated with these cannabis bank accounts… all to help these companies avoid dealing with huge amounts of cash.
Megan Kamerick: It’s almost like a special, niche bank within a bank.
Patty Lindley: We also developed a separate division, we created the Aare group. Aare group is our cannabis division. We have a separate location for them, these employees. This is all they do. They can become specialists in the area and they’re not dealing with the regular type of business that most people in a financial institution will deal with. Everything that they’re doing focuses strictly on the banking for this industry. They’re not having to take loan applications. They’re not having to do notaries for other, just anybody that walks in the door. They’re able to focus solely on their particular members. We set up a private banking model for this. Each member that comes in, gets assigned a banker, someone that is there for them whenever they have questions, to help them with their transactions, whatever their needs are, they have a point of contact. They have someone that they can call and get things taken care.
Megan Kamerick: That’s a significant investment.
Patty Lindley: It really is, but we felt it was worth it.
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Megan Kamerick: One thing we touched on briefly in a previous episode is how cannabis is classified on the federal level. So many of our conversations so far seem to all come back to, “Well, it’s still illegal federally.”
Andy Lyman: It does seem to always come back to that, doesn’t it? A lot of people may already know that cannabis is a schedule one drug. But not everyone may really understand what that means. We spoke with Emily Kaltenbach, director of the Drug Policy Alliance in New Mexico to try and better understand what schedule one is and why cannabis is in that category.
Emily Kaltenbach: Schedule one basically means that there’s no medicinal or therapeutic value for a substance. And we know that that’s not the case for cannabis. And if you look at how many of our U.S. states now have some sort of legal cannabis option, whether that’s medical or full legalization. So, we know that the research and the anecdotal evidence shows that people, it does have some medicinal values. So, there’s been a long battle to take cannabis off of schedule one. There are different proposals out there. One is just to reduce it to a lower schedule, right? that shows that it does have some medicinal value, but still is controlled in a medical setting. We really advocate for the de-scheduling, because if you just reschedule and lower it on the controlled substance, then it still has to be very tightly regulated in a way that would really limit individuals’ access, especially patients, medical patients’ access.
Megan Kamerick: Listeners may remember when we spoke to state Representative Javier Martinez. He talked about how the term marijuana is rooted in racism. Emily says it’s the same case for why the federal government classified cannabis as one of the most dangerous drugs.
Emily Kaltenbach: Marijuana was really used as a racist term to incarcerate Latinos and Hispanics in our country. And, you know, if you go back to Nixon’s war on drugs, we know that the war on drugs was really used to control and to incarcerate people of color. And so really, the reason it’s on that schedule is because of the racist history of our drug war. And we also show that cannabis is not a gateway drug. And so, there can definitely be dependency, but there isn’t the same sort of addictive quality that we might see in other substances. So, again, it’s really misplaced. And that’s because of racism and politics and not because of science.
Andy Lyman: Can you tell us about the different kinds of things Drug Policy Alliance advocates for, just in general?
Emily Kaltenbach: We’ve been in New Mexico, now, over 20 years. And our core policy advocacy is really about shifting away from the criminalization of drug use into a health-centered approach. And then, also, reducing the harms, right, both the prohibition and of drug use. So, it could be from overdose prevention to drug education for young people to really reforming our criminal justice system, including the legalization of cannabis.
Andy Lyman: Emily says the Drug Policy Alliance is pushing for legislation that would include a path for small businesses to get into the potential recreational-use market, while at the same time helping those who have been negatively impacted by previous and current drug laws.
Emily Kaltenbach: The reason we are supporting the legalization is really about re-investing back into communities that have been most harmed by prohibition and also creating some equity in the marketplace. Because, we know if we look at other states over the last oh, gosh, now it’s been, what, eight years? There’s a lot to learn about who’s actually allowed into that space and who’s making money. So, over the years that we’ve been involved in advocating, we’ve tried to build in some really key provisions, again, some around equity. So, we want to see small business allowed in. Who can get equity and who can’t is a really important question. And so, if we can create a licensing system that allows micro businesses to be included, that have, in-scaling license fees based on the size of business is really critical. When you look at other states that actually some of the revenue goes back to helping build some of that capital and doing some business development, that could be really important as we build out. And also, some of the small family farms in New Mexico, we should figure out how to really allow them to have some entry into the industry. And then on the other side is about, how do we expunge, automatically, really expunge the records of folks who have been charged and incarcerated and prosecuted for crimes that are now made legal under this bill. So, we want to go back and right some of those harms. So, there’s an automatic expungement provision that we’re advocating for, again, some of the revenue going back into the communities that have been most harmed. And then, there are some specific things around, you know, no one should lose benefits, public benefits, because of their cannabis use or search and seizures by police shouldn’t be based on the smell of cannabis in a car.
Megan Kamerick: Even outside of our work for this podcast, it seems like we keep hearing about how much money we, as a state, can make if we legalized cannabis.
Andy Lyman: That’s definitely been a selling point from people like Gov. Michelle Lujan Grisham. I know this has been a long year and the Legislature’s special session seems like it was years ago, but it was only about nine months ago that the Legislature was trying to figure out if our state would make it through the pandemic, financially.
Megan Kamerick: Earlier this year our state was facing some serious financial problems after a plunge in oil prices compounded with a screeching halt to the state’s economy. Gov. Michelle Lujan Grisham opined, at that time, that if the Legislature had approved recreational-use cannabis, we might have had a financial cushion.
Andy Lyman: At least one economist agrees that cannabis sales could generate some serious tax revenue.
Kelly O’Donnell: The potential revenue to be generated by taxes on recreational cannabis are high, there’s no question about that.
Megan Kamerick: That’s Kelly O’Donnell, an economist and research professor at the University of New Mexico. She says the actual amount of potential tax revenue simply comes down to decisions by lawmakers.
Kelly O’Donnell: To a large extent, the actual, absolute magnitude of the revenue generated is going to depend on a number of factors and most specifically, the type of taxes that are levied in the context of legalization. I mean, obviously, part of legalization is going to be developing a taxation scheme for recreational cannabis. And the other part is going to be developing a functioning legal market that produces enough product for folks to consume and generates adequate revenue for the state. So, there’s a lot of moving pieces. That said, we have estimated in the past that, assuming a fairly functional regulatory structure and a tax rate of 15, 20 percent, we’re looking probably at close to one hundred million dollars a year, assuming, again, a fully functioning, robust, mature market for recreational cannabis.
Andy Lyman: To what extent we tax recreational-use cannabis is sure to be a topic of debate next year. But O’Donnell says dialing in the tax rate is sort of a balancing act. If we tax it too much, people may turn to the illicit market, which means less revenue to the state and well, a burgeoning illicit market.
Kelly O’Donnell: I think that a lot of the states that legalized relatively early started with even higher tax rates. And there’s actually been a movement to reduce those tax rates somewhat. A major objective for many states in legalizing cannabis is to crowd out the illegal market. If tax rates are too high, then you can’t really crowd out the illegal market because the legal product remains too expensive. So, but 20 percent seems like the level at which a lot of states are sort of arriving after making adjustments and realizing the realities of the market.
Andy Lyman: I had mentioned a moment ago that Gov. Michelle Lujan Grisham brought up legal cannabis tax revenue earlier this year, with a kind of “Coulda, woulda, shoulda” take on the whole thing. Which is kind of true, but we should remind everyone that putting together a tax plan can take a while.
Megan Kamerick: We spoke with Andrew Oxford, a reporter with the Arizona Republic, for a bonus episode. If you haven’t already, please go back and listen to that conversation. But we talked to Andrew about how Arizona voters approved, by nearly 60 percent, a measure to legalize recreational-use cannabis.
Andy Lyman: The proposition includes a 16 percent excise tax provision, so it seems like Arizona is well on its way towards seeing some revenue in the next couple of years. We spoke to O’Donnell about the impacts of neighboring states with full legalization in place prior to the election, but I think her sentiment here is still relevant.
Kelly O’Donnell: This is something of a race against the clock in the sense that those states that were early adopters like Colorado have already generated revenue over a number of years. Their market has had time to mature and for supply and demand to somewhat come into balance at lower prices. So, there is a lot of lead time that’s required if you’re going to legalize. We need to be cognizant of what’s going on in surrounding states so that we can, again, maximize the revenue we obtain and have a competitive market.
Andy Lyman: I recently wrote about how Arizona’s legalizing cannabis may impact New Mexico. You can find that story at nmpoliticalreport.com, but the consensus of the people I spoke with was that 2021 is the year for New Mexico to legalize cannabis, if the concern is competing with Arizona for tourism dollars. But O’Donnell says that may not be a worry for New Mexico.
Kelly O’Donnell: The tourism advantage conferred by being an early legalizer will be temporary. But, the overall boost to the tourism sector, I would assume that it would result in a boost to the tourism sector. That boost will diminish over time, but will still be positive so it won’t go away completely and really, until Texas legalizes, we should be golden. I mean, when Texas legalizes, that will really change things quite a lot. But until then, and that doesn’t seem to be imminent, this could be an important source of revenue.
Megan Kamerick: Tax revenue will likely be the selling point for opponents of legalization, but then we get into this debate over where that money should go. In previous attempts to pass a legalization bill there were debates over earmarks. As a state, we’ve also seen earmarks for things being diverted to other places. O’Donnell says that while touting legalization as revenue for specific things like public safety or drug treatment is popular, the best plan of action may be to send cannabis tax revenue to the state’s main account.
Kelly O’Donnell: It may take a while to materialize, but that displacement is almost bound to happen. And generally speaking, if you’re looking for revenue, general fund revenue, it’s best to put it in the general fund and let the legislatures from year to year decide how to spend it. That makes the most sense. Now, earmarking the money might be a little more politically expedient because then there’s that sort of immediate link in people’s minds between legalization and revenue to address other social ills. But ultimately, I think it probably ties the hands of the legislature more than it actually benefits the intended beneficiaries.
Megan Kamerick: Andy, we’ve gone over so many topics so far and of course today we’re talking about issues we haven’t addressed in previous episodes. So, are there any other areas you see getting addressed in the next session?
Andy Lyman: One topic that is pretty complicated and that’s already seen a fair amount of debate is how, under the current medical program, youth patients can get access to their medicine while at school.
Megan Kamerick: Yeah, it’s kind of easy to forget during the pandemic, but children actually did go to school in the past.
Andy Lyman: It’s also easy to overlook the fact that there are a number of medical cannabis patients who are children. And the parents of those children often have a tough time working out how to get medication to their kids. Here’s Emily Kaltenbach again….
Emily Kaltenbach: Unfortunately, for many years, if you were a child and you had a medical condition and cannabis, you were using cannabis from a therapeutic perspective, you couldn’t use that on school property. So, there were stories of… really heartbreaking. I have a seven-year-old, so I totally can relate to some of these parents who sat in parking lots. They may have a child that had epilepsy and had… and the use of cannabis would actually stop those seizures immediately, that could be very dangerous. So, they’d sit in the parking lot and they’d get a call from the teacher if their child was seizing. They would run in, grab the kid, put them in the car, drive off campus and administer the medicine. We wouldn’t require that for any other medicine. And so, what ended up happening is some of these kids were just pulled out of school and weren’t having equal access to their education. So, we did pass a bill a couple of years ago to allow that cannabis to administered on school property. But it comes with a lot of caveats, right, of who can administer it? If a school district worried that they’d lose federal funding, they could opt out. It was it’s very problematic. And still, I think there are some concerns… there are other states that have model… Colorado has a model that we think loosely followed, but that’s still an issue, unfortunately.
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Andy Lyman: This issue really got some traction during the 2019 legislative session when lawmakers made arguably the most changes to the Lynn and Erin Compassionate Use Act since it was established. Allowing medical cannabis on public school grounds was a big change and made many parents happy, I’m sure. But it was individual school districts that raised concerns about whether school employees would be forced to administer this substance that is still federally illegal.
Megan Kamerick: So, what was the final decision or compromise on that?
Andy Lyman: The final bill, which was signed into law by Gov. Lujan Grisham, ultimately left a lot of decision- making power to the Public Education Department in their rule-making process. So now, if a school district is concerned with losing federal funds because it allows medical cannabis on school grounds, they can apply for an exemption, although to my knowledge, no one has done that. But, school districts can also still decide whether employees are the ones to administer medical cannabis or not.
Megan Kamerick: So, it’s not school nurses administering it?
Andy Lyman: No, my understanding is that school districts around the state have taken the stance that it’s up to parents to come give their kids the medical cannabis a doctor has recommended.
Megan Kamerick: Is there a solution to this?
Andy Lyman: Emily says she expects the issue to come up again during the 2021 legislative session. Another way this gets addressed, she says, is through the courts.
Emily Kaltenbach: You know, two years ago was really the first time we opened up and made major amendments to the Lynn and Erin Compassionate Use Act and they were good steps forward, but they weren’t perfect. We’ve seen this, right, on reciprocity, you know, that was just an issue in the courts, whether out-of-state patients are allowed to purchase, that their cards be recognized here, you know, things like that. And so, I think they’re going to be a lot of fixes and this one included.
Megan Kamerick: That sounds like school districts could lose that autonomy they have right now.
Andy Lyman: Yes, but we still have little to no idea how many legislators will draw a line in the sand and take over that decision-making power from school districts. Speaking of autonomy, another issue we didn’t really get a chance to dig into is whether counties and municipalities across the state could opt out of legalization.
Megan Kamerick: Emily says there’s good reason not to allow an opt-out provision in any legalization bills.
Emily Kaltenbach: We’ve seen in other states that Colorado, another example of being able to opt out… we’re advocating that counties can’t opt out, because what you do and actually law enforcement has brought the same issue up, is you create a checkerboard of enforcement. And in a state like New Mexico, I think that’s problematic. It may happen in New Mexico, I think that’s going to be an argument for this coming year. I would advocate, instead of opting out, that those counties can have some local control over some of the rules, right? But they have to be reasonable time, place and manner, rules of where retail establishments can be or advertising or things like that. And so, the other, I mean, the other downside to having opt out is that a lot of those counties then won’t recoup any of the local excise tax money. And in the last bill, it was up to three to four percent that could be collected by a city or county. And those, there were no strings attached to those revenue dollars. So, they could be put back into whatever that local community would need. And so, what would happen is you’d have one county that opted out that didn’t have any revenue. The next county over opted in, was getting revenue. But, any kinds of enforcement dollars that would go to enforcement or public health, you know, that would spill over into the next county. And so, I think it just creates a more complex patchwork of… anyways, just a patchwork at checkerboard, so if you also, look at Colorado, some of those local communities have put their tax dollars into some really innovative things, like whether that’s sending their kids to college with that or revitalizing some of the downtown areas that were really hit hard by the economic downturn. So, of the last decade, so, I think there are benefits for these communities. And then the last thing I would say is that it also provides more access for medical cannabis patients that I mentioned earlier. So, if we’re requiring the adult use side to also provide medical, then we’ll see more access around the state.
Megan Kamerick: Before we wrap-up our last episode, we should also touch on an issue that is for sure going to be a topic of debate next year… and that is driving while high.
Andy Lyman: Even in years when legalization is not seriously being considered, I’ve seen lots of bills trying to address how to measure levels of impairment from things other than alcohol.
Megan Kamerick: As Emily explains here, there’s not really a reliable test yet that can show with any kind of accuracy how impaired a person on cannabis is.
Emily Kaltenbach: We don’t need new laws because it’s already illegal to drive while you’re impaired, whether you bought it on the illicit, in the illicit market or in the legal market. And so, I think people forget that, right? That it’s already against the law to be driving impaired if you use cannabis. What we don’t have that we have on the alcohol side is a really, it’s a fast test to show impairment, right? Because alcohol and cannabis work differently in the body. And so, the breathalyzer can show actual impairment. It doesn’t work for cannabis, but it hasn’t worked for cannabis for a long time. And we know lots of people are using cannabis and purchasing it in the illicit side and potentially driving. And so, we need to have a better way to measure impairment, period. Whether that’s because you didn’t sleep the night before, whether that’s, you’re using a prescription drug that you actually are allowed to use but are driving, whether that’s cannabis or alcohol. So, I think states are starting to figure out how to do this well. But I would say that the data does not support that there’s been a huge increase in fatalities because of cannabis alone.
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Megan Kamerick: Well, Andy, here we are about ready to wrap up our final episode…
Andy Lyman: It’s been quite a journey. I just want to take a second and thank you Megan for all you’ve done for this collaboration.
Megan Kamerick: Right back at you, Andy. As we’ve said before, Growing Forward is a collaboration between New Mexico Political Report and New Mexico PBS…
Andy Lyman: At the end of every episode we always make sure to mention that this whole podcast wouldn’t be possible without a grant provided by the New Mexico Local News Fund, but I also just want to offer a huge thanks to one of our producers, Kevin McDonald. He was really instrumental in getting this thing off the ground.
Megan Kamerick: And, of course, as always, thanks to our other producer, Bryce Dix, for all of his hard work in editing each episode and really making this project sound so great.
Andy Lyman: And just before we go, of course, thank you to all the listeners out there…If you have any unanswered questions still, shoot us GrowingForward, all one word, at nmpbs.org.