New Mexico cannabis firms prep for Texan shopping spree as adult-use sales launch

Cannabis businesses in eastern and southern New Mexico are counting on a stampede of Texans to supersize their sales when the state’s adult-use marijuana market launches Friday, but that opportunity might not last forever.

Those preparing for the surge of Texas cannabis shoppers include groups of marijuana retailers in key border communities along with at least one border cannabis producer that’s focused on serving the Texas market.

“For those towns along the border, like Clovis and Tucumcari and Texico … all the way down to Las Cruces, it represents a time-constrained opportunity to realize tourism dollars,” said Ben Lewinger, executive director of the New Mexico Cannabis Chamber of Commerce, which represents 34 licensed cannabis businesses and 65 ancillary businesses.

To prepare, one major New Mexico marijuana company is boosting production, highlighting options for speedy retail orders and eyeing digital marketing to woo Texans.

Despite a relatively small population of 2.1 million, New Mexico’s recreational marijuana market is expected to achieve annual sales of up to $125 million in 2022, growing to as much as $400 million by 2025, according to projections from the forthcoming 2022 MJBiz Factbook.

Texas should play a key role in that growth.

The nation’s second-most-populous state has a very limited medical marijuana program, with only 19,805 registered patients as of February.

Window of opportunity

“In many cases, the eastern part of New Mexico is very much aligned with Texas,” explained Emily Kaltenbach, the Drug Policy Alliance’s New Mexico-based senior director of criminal, legal and policing reform.

Kaltenbach expects particularly hot demand from Texans in and around Clovis, New Mexico, close to the city of Lubbock, Texas, as well as in New Mexico’s Doña Ana County, home to the major city of Las Cruces and directly adjacent to El Paso, Texas.

She cites the example of New Mexicans buying cannabis in neighboring Colorado.

“If you think about what happened when Colorado legalized, we saw all these adult-use retail businesses popping up along the New Mexico-Colorado border in towns that were really small, population-wise,” Kaltenbach said.

But, like Lewinger of the New Mexico Cannabis Chamber, Kaltenbach believes cross-border sales to Texans could be a limited-time opportunity.

“Either Texas is going to legalize (cannabis) at some point in the next five years, or it’ll be federally legal,” Kaltenbach said.

“And that’s going to change the whole dynamics of the market in some of these border communities.”

2022 MJBiz Factbook – Now Available

The essential resource for cannabis business leaders across all sectors provides the latest data and in-depth analysis you need to develop informed business strategies and avoid costly missteps.

Featured Inside:
  • Segmented research reports for the marijuana + hemp industries 
  • Accurate financial forecasts + investment trends  
  • State-by-state guide to regulations, taxes & opportunities  
  • 40+ charts and graphs with key data points

 

Get the facts and stay ahead of the curve.

Lewinger said he’ll be watching cannabis businesses in the Colorado town of Trinidad, just across New Mexico’s northern border, for hints at how businesses on the New Mexico-Texas border might fare if and when Texas legalizes cannabis.

New Mexico is a popular tourist destination for Texans, he observed.

“I wouldn’t say that all of the shops on the border would face downturn and close down immediately,” Lewinger said.

“But we don’t know … what happens with those operations along the border after the prohibitive state legalizes, so we’ll have to wait and see.”

Marissa Novel, chief marketing officer at major New Mexico cannabis operator Ultra Health, maintained an optimistic outlook about the potential impact of Texas cannabis legalization on New Mexico’s border retailers, citing commercial ties between border communities.

“Being so rural, especially on those border edges, the proximity to other, bigger cities just isn’t there for some of those smaller communities,” she said.

Depending on how retail regulations in Texas’ eventual legal cannabis regime compare to New Mexico’s open licensing scheme, Novel suggested, New Mexico’s border businesses could retain some Texas customers.

“In Texas, we may see more dispensaries popping up in the Dallas, San Antonio, Austin areas,” she said.

“That leaves a whole lot of communities on that western Texas border that may still have to drive a few hours to get to their nearest store.”

Still, Novel acknowledged that an end to cannabis prohibition in Texas would lead to “waning demand to purchase cannabis in New Mexico.”

“But I think people will be surprised to learn how thriving those cross-border communities of commerce are already.”

In some cases, she said, it could be “way more convenient for Texans to pop over to Clovis, to pop over to Hobbs to purchase their cannabis, rather than driving several hours in-state.”

New Mexico’s new adult-use market likely will also pull sales away from southern Colorado border towns such as Trinidad, Novel added.

Anticipating Texas demand

Ultra Health currently has 30 New Mexico retail locations, with more on the way, Novel said.

Seven of those stores are close to the Texas border, and all are converting to serve adult-use customers.

When New Mexico opened medical marijuana enrollment to nonresidents for a time in 2019, Novel said, revenue more than tripled at the company’s Sunland Park location, near El Paso. (The state later phased out MMJ sales to many nonresidents.)

“That was a very valuable exercise because we got to test the waters of (nonresident sales) on demand to see how that border location would do,” Novel said.

Ultra Health is building a second retail location next to its existing Sunland Park location, she said, “because we realized that once sales go legal to any adult, we would not be able to keep up with demand with that single store.”

In a 2016 analysis of New Mexico’s potential recreational cannabis market commissioned by Ultra Health, New Mexico economist Kelly O’Donnell found that more than “119,000 Texans age 21 and over who use cannabis at least once per month live within 200 miles of the New Mexico border.”

“These Texans constitute a potential customer base almost as large as New Mexico’s (138,000),” O’Donnell wrote.

Based on that analysis, said Ultra Health’s Novel, “we’re estimating that 40% of the demand for adult-use cannabis in New Mexico will come from Texans.”

New Mexico cannabis cultivation company Llano Sativa, based just outside Clovis, plans on supplying the Texas market by selling to border stores.

Owner Brian Rogers said he hopes to start by selling Llano Sativa’s upcoming crops to retailers in nearby Texico, located directly on the Texas border at the convergence of highways leading from Amarillo and Lubbock.

As his supply ramps up, Rogers said, he plans to supply stores in other eastern New Mexico communities.

“We’re trying to produce something that is a superior product, and we want to charge a superior price for it,” he said.

“We think that the market in Texas is the most likely outlet for us, in that regard.”

Rogers added that he’s considering a future retail location near Texas if the cross-border sales boom pans out.

Getting ready for Texans

To prepare for customers from Texas, Ultra Health’s Novel said the company is “streamlining our retail operations, really emphasizing online ordering (and) express lanes for those consumers who just know what they want, and want to get in and out.”

Arizona-headquartered Ultra Health is also “investing heavily in production in southern New Mexico,” she added.

In terms of marketing, Novel said Ultra Health is weighing options for digital advertising in Texas.

New Mexico marijuana industry representative Lewinger expects that border retailers won’t have to do much marketing to entice Texans over the state border.

“I think proximity to the border and proximity to a major thoroughfare is going to be the big thing,” Lewinger said.

Initially, he added, “I think lots of folks will stop at the first flashy spot.”

“But I think, in very short time, it’s going to depend on which retailers really have a deep understanding and which retailers really dial in that customer experience.”

Meanwhile, Lewinger expects that keeping store shelves stocked might be a challenge, citing “a very aggressive timeline” for the new market launch.

“I think it took longer than expected to grant some of the licenses, so there are lots of new operators who won’t have an opportunity to harvest before Friday,” Lewinger said.

“I do think that while these new operators come online, there could be some rolling shortages until probably close to the end of the year, when we have a good outdoor harvest and those outdoor products get on the shelf.”

Cannabis grower Rogers agreed that demand could initially outstrip supply.

“The New Mexico market’s not very big … there’s not a lot of people here,” he said.

“But when you add in Texas and some of the demand coming from that market, I think we could have some supply difficulty.”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.