New Mexico Struggles to Regulate Explosive Cannabis Growth Three Years After Legalization

State Lawmakers Express Concern Over Oversaturation and Black Market Influence in the Recreational Marijuana Industry

More than three years after New Mexico became one of the latest U.S. states to legalize recreational marijuana, lawmakers are raising alarm over what they now view as an unbalanced and poorly regulated cannabis industry. Despite generating nearly $1.7 billion in combined medical and adult-use cannabis sales, the state is facing rising concerns about the unchecked expansion of dispensaries, potential worker exploitation, and the rise of a flourishing illicit market operating in plain sight.

During a legislative committee hearing in Taos this week, members of the interim Courts and Criminal Justice Committee expressed frustration over the rapid proliferation of cannabis businesses and the lack of localized control over licensing. Some lawmakers are calling for legislative fixes in the upcoming session, including pausing new licenses, increasing enforcement, and restoring some regulatory authority to local governments.

Sunland Park Becomes an Epicenter of Cannabis Sales With Dozens of Dispensaries and Few Basic Retail Services

One of the starkest examples of the current regulatory imbalance lies in Sunland Park, a small town on the New Mexico–Texas border. With a population of fewer than 20,000 residents, the town is now home to between 36 and 40 dispensaries, according to the state Regulation and Licensing Division. Recreational marijuana remains illegal in neighboring Texas, making Sunland Park a hotspot for cross-border cannabis commerce.

Despite the economic windfall, local officials and state senators worry about the long-term health and social balance of the community. With so many cannabis retailers and only a single grocery store and a handful of other essential services, critics argue the town’s retail environment no longer reflects a healthy, sustainable model. Lawmakers are calling for a legislative reevaluation of license caps and zoning authority to prevent further distortion in small towns.

New Law Funds Hiring of Certified Officers With Criminal Investigation Authority to Enforce Licensing Rules

In response to widespread reports of illegal activity and regulatory violations within the legal cannabis industry, the state passed House Bill 10 (HB 10) during the last legislative session. This law allocates funding for the hiring and training of a new team of certified law enforcement officers with the power to investigate and bring criminal charges against cannabis businesses suspected of breaking the law.

Unlike the current system, which relies on inspections and administrative penalties, the new officers will have the authority to pursue criminal enforcement, especially against operations suspected of laundering unregulated cannabis, misrepresenting product sources, or engaging in labor violations. The hiring process for a police chief to lead the unit is expected to begin in the coming days, followed by the addition of up to six field officers.

Officers and Inspectors Will Investigate Origin of Products and Compliance With Seed-to-Sale Tracking Rules

The newly created enforcement team will not only focus on frontline violations but will also work closely with forensic auditors to analyze cannabis businesses’ financial records and supply chains. This includes a deeper dive into the state’s seed-to-sale tracking system to verify whether businesses are accurately reporting inventory and ensuring that product origins match their claims.

The goal is to identify operators that are infiltrating the legal market with unlicensed products, underreporting revenue, or bypassing testing protocols by mislabeling or altering cannabis products. These enhanced audits are designed to detect fraud, tax evasion, and illegal distribution, all of which undermine the integrity of the state’s legal market and threaten compliant operators.

Municipalities Currently Have No Power to Limit the Number of Dispensaries Within Their Jurisdiction

One of the most significant policy challenges stems from New Mexico’s open licensing model. Under current state law, there are no caps on the number of licenses that can be issued, and local jurisdictions cannot outright ban dispensaries from operating within their borders. While municipalities can impose spacing requirements between cannabis businesses, they have limited tools to manage density or respond to local concerns.

This has led to situations like Sunland Park and others where dozens of dispensaries operate within tight urban corridors, creating competitive saturation and fueling complaints about community balance. Some lawmakers are now proposing amending the law to restore some degree of local authority over the number and placement of dispensaries in their towns and cities.

Despite Recent Legalization, the State Outpaces Longtime Cannabis Leaders Like California and Colorado

According to lawmakers and state data, New Mexico now ranks among the top U.S. states in terms of dispensaries per capita, trailing only Oklahoma. While Oklahoma has been widely criticized for its lack of regulation and oversupply, New Mexico’s current licensing trajectory puts it in a similar category.

With approximately 30 dispensaries per 100,000 residents, the state far exceeds California and Colorado—both of which adopted adult-use cannabis earlier and have had more time to refine their regulatory systems. The rapid issuance of licenses in New Mexico has created an environment of fierce competition, forcing many small and mid-sized operators to struggle with slim margins and unpredictable market conditions.

Business Coalition Urged the Governor to Halt New Licenses in 2023 Due to Market Saturation and Illicit Competition

In June 2023, a coalition representing approximately 100 cannabis businesses submitted a formal request to Governor Michelle Lujan Grisham to pause the issuance of new cannabis licenses, citing increased competition, declining prices, and pressure from the black market. They argued that the regulatory environment favored unchecked growth at the expense of responsible business operators and consumer safety.

Though the administration did not act on the request at the time, the continued volatility in the market has renewed calls for action during the upcoming 30-day legislative session. Lawmakers are pushing for temporary limits, enhanced enforcement, and tighter oversight to stabilize the industry and protect long-term viability.

Grisham Suggests State Needs Fixes for Market Regulation but Has Yet to Propose Formal Legislation

While Governor Lujan Grisham has not released a formal cannabis reform plan, she has acknowledged concerns raised by lawmakers and residents. In a recent public town hall, the governor admitted the state’s licensing process needs improvements, particularly regarding the number and concentration of dispensaries in certain areas.

The upcoming 30-day session, which is typically budget-focused, could offer an opportunity for cannabis-related reforms if the governor deems the issue germane. Lawmakers are now urging her to prioritize the matter and support new rules to address the most urgent regulatory and public health concerns.

Calls Grow for Balanced Growth, Stronger Oversight, and Sustainable Market Reform

As New Mexico’s legal cannabis industry matures, the state finds itself at a pivotal moment. With billions in sales, thousands of licensed businesses, and rising public scrutiny, policymakers are being pushed to confront the unintended consequences of rapid legalization.

From border-town oversaturation to enforcement gaps and black-market infiltration, New Mexico’s cannabis market is both a success story and a cautionary tale. Lawmakers, regulators, and stakeholders alike will need to collaborate on policy reforms that preserve access and economic opportunity while restoring public trust and community stability.