Plant cap and purchase limits create chokehold on growth of patient revenue
The patient sales during the first nine months of 2019 represent a 20% increase over the same period during 2018, while patient enrollment increased by 31%. The outpacing of patient enrollment over patient sales indicates the current program is unable to meet patient needs due to limits on supply, artificially high prices, and unsupported patient purchase limits.
This slower growth completely contradicts NMDOH’s recent estimate that revenues would increase 200% over last year. The department inaccurately predicted “$200-300 million” in patient sales in the current year due to recently reduced plant count limits and higher license fees that became effective August 27, 2019.
NMDOH incorrectly equated revenue growth and patient demand to the recently raised license fees and plant count rollback. In reality, plant count reductions and fee increases ultimately inflate the price per gram, restrict product innovation, and reduce the availability of medicine for sale.
While Governor Michelle Lujan Grisham consistently promotes the strengthening of the medical program in light of the legalization of cannabis for adult use, programmatic changes still need to be made. Increased producer fees, scant patient purchase limits, and lowered plant caps will ultimately hamper the medical program’s ability to survive post-legalization.
FIRST NINE MONTHS 2019 BREAKDOWN
Of the 34 licensed producers, 17 operators’ patient sales fell below the industry’s 20% growth pace from the first nine months of 2019 over the same period in 2018.
The top five providers with comparable sales in 2018 and 2019 reported the following patient activities:
Increase over 9-months 2018
Producer 9 Month Revenue $ Increase % Increase
Ultra Health $14,169,016 $2,640,697 23%
R. Greenleaf $8,457,654 $1,666,265 25%
Verdes $6,167,207 $810,917 15%
Sacred Garden $5,027,273 $241,063 5%
Pecos Valley $5,011, 098 $2,026,708 68%
Total Industry $93,630,767 $15,883,121 20%
There were 98 dispensary locations across 20 counties during the third quarter of 2019, according to the latest information from NMDOH. New Mexico’s Medical Cannabis Program has one of the most robust distribution networks in the country, with a patient-to-dispensary ratio of one store for every 787 patients.
In neighboring Arizona, the state has 120 dispensary locations to serve 210,308 patients statewide, representing a patient-to-dispensary ratio of 1,753 enrollees per dispensary.
END OF YEAR OUTLOOK
Programmatic adjustments such as rules regarding provider cultivation caps, patient purchase limits, and medical cannabis coverage still need to be revisited to allow patients to fully access compassionate cannabis care.
Earlier this year, NMDOH was enjoined from enforcing the former permanent plant cap due to a lawsuit that found the cap was arbitrary, capricious, and frustrated the purpose of the Lynn and Erin Compassionate Use Act.
On March 1, 2019, NMDOH raised the plant cap to 2,500 plants per producer with no additional fee via an Emergency Rule. NMDOH then reduced the plant cap to 1,750 plants per producer with a fee increase of 100% for top providers without providing relevant evidence that the new limit would provide an adequate supply for patients.
Because NMDOH doubled the top fees, many providers were unable to subscribe to the maximum number of plants. The increase in fees then resulted in an average of less than 1,200 plants per producer.
Recent demand estimates show a plant limit of 5,000 mature plants per producer – more than 4 times the average plants per producer today – will be necessary by 2022 to provide adequate supply due to anticipated growth in program enrollment.
In regards to patient purchase limits, NMDOH rules only allow patients to purchase 8 ounces of cannabis every three months, while Arizona patients are able to purchase nearly twice that amount during the same period. The Arizona allowance of 2.5 ounces every two weeks is in line with patient purchase limits in Colorado, Nevada, Oklahoma, Washington, Illinois, and Maine.
NMDOH Secretary Kathy Kunkel stated in a letter the department would revisit purchase limits in the summer 2019 rulemaking process. The NMDOH failed to take any action on this issue despite Secretary Kunkel’s letter and the findings from the most recent NMDOH commissioned patient survey.
In the patient survey conducted by Research & Polling Inc., 48% of patients surveyed stated they would purchase more medicine if they were allowed. In addition, 1 in 4 patients reported they have developed a tolerance to their medicine that has required increased consumption over time.
The patient survey also found that 52% of patients reported household income of less than $35,000 annually, with half of those reporting less than $20,000 in household income. Sixty-four percent of patients are not employed full time and reported being either retired, stay-at-home parents, students, part-time workers, some other job status, or generally unemployed.
Given these figures and the fact that patients must pay for their medicine 100% out of pocket, patients need cannabis as a covered service whether it be through private insurance or Medicaid.
“Clearly, there are access points for patients to purchase their medicine,” said Duke Rodriguez, CEO and President of Ultra Health®. “However, patients are being denied compassionate care because providers are still limited by draconian cultivation caps and patients restricted by arbitrary purchase limits. Simply put, patients can’t buy what’s not readily available, affordable, or allowed.”
Total industry patient sales are expected to fall substantially below NMDOH’s $200 to $300 million estimate and reach $125 million by the end of 2019. Enrollees are expected to top 80,000 patients by the end of the year.