New Mexico could be left with a major hole in its budget after the Court of Appeals ruled that medical marijuana producers can claim tax relief.

The state had previously rejected producers’ applications for gross receipts tax, so they took the matter to court. An 11-page ruling from the Court of Appeals determined that medical marijuana meets the definition of a prescription drug under the state’s tax code.

Unless the state can launch a successful appeal, the New Mexico Taxation and Revenue Department will be inundated with tax rebate claims.

“There’s a direct potential fiscal implication to the state,” Sen. Jacob Candelaria, told the Albuquerque Journal. He added that lawmakers would have to set aside enough funding to cover the tax claims either this year or next year.

The Taxation and Revenue Department reported that medical cannabis providers paid around $24 million in gross receipts taxes over the past three years. These costs are typically passed onto patients, who could be in line for cheaper marijuana in future.

The state is currently analyzing the ruling and assessing its options. It has until Feb. 27 to mount an appeal

Duke Rodriguez, president and chief executive of Ultra Health LLC, a vertically integrated operator in New Mexico, pointed out that the ruling could open the door for medical marijuana to be covered by health insurance or Medicaid.

Ultra Health previously won a legal battle with the state when District Judge Bryan Biedscheid ruled that the Department of Health must begin issuing medical marijuana cards to all qualifying patients, regardless of where they live. New Mexico wanted to prevent anyone living outside of the state from using its medical marijuana dispensaries, but Ultra Health had already begun marketing its wares to Texans, so it launched a successful legal challenge.

New Mexico Gov. Michelle Lujan Grisham has called upon lawmakers to legalize recreational cannabis use in 2020. Last week a Democrat-backed legalization bill cleared its first obstacle when the Senate Public Affairs Committee voted 4-3 in favour of advancing it.

The governor is a keen marijuana advocate and she claims that legalization will yield 11,000 jobs across New Mexico and true economic potential for every part of the state.

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