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Economy & Business | Government | Marijuana

A boycott of liquor distributors? Marijuana companies deny it, win latest battle

People stand in line at The Apothecary Shoppe to purchase recreational sales on the first day of sales in Nevada. Photo by Jeff Scheid.

Liquor distributors who want to keep the exclusive right to distribute recreational pot in Nevada accused marijuana companies of boycotting them to create the perception of a shortage and then snatch up distribution licenses for themselves.

Still, the Nevada Tax Commission ruled against the Independent Alcohol Distributors of Nevada (IADON) on Tuesday, unanimously rejecting their appeal of an Aug. 10 decision by the Nevada Department of Taxation. The agency had declared that there weren’t enough liquor distributors to serve the recreational pot market so the distribution role should be open to marijuana businesses too.

IADON had argued that there wasn’t enough due process in the hearing earlier this month, including a chance to cross-examine witnesses, and that the taxation department had pre-written a statement read at the end that said evidence from the hearing pointed to insufficiency. The state pushed back by saying it didn’t need to achieve the high due process standard and that pre-writing a statement is normal.

Taxation spokeswoman Stephanie Klapstein said it wasn’t immediately clear if the department would start issuing distribution licenses to the 80-some marijuana businesses who have applied. The dispute between the state and liquor distributors, which has been brewing since March, is also moving through the courts and is scheduled for arguments before the Nevada Supreme Court on Sept. 6.

But what dominated the discussion during a five-hour hearing was whether the seven licensed marijuana distributors were sufficient to serve a market that includes more than 50 stores, or whether the complaints that dispensaries were making about late deliveries and inadequate product monitoring were their own fault, brought about because they mostly relied on a single distributor and weren’t seeking help from new companies that are entering the market.

Liquor distributors testified that they had been reaching out to marijuana companies to try to make business connections, but weren’t getting callbacks or were given the runaround by other employees and not put in touch with decisionmakers. Several marijuana dispensaries said they’d never been contacted by liquor companies, and if they did, the proposals were unspecific.

“What we heard today is a continuing example of the inability or unwillingness of the industry to work with the alcohol distributors,” said Michael Hagemeyer, an attorney for Red Rock Wines, a member of IADON. “Those in the industry will continue to avoid using alcohol distributors in order to foster a finding of insufficiency so they can get their distribution license and self-distribute.”

Liquor distributors and marijuana companies have gone head-to-head since mid-March over whether business-to-business marijuana transportation should be the purview of liquor licensees for the first 18 months of sales. Voters approved ballot measure language in 2016 specifying that only liquor licensees should have those rights, but it included the caveat that it could be broadened if the agency determined there were an insufficient number of liquor licensees doing the work.

Ever since, the two sides have been fighting over how to properly determine whether there are a sufficient number of distributors. The state is not allowed to change the law that voters approved for three years.

The department has now issued seven marijuana distribution licenses to liquor licensees; they are serving more than 50 retail stores. There are 29 transport vehicles that have passed a state inspection, the agency said.

Hagemeyer argued that marijuana companies are intentionally avoiding hiring liquor licensees that could do the job and then complaining about poor service because they stand to gain financially if they can get liquor distributors out of the supply chain. If the state opens up marijuana distribution to the dispensaries themselves, they could become fully vertically integrated, lowering their costs.

He pointed to an Aug. 22 letter from TerraTech, which owns the chain of Blum dispensaries, to the Tax Commission.

“Blum has suffered significant financial harm due to the insufficient number of licensed marijuana distributors holding wholesale dealer licenses,” wrote Mikel Alvarez, director of retail operations. “Blum has been unable to obtain products in a timely manner, which results in loss of sales and increased labor costs.”

But on an earnings call two days later, Hagemeyer said, TerraTech’s CEO said things were fine in Nevada and there were no problems with access to product. He told shareholders that the company had done $2.2 million in sales in Nevada in July alone.

IADON argues that voters approved a system that worked more like the Prohibition-era three-tier system that governs alcohol and is meant to ensure integrity through three distinct layers in the supply chain. The ballot measure was promoted by a group called the Coalition to Regulate Marijuana Like Alcohol, and authors of the initiative acknowledged that they included liquor distributors in the language because they wanted to garner support from Nevada powerful alcohol industry.

Marijuana industry officials stridently denied that they were trying to make the liquor licensee-led system fail.

“No one in the industry is blackballing anybody,” said Andrew Jolley, owner of The Source dispensary and president of the Nevada Dispensary Association. “Everybody I talk to is more than happy to work with liquor distributors, as am I in my company. It’s simply a matter of who can serve the market today, who’s up and running, who has a demonstrated track record.”

The company that most are working with — Blackbird, which did medical marijuana distribution before recreational sales began — did more to demonstrate their software and other processes to give companies confidence in their abilities, marijuana business owners testified. There’s concern that liquor distributors don’t know the needs of marijuana and would do something to spoil the products.

“I’ve known cultivators who treat these plants like they’re their children,” said Stephanie Till, a public relations representative for marijuana-focused firm K&H Consulting. “So imagine the amount of money that goes into these products and then to hear they’re on a loading dock.”

They also accused the liquor distributors of bungling the market out of greed.

“It’s a small group of people who want to have an oligopoly or a monopoly,” Jolley said. “And that’s just not right.”

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