Nevada’s new Cannabis Compliance Board has adopted a fresh set of regulations to govern the marijuana industry and lifted restrictions that have been holding up license transfer requests since allegations of shady conduct emerged last October.
The board, which only has three of the five members it is intended to have, assumed oversight of the cannabis industry effective July 1. The Nevada Department of Taxation most recently had jurisdiction of marijuana regulation, but the Cannabis Compliance Board was designed to have a singular focus on the marijuana realm and oversee the industry in a manner similar to the well-respected Gaming Control Board.
Members unanimously approved new regulations in their inaugural meeting on Tuesday, after draft regulations were in review and subject to comments for several weeks. Among the biggest changes is an across-the-board increase in penalties for marijuana companies found in violation of the rules.
The regulations also broaden the definition of “person” so that the board can conduct background checks not just on individuals, but on business entities that seek approval to own a marijuana business.
One point of active contention is a provision allowing for waivers of some licensing processes for people who own a stake of less than 5 percent of a cannabis company. Strict requirements for vetting part-owners of businesses have been a significant impediment to publicly traded companies, which sometimes have large numbers of shareholders, participating in Nevada’s industry.
The board retains discretion to grant a waiver on those requirements, and member Dennis Neilander said the board still feels bound by Nevada law to uphold standards among people who hold small stakes.
“One of the biggest concerns we have is the 5 percent or less rulings because of the underlying requirements of what a licensee has to comport in terms of interest, crimes, child support, a number of things,” he said. “And at this point, we are not free to not enforce those requirements on those individuals who are 5 percent or less.”
The board also lifted a sweeping moratorium on the transfer of marijuana licenses that took effect in October 2019. The state had imposed an “extended review period” for transfers because of news that bad actors had been trying to enter the industry, and because the Marijuana Enforcement Division lacked certain vetting authority under the previous regulations, according to Cannabis Compliance Board Executive Director Tyler Klimas.
Transfers are common, and can result from things like shareholders wanting to sell out or going through a divorce. But critics had argued the process of transferring a license, before the “extended review” policy was enacted, was too much easier than the initial application process, and could lead to unsavory characters getting a foothold in the industry.
Klimas said there are now 92 outstanding requests to transfer ownership interests, ranging from simple requests for a person to withdraw as an owner to “extremely complex” requests for transfers involving publicly traded companies with complicated ownership structures. Some companies have said the freeze has already stymied highly lucrative acquisitions.
Staff members have already done preliminary work to address the backlog and Klimas said he expected more than 20 percent of the outstanding requests could be ready for board review at the next meeting in August. But getting through the entire backlog could involve several phases, he said.
The board’s next meeting is scheduled for Aug. 25.