UPDATE: 3 p.m.

Carson City Judge James Wilson has denied the Nevada Department of Taxation’s request to dismiss a challenge on marijuana regulations that was filed by a group of liquor distributors.

With Tuesday’s decision, the matter is expected to go to an all-day hearing on Monday, where the two parties will argue the facts of the case.

The Department of Taxation is currently under a temporary restraining order requested by the Independent Alcohol Distributors of Nevada (IADON) and is prohibited from issuing marijuana distributor licenses. IADON’s attorney Kevin Benson argued that if the regulations adopted in May stay in place and marijuana companies are allowed to get in the distribution business, liquor distributors could permanently be shut out and would suffer irreparable harm.

The dispute could disrupt the state’s plans to license businesses and get recreational marijuana sales going by July 1.

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A dispute over whether the state edged small-scale liquor distributors out of Nevada’s emergent recreational marijuana business — the source of a possible delay in pot sales to the general public — is up for a court hearing on Tuesday.

The hearing, set for 1:30 p.m. in Carson City, comes two weeks after the court issued a temporary restraining order preventing the Nevada Department of Taxation from enforcing a May 31 deadline for submitting recreational marijuana distributor license applications. If the order stays in place, it could potentially delay sales that were supposed to start July 1.

The Independent Alcohol Distributors of Nevada (IADON) had challenged a set of temporary regulations approved last month. The group, which formally incorporated in April, said a ballot measure approved in November that legalized recreational marijuana carved out a special preference for them in applying for marijuana distribution licenses.

Tax commissioners approved regulations for an “early start” marijuana program in May in spite of concerns that the rules wouldn’t give liquor distributors sufficient time to claim first dibs and would instead let existing marijuana companies snatch up lucrative market share. IADON also argued that allowing marijuana companies to do distribution work would make them too vertically integrated and unlike the liquor regulation system that involves three independent tiers.

The state fired back last week in a motion to dismiss the case, questioning whether IADON has standing. It argues that liquor licensees in IADON have applied under different business entities they created specifically because they feared the federal government could crack down on marijuana and shut down their existing liquor-selling operation along with their proposed marijuana distribution operation.

If it takes more time to create the new business entity and obtain a liquor license for that entity as a way to claim a privileged spot in Nevada’s recreational marijuana supply chain, the state argues in the motion, that’s the fault of the liquor distributor and not the state.

“This is a case of a straw man (IADON) claiming to speak for other straw men (IADON’s purported members),” wrote Chief Deputy Attorney General William McKean. “These liquor wholesale dealers have known of their ability to apply for a marijuana distributor license since November 2016 … The Department is under no legal or equitable obligation to wait for such a person to perfect their scheme for circumventing federal restrictions on their ability to simultaneously distribute liquor and marijuana.”

Marijuana companies’ revenue, and the state budget, are riding on getting recreational sales going as soon as possible. A 2016 study commissioned by proponents of legal recreational marijuana predicted it could drive $394 million in annual sales in Nevada by 2018.

Nevada’s budget assumes $64 million in marijuana revenue from a 10 percent excise tax over the next two years — a projection that assumed sales will launch well before Jan. 1, 2018, the Question 2-mandated start date. Recreational marijuana proceeds are now earmarked for Nevada’s “rainy day” reserve fund, rather than education as the governor originally proposed.

As of Monday, five liquor licensees had applied for a marijuana distribution license, and 324 entities had applied for licenses across all categories, according to taxation department spokeswoman Stephanie Klapstein. The distribution license allows a company to transport marijuana from business to business.

In issuing the restraining order May 31, the judge indicated the liquor distributors could suffer irreparable harm being shut out of the marijuana industry if the deadline were to be enforced. The order restrains the agency from enforcing the deadline, issuing distributor licenses to companies other than liquor distributors or making any determination about whether a sufficient number of liquor distributors have applied and whether the distribution license could be opened up to marijuana businesses.

Feature photo: A man pays the cashier at Reef Dispensaries, 3400 Western Ave., on Wednesday, Feb. 15, 2017. Photo by Jeff Scheid.

Nevada Motion to Dismiss - Liquor Distributors' Marijuana Case by Michelle Rindels on Scribd