Saying that some recreational marijuana stores risk running out of fresh supply in a matter of days, the Nevada Department of Taxation is seeking an emergency regulation that would pave the way for opening up the distribution role to more than just liquor distributors.
The department issued a statement Friday saying Gov. Brian Sandoval is supportive of their regulation, which still needs final approval from the Nevada Tax Commission at its July 13 meeting. They noted that no liquor distributors have been issued state licenses yet, and one that awaited a final facility inspection this week told the department they weren’t ready and declined the inspection.
“The business owners in this industry have invested hundreds of millions of dollars to build facilities across the state. They have hired and trained thousands of additional employees to meet the demands of the market,” the agency said in a statement. “Unless the issue with distributor licensing is resolved quickly, the inability to deliver product to retail stores will result in many of these people losing their jobs and will bring this nascent market to a grinding halt. A halt in this market will lead to a hole in the state’s school budget.”
Wholesale marijuana taxes are devoted to the main public education fund, the Distributive School Account, while an estimated $64 million in recreational marijuana excise taxes over the next two years is dedicated to the state’s reserve account. Industry members estimated raking in roughly $3 to $5 million in gross receipts over the first weekend of legal sales, which began July 1.
The move is the latest volley in a months long dispute between the taxation agency and smaller-scale liquor distributors, who say the ballot measure approved by voters in November gives them an exclusive right to transport the product from cultivation and production facilities to retail stores for the first 18 months of recreational sales. A judge sided with them in a court battle, ordering an injunction that prohibits non-liquor licensees from getting a distribution license for the time being. The matter is being appealed at the Nevada Supreme Court.
While groups including the Nevada Dispensary Association have publicly stayed out of the fray, dispensaries are eager to keep sales rolling to recoup their heavy capital investments. If they prevail, marijuana companies could be fully vertically integrated — meaning entities with the same owners could be involved in cultivation, production, delivery and retail sales.
Liquor distributors say they want to be involved to provide a layer of independence in the supply chain, similar to the liquor industry’s Prohibition-era three-tier system where ownership in multiple tiers is banned. Kevin Benson, a lawyer representing the Independent Alcohol Distributors of Nevada, didn’t immediately respond to a request for comment on Friday’s development, but said in an interview earlier this week that the taxation agency has rushed the process in an apparent attempt to make it prohibitively difficult for liquor distributors to claim their first dibs.
Seven liquor distributors have applied to get involved in marijuana distribution. The proposed regulation would create a structure for the taxation department to determine whether there are an insufficient number of liquor distributors to serve the market based on factors such as historical demand for marijuana and operational needs of dispensaries including 24-hour deliveries. That could pave the way for marijuana businesses to enter.
Vagueness in state regulations on how to make that determination of insufficiency was one of the flaws cited by the judge who ordered the injunction. Taxation officials argue they need to act now, saying reports indicate demand is “already far exceeding the industry’s expectations at the state’s 47 licensed retail marijuana stores, and the reality that many stores are running out of inventory.”
“We continue to work with the liquor wholesalers who have applied for distribution licenses, but most don’t yet meet the requirements that would allow us to license them,” they added.
Riley Snyder contributed to this report.
Feature photo: A couple from Texas purchase marijuana at The Apothecary Shoppe on Saturday, July 1, 2017. (Jeff Scheid/The Nevada Independent)