Oversight of Nevada’s marijuana industry officially transferred from the Department of Taxation to the Cannabis Compliance Board on July 1, more than a year after lawmakers authorized a transition aimed at regulating one of Nevada’s newest industries more like gaming.
The board came out of the gate at its first meeting last week approving regulations that bring major changes to the industry. It doled out a record-setting fine and license revocations of a troubled marijuana company and announced a handful of complaints that carry weighty fines for violations of COVID-19 directives and marijuana-tracking rules.
But there’s still much work to be done in an industry in flux. Marijuana businesses are just emerging from a monthslong freeze of license transfers, a massive court battle over a contentious state licensing round continues, and regulators have raised serious questions about whether independent labs fudged product test results to curry favor from the marijuana businesses that pay them.
To break down what’s new and what’s ahead as the Cannabis Compliance Board settles in, the board’s executive director, Tyler Klimas, sat down for an interview with the IndyMatters podcast. The written adaptation of the interview has been lightly edited for length and clarity.
Indy: Why has marijuana regulation gone through so many iterations? It started out under the Department of Health and Human Services, then became the purview of the Department of Taxation, and now the Cannabis Compliance Board in just a few years.
Klimas: I've never seen an industry move as fast as this one does. And as it moves that fast, I think there was a recognition that we needed a standalone agency that can properly oversee the industry and that agency that can also move and pivot with the industry's growth.
I also think as we see the revenue numbers come in, we're looking at a cannabis industry here that is a viable source of revenue for the state. So I think it's grown in its place as an industry that's going to contribute to the state budget and it needs to be regulated, but it needs to be recognized and overseen as an important part of the economy.
Q: At its first meeting, we saw the board approve a $1.25 million fine on a company and regulations that raise penalty levels across the board. Why was that necessary?
A: Public trust is such a major component of what we focus on. It has to exist for this industry to move forward. And so properly enforcing the rules and the regulations, not being lax, being strong and strict when needed and then doing it in an open setting … That instills more public confidence and public trust in an industry that, let's be honest, came from the black market.
But it is now legitimate, and we need to continue to work to keep it legitimate and have that public confidence that it is legitimate and it's safe.
Q: Just in the last few weeks, we’ve seen three detailed complaints issued and a detailed notice about a marijuana company that sold products that did not pass testing. Is there more enforcement activity happening now or are we just seeing more of it?
A: Audits and inspections have always been here. The Marijuana Enforcement Division did audits and inspections and they issued civil penalties and fines. But ... the important thing here is that the public needs to have that insight.
So, yes, it was going on. But it certainly had that feeling like it was behind closed doors. There may have been some restrictions there on what they could release. But we don't have those restrictions. We're not going to put those restrictions in place. Data is going to drive our decisions. But we also want that data to be out for everybody to look at and see as well.
Q: The state put a moratorium on license transfers last fall after it was revealed that bad actors were conspiring to enter Nevada’s marijuana industry and bend the rules. The board lifted that requirement last week. Do you feel like we're at a point where we're not going to get infiltrated by bad actors?
Before it was as simple as show us you have $250,000 in your bank account and submit your fingerprints and that satisfied the background check. We're moving much more towards a suitability check.
What you're going to see now when you submit a transfer of interest or you want to change ownership or you want to sell or merge, our investigators … are going to go out and they're going to sit down with you as a licensee, they're going to talk to you face to face. And that interaction to me is so critical in making that recommendation, which is what we'll do to the board.
But to make a recommendation without sitting down with somebody, understanding what move they want to make, understanding their business processes, understanding their financial health, some of them individually and of their business — those are such key components of making some kind of recommendation like that.
We're not going to be able to fly to Macau next week and interview your old high school principal to see why they lent you money, which is what gaming does, and they do it so well. We're not there yet. But what we're doing now is we're kind of putting those foundational pieces brick by brick, and that's where we're gonna go. That's where we want to be. That's how we reach the status of the gold standard in cannabis oversight, which is the charge that Gov. Sisolak gave us.
Q: Nevada’s marijuana regulation agency already had a relatively high vacancy rate. How is the board affected by recent budget cuts enacted by the Legislature?
A: With AB533, we were able to hire 20 additional positions from a roughly 40 person team which was the Marijuana Enforcement Division. During the budget cuts, it's shared sacrifice. There's 10 vacancies that are going to be placed on hold.
So our new positions were cut in half, at least for the time being, which still leaves us with a net gain of 10. And so the day to day operations, the audits, the inspections, I'm not concerned about us continuing to perform those core functions.
Over time, we're going to get those resources back and even expand our resources. That's just going to allow us to be that much more proactive in our approach, but I'm also happy proving to the Legislature, that we are effective in what we do. I think you saw some of that in the last board meeting with some of our enforcement actions. I'm happy to prove that and make that ask for additional resources when it's appropriate.
Q: Do you have enough staff?
A: The more resources you have, the better you're going to be. Compare us to Colorado. I think they have around 150 staff members. So we know where we want to go. And we're going to get there.
We're just getting started here in July but you know, we've enjoyed very strong partnerships with local law enforcement. I speak to local law enforcement agencies almost almost daily.
Where can we force multiply? So working with law enforcement, it's like we've expanded our enforcement capabilities.
[Gaming Control Board Chairwoman Sandra Douglass Morgan] has made her staff available just to lean on that expertise. We entered into an interlocal agreement early on in January, to essentially borrow one of her special agents in compliance to help design our compliance and investigations division. I eventually stole that special agent. He now works with the Cannabis Compliance Board, which he reminds me of every day.
But still, it's just an example of, we are strained on resources, but there is expertise out here. There are other agencies out in the state that we can work with and expand our footprint.
Q: What protections can we see against manipulation of cannabis testing data by labs?
We saw a number of enhancements in [the new marijuana testing regulations], but we have a long way to go. If I could create my own lab inspection division within CCB, I would and hopefully I will one day because that's how big of an issue it is.
They are the gatekeeper of the industry … If Nevadans aren't confident, if visitors to our state are not confident that they're going to go get product that’s safe, that's been tested, not only tested, but accurately tested, that they can trust the results — if they can't do that, then we're not doing our job well.
I'm really confident in our lab inspectors that we have here. I would put them up against any across the nation and we work with our counterparts and see what others are doing. But again, we have a long way to go.
What we do have at our disposal here is data. So in the regulations, you'll see that certificates of analysis, which is what a lab has to submit after they test a product, the regulations that the board adopted are gonna allow us to post those online …
There's just there's no reason not to have that out in the public. It's what we're going to use to regulate. It's what the public should use to educate themselves on the product and what they're using.
Q: Right now there are three board members, but the board is supposed to have five. What can we expect going forward?
A: You saw we had the inaugural board meeting last week with three members. So not having five is not going to delay anything or hold us back anyway.
And the first three board appointments that the governor did — former Chief Justice Michael Douglas, former Gaming Control Board Chair Dennis Neilander, Jerrie Merritt is incredible in her background in banking — and then they've been unbelievable.
I joke with them a lot that it's the most full-time, part-time job that they will ever have in their lives because of the time requirement but they've just been such a good foundational piece for this board to get started. They are board members, yes, but they've all doubled as mentors not only to me, but to this agency.
Obviously, the pandemic kind of threw everything up in the air. And so the governor certainly had his hands full with that, but the other two members will be appointed by the governor, we expect, shortly.
The remaining two members are a licensed physician in the state and then a member who is you know, knowledgeable about the cannabis industry … they can't have any monetary interest in the cannabis licensing. So we're excited to see the remaining two members join this board.
Q: The pandemic has affected everyone, but how has it affected Nevada cannabis businesses in particular?
Q: COVID was was tough on businesses, obviously across the state. The cannabis industry was not immune to those challenges.
This is my personal thought. It's unfortunate that they didn't, and they don't, have the same kind of access to PPP loans and some of the SBA offerings that other businesses do. I get it, I understand at the federal level why (pot is illegal under federal law), but it is unfortunate. I think we're gonna see some licensees close their doors and leave this industry and it's unfortunate ...
Now if you look at sales … April, we took a huge hit. May, we started to come back, and June and July, year over year, they've exceeded sales from last year. Transactions are obviously way down, so consumers are purchasing more product, but our sales are up and I think that's a good sign for the health of the industry.
For a couple months, we were one of the few games in town bringing in tax revenue. So our revenue streams ... I expect them to potentially exceed last year. So, you know, looking at those metrics, they're in good shape.
But yeah, it's been really tough for a lot of a lot of the licensees, especially your cultivation-only facilities who are not vertically integrated. Very, very, very difficult. And hopefully, Congress eventually allows for some more equal access for them and recognizes their status as a legitimate industry that's only growing state by state.