Despite boisterous complaints from liquor distributors, members of a state tax board approved a set of last-minute regulations on Thursday designed to open up distribution licenses for the state’s nascent retail marijuana industry, amid fears that stores are quickly running out of product to sell.
Members of the state’s Tax Commission — an appointed eight-member board that governs the state’s Department of Taxation — unanimously voted to approve the emergency regulations — introduced on Friday and backed by Gov. Brian Sandoval — that could pave the way for a larger group of businesses to apply for and receive licenses to transport marijuana between growers and retail stores.
At issue is a provision in the recreational marijuana ballot initiative approved by voters in 2016, giving smaller-scale liquor distributors the exclusive right to transport the product between cultivators and retail stores for the first 18 months of retail sales. Alcohol distributors, eager to tap into a potentially lucrative market, filed and won an injunction blocking the state from declaring a shortage of distributors in early July after complaints that state regulators unfairly excluded them from the licensure process.
Immediate relief won’t necessarily come immediately out of the freshly adopted regulations — tax department Director Deonne Contine told commissioners that it would take at least two weeks to officially assess whether an insufficient number of licensed liquor wholesalers existed to serve the distribution needs of recreational marijuana stores throughout the state, including time for a public meeting and for marijuana establishments to complete a survey.
But marijuana advocates nonetheless were celebrating on Thursday, in part because state tax officials also announced Thursday that they had issued marijuana distribution licenses to a pair of liquor distributors — Crooked Wines and Red Rock Wines — almost two weeks after starting recreational sales on July 1.
Nick Schook, a “first mate” at the Apothecary Shoppe (roughly equivalent to a standard Chief Operating Officer), welcomed news of the regulations being approved, saying it took a “giant moving target” off the back of dispensaries, who had stocked up on product ahead of uncertainty over how quickly distributors could be licensed and begin operating.
“We had prepared to last until August, but now that this is happening, we can breathe a little bit easier,” he said.
Contine said that the department was reviewing five other licenses, but urged the commission to accept the regulations over concerns that the relatively few number of liquor distributors who had filed applications wouldn’t sufficiently meet the supply needs of the 47 retail marijuana stores operating in the state.
“This regulation is to give us the structure to make that evaluation, to make that determination, that we need more applicants, essentially, to serve this market,” she said.
State tax officials said on Friday that they filed for the emergency regulations over concerns that failing to adequately secure supply for marijuana stores could quickly blow a hole in the state’s budget. Taxes from recreational marijuana sales are earmarked to the state’s “Rainy Day” reserve budget, and are expected to bring in roughly $64 million over the two-year budget cycle.
“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,” the department said in a statement. “A halt in this market will lead to a hole in the state’s school budget.”
Nevada Dispensary Association director Riana Durrett said that several recreational dispensaries have begun to run out of certain marijuana products, primarily edibles, but that it would be several weeks before customers wouldn’t be able to “conveniently access” desired marijuana products. While she welcomed the news of the initial licenses, she said that most alcohol distributors were largely ill-equipped to take on the many regulations and legal requirements required of transporting marijuana — such as background checks, training employees on inventory control, ability to do same-day delivery and setting up video cameras accessible by law enforcement.
“They needed to get started a couple of years ago,” she said. “It took the marijuana establishment years to get their doors open.”
Other industry members laid out a list of concerns with relying on the liquor industry, from sensitive and unique needs of associated with transporting cannabis plants compared to alcohol to the need for a competitive market.
“I can tell you that regardless of what happens, seven distributors can’t distribute to 48 dispensaries,” prominent Las Vegas developer-turned-dispensary owner Randy Black said.
Several licensed alcohol distributors testified that adopting the regulations would in essence ignore the direct language of the ballot initiative approved by voters during the 2016 election.
Attorney Michael Hagemeyer, representing Red Rock Wines, said that approving the regulations would amount to the state “glossing over” language approved by voters calling for marijuana to be regulated just like alcohol, including a three-tiered system separating production, distribution and retail sales from common ownership.
“That’s inappropriate,” he said. “That’s not what the voters voted for, it’s not what the ballot initiative said, that’s not what the statute provides for.”
Despite efforts by state tax officials to grant themselves broad discretion on potentially waiving the requirement if they determined there weren’t a sufficient number of liquor distributors available, a Carson City district court judge sided with the liquor distributors in a court battle and granted an injunction that prohibits non-liquor distributors from receiving a distribution license for the time being.
The decision is being appealed at the Nevada Supreme Court, which has granted the case an expedited timeline.
Kevin Benson, an attorney who represents the Independent Alcohol Distributors of Nevada, said that the state was responsible for a self-inflicted wound by failing to work with distributors ahead of time and through rushing the licensure process.
“All of this really could have been avoided if the department had reached out to distributors,” he said. “There was no conversation. So here we are today.”
Commissioner Thom Sheets said he was unsure when retail stores would be able to access immediate relief, and said that the injunction issued against the department was making life difficult for both state officials and retail marijuana stores.
“It seems not to consider the dynamic in southern Nevada and what’s going on down here,” he said of the court order. “It’s one thing to be in Carson City, where the city government isn’t allowing this stuff. It’s another thing to be down here, where there’s tourists and locals. You need to take that into consideration, and they need product to sell, or potentially this thing shuts down.”