Survey says: Marijuana companies frustrated with high taxes, new distribution rules; judge rules in their favor
UPDATE: 2:30 p.m. Aug. 17, 2017
A Carson City judge has lifted a temporary restraining order from the Nevada Department of Taxation, clearing the way for the agency to issue marijuana distribution licenses to companies other than liquor licensees.
Judge James Russell denied a preliminary injunction on Thursday, a week after the agency pronounced there were an insufficient number of liquor licensees interested in doing pot distribution and applications should be opened up more broadly. The Independent Alcohol Distributors of Nevada have notified the department that they are seeking a stay on the agency’s decision and will appeal it to the Nevada Tax Commission.
A spokeswoman for the tax agency said the department had planned to start processing the 80-some applications for distribution licenses from non-liquor licensees but also indicated they had received the notice of appeal. It wasn’t immediately clear if additional licenses would be issued in the meantime.
There are currently seven licensed distributors serving 53 marijuana stores statewide.
A state survey of Nevada’s marijuana stores reveals not just frustration that independent liquor distributors are part of the supply chain, but exasperation about the high taxes pot businesses face.
Dispensaries mostly maintained a unified public front during the legislative session in support of the recreational tax structure, which includes a 15 percent wholesale tax, a 10 percent excise tax, and sales taxes that vary by county, on top of thousands of dollars in local and state licensing fees. But they were more candid in their criticism in a survey the Nevada Department of Taxation took last month to pinpoint marijuana business’ distribution needs.
The Nevada Independent reviewed hundreds of pages of survey responses, which were submitted by 65 marijuana establishments and 17 liquor distributors.
“Taxes, licensing, and other fees have already made it difficult to be profitable,” wrote one respondent, whose name and company were redacted and who complained that a distributor quoted a 10-17 percent fee for making deliveries. “That is just one more large fee that makes it even more difficult to stay operating.”
Another singled out a 15 percent wholesale tax, which was part of the recreational marijuana ballot measure approved by voters in November and was extended to medical marijuana by the Legislature.
“With new 15% WS tax additional distribution fees will drive the price up to (sic) high customers are already going to the black market,” wrote another respondent. “This is an additional layer the industry does not need and I do not see how we can afford it.”
The five-month-long battle over marijuana distribution will continue on Thursday, when the taxation department and liquor distributors are set to meet in a Carson City courtroom over a motion for preliminary injunction. Although agency Director Deonne Contine declared last week that liquor licensees are insufficient to serve the pot market and thus cleared the way for marijuana businesses to get a distribution license and deliver product to themselves, a judge blocked that directive, raising questions about how fair the hearing was to liquor distributors who want to claim exclusive rights to distribute for the first 18 months of recreational marijuana sales.
As of Wednesday, there are seven liquor licensees authorized to do distribution to 53 retail stores, although agency spokeswoman Stephanie Klapstein said she wasn’t sure whether more than one or two of the licensees were fully operational.
Marijuana business owners — most who turned in their questionnaire in mid- to late July when even fewer distributors were up and running — largely panned the idea that there was a designated distributor license in the recreational market, and were very negative about liquor distributors exclusively claiming it. Nevada’s medical marijuana law specifies nothing about dedicated distributors.
“Bottom-line distributors are not needed. The Medical Marijuana program has been running flawlessly without distributors,” one respondent wrote. “The only time it makes sense is transporting from Las Vegas to Reno. The only thing distributors will add is an additional cost to the end user and possible contamination of products.”
They raised concerns about the security of adding another layer in the delivery process, questioned whether liquor distributors understood their needs, insisted they could move product more cheaply if they controlled it and argued they could be more responsive to customer needs if they just did it themselves.
“Medical distribution has been seamless, Why are we changing this? We are already socked with hundreds of thousands of dollars in taxes, licenses etc. This is just another unnecessary costs (sic),” wrote one.
One called the arrangement “a complete joke,” another called it “EXTREMELY problematic,” and another had four words for distributors: “they are blood suckers.”
But as part of a political compromise meant to ease passage, distribution was included in the ballot measure language. Without a decision in their favor from the courts that would allow marijuana companies to be their own distributors, they’ll have to live with the arrangement for the near future — lawmakers aren’t allowed to make any changes to a measure passed at the ballot for three years after it takes effect.
A resolution can’t come fast enough for some marijuana companies struggling with a busy but rocky first few weeks.
“This is something that [needs] to be remedied or we will need to close the doors,” one said.