Update: Progress of Nevada's pot market again held up

Editor's note: This story has been updated to reflect the most recent developments.

Just as quickly as the state had permission to open up the application process for recreational marijuana distribution licenses, the state again had its hands tied.

Carson City District Court Judge James Russell granted the Nevada Department of Taxation the right to broaden the pool of applicants eligible to deliver recreational marijuana to the more than 50 retail dispensaries statewide.

"It appears to the court that there is a need for additional distributors over and above the alcohol distributors," Russell said in court on Thursday.

He noted, however, that Nevada Tax Commission could undo that privilege if it receives an appeal from the alcohol distributors, who want exclusive recreational marijuana distribution rights. Thereafter, those distributors filed an appeal, according to the Las Vegas Review-Journal, preventing the state from moving forward with issuing any license to non-alcohol distributors.

Dispensaries statewide have reported a one to two week wait for product, which has led to a 20 to 30 percent drop in sales since the market took off, as well as a 65 percent decrease in product variety, according to a taxation department report released last week.

More: Nevada's marijuana sales down, product suffering as program 'limps along'

More: Can you smoke pot at Burning Man legally? It's complicated

The new market's struggles are in large part due to the fact that only one alcohol distributor, Crooked Wine, has been able to get up and running. That's only because it partnered with a medical marijuana distributor, Blackbird, which is handling all of the operations.

Alcohol distributors, who were promised exclusive distribution rights in the original November ballot measure legalizing recreational marijuana, were deemed too few and too unprepared, according to a report by the state Department of Taxation released late last week at a public hearing in Las Vegas.

Alcohol distributors argued that they have not had a fair opportunity to counter arguments made during the hearing by Department of Taxation Director Deonne Contine.

"I’ve never been sandbagged like I was for this hearing," said attorney Michael Hegemeyer, who represents one of the alcohol distributors, Mighty Sun West, which currently holds a marijuana distribution license.

Hegemeyer testified in court that the taxation department not only told him that the department did not release any of the hearing documents to the public in advance, but he received no notice of witnesses that were testifying in favor of the department's stance at the time.

Kevin Benson, the attorney for the Independent Alcohol Distributors of Nevada, a handful of alcohol distributors who formed earlier this year, also noted that Contine had determined that the department would move forward with opening the application process to marijuana establishments before the hearing took place. Contine, after all, had produced a document determining that the department would open the application process before the public meeting.

"You don't think the thumb is on the scale at that point?" Russell asked Michelle Briggs, senior deputy attorney for the state's Office of the Attorney General.

Briggs admitted that, yes, Contine had come to that conclusion before the meeting last week, but only because she'd already collected evidence via surveys completed by more than five dozen marijuana establishments and more than a dozen alcohol distributors.

Russell last week had ordered the state to hold off on issuing any distribution licenses, but said Thursday in court that he is remanding that right to the Nevada Tax Commission.