Nevada adopts emergency rules to combat weed bottleneck

John Locher / AP

Distributors previously operating in Nevada’s medical marijuana program may soon enter the recreational marijuana market after the Nevada Tax Commission today approved emergency regulations to reopen distribution licensing.

The Nevada Tax Commission voted to let the Department of Taxation again determine whether limiting licenses for those who transport weed from Nevada cultivation and production facilities to dispensaries only to licensed alcohol distributors — as called on by November’s Ballot Question 2, which legalized recreational use and possession of the plant — would result in a shortage of distributors for the new industry. If so, it would be able to award licenses to previous medical marijuana distributors.

“When businesses operate we get the tax revenue and that’s what the state wants,” testified Deonne Contine, director of the Nevada Department of Taxation, at today's hearing. “We need to do everything we can to get more distributors licensed so these businesses can continue operating.”

Contine drafted the combined seven-page statement of emergency and regulations on July 6.

Gov. Brian Sandoval endorsed the emergency regulations with his signature on Friday.

The department said in a March draft of recreational marijuana regulations that it found “an insufficient number of marijuana distributors” existed by limiting the industry only to licensed alcohol distributors, but it did not include that statement in its final regulations for the “early start” program released May 8.

On June 20, Carson City Judge James Wilson of Nevada’s 1st Judicial District Court awarded the Independent Alcohol Distributors of Nevada with an injunction, ordering the Department of Taxation to remove the other 87 nonalcohol distribution applicants from consideration for licenses.

Contine said in last week’s statement that none of the seven alcohol wholesale distributors passed department evaluations to begin distributing, adding that a lack of supply for marijuana dispensaries and no legal way to restock them as a result of the court-issued injunction would soon cause the booming recreational weed industry to “grind to a halt.”

“Without the ability to license marijuana distributors to continue the flow of product to a retail store, a high likelihood exists that consumers will revert to the black market,” Contine wrote.

Several speakers at today’s hearing argued against the emergency regulations, accusing the Nevada Department of Taxation of discriminating against alcohol distributors and working to push them out of the industry.

Las Vegas attorney Michael Hagemeyer, one of three attorneys representing the Independent Alcohol Distributors of Nevada in earning the June 20 injunction, cited Ballot Question 2’s campaign to “regulate marijuana like alcohol,” adding that a three-tier system used by liquor industry distributors would provide the best way for the recreational marijuana industry to maintain regulatory checks and balances.

“There’s a huge distinction between medical marijuana and recreational marijuana,” Hagemeyer said. “As the law reads, Nevadans voted for recreational marijuana to have a three-tier system.”

Hagemeyer rebuffed a perceived shortage in the number of alcohol distributors and their ability to soon transport weed across dozens of cultivation facilities, production facilities and dispensaries statewide. If given a fair chance to receive credentials from the Nevada Department of Taxation, more alcohol distributors would apply and pass inspections, Hegemeyer said.

“They do it in the alcohol industry and are more than capable of doing it in a recreational marijuana model” he said.

Another IADON attorney, Kevin Benson, testified from Carson City that alcohol distributors were at a disadvantage in the new industry because they did not had adequate time to meet Department of Taxation regulations during the brief application period for distribution licenses, which began on May 8.

Benson said current distributors in the medical marijuana industry had more than two years to implement best practices because they started distributing the plant as early as July 2015.

He criticized a March draft of Department of Taxation regulations stating that there were not adequate liquor distributors for the industry to base its wholesale distribution only on the alcohol distributors.

“The department was essentially telling them thanks but no thanks,” Benson said. “It’s hard to fault anyone for not immediately applying under those circumstances.”

Today’s approval of regulations represented a step in the right direction for those in the marijuana industry, including dispensary owners who said their pot supply was running low after dealing with larger-than-expected sales during the first 12 days of recreational marijuana sales. The industry reported 40,000 retail transactions across 47 open dispensaries during the first two days of sales.

“Not solving the distribution issue would lead to major disruptions and ultimately threaten the program that Nevadans voted for,” said Andrew Jolley, president of the Nevada Cannabis Association and owner of The+Source dispensary in Las Vegas. “I support the department’s recommend to open up distribution to all eligible companies, including alcohol distributors, who are licensed and meet all of the criteria required to operate in this industry.”

Jolley and other pot store owners reported sales increases at least five times their normal consumer output from the previous medical-only industry, which kicked off in July 2015.

While many weed license holders spent months stocking their dispensaries with the plant before distribution regulations took effect on July 1, higher-than-expected sales left some dispensaries running out of marijuana products.

“We don’t want customers to walk away angry because we don’t have the product they want and that they’re used to buying here,” said owner Frank Hawkins of Nevada Wellness Center. “And for the state and customers, we don’t want to lose the momentum that we have. Without question, this is impactful.”

Opening recreational distribution licenses to those who successfully operated in the medical marijuana industry would help the new recreational industry continue a stream of tax revenue estimated to reach $90 million to $120 million by June 2019, NDA Executive Director Riana Durrett said. An operating legal industry also prevents black market sellers from illegally selling the plant, she said.

“It means tax revenue for the states, jobs and taking black market crime out of the industry,” Durrett said. “You can’t move product without distributors and you can’t do business.”

The emergency regulations adopted do not provide a timeline for issuing distribution licenses, but both Durrett and Contine said they expected the licenses to be issued by the end of the month.