Seth A. Richardson

srichardson@rgj.com

The ballot initiative to legalize recreational marijuana in Nevada could mean a huge windfall for those already in the industry.

Want to learn more about Question 2, join us for Battle Born Politics at 6 p.m. Wednesday, Oct. 5 at Craft pub. We'll host a discussion on the pros and cons of legalizing recreational pot in Nevada.

RGJ hosts Battle Born Politics on ballot initiatives

Nevada is one of five states that will consider legalizing recreational marijuana come Election Day.

If Question 2 passes on Nov. 8, people age 21 and older would be allowed to own as much as one ounce of marijuana or one-eighth ounce of concentrated marijuana. It also includes provisions for home growing. Driving while impaired would be illegal, and businesses would still be able to prohibit marijuana use. Local governments would not be able to enforce prohibition laws, although they would have say over zoning for dispensaries.

Opinions on marijuana have relaxed in recent years. A Quinnipiac University poll in June showed a majority of Americans now favor legalization, even as the federal government and most states still practice prohibition.

Opponents of legalization argue it will do more harm, adversely affecting Nevada’s infamously troubled education system. They also say the state simply isn’t ready for it.

Proponents argue marijuana is safer than other legal vices such as alcohol and tobacco, would help ease some of the strain on the criminal justice system and legitimize a black market.

But one of the main talking points is always money.

Marijuana, Inc.

Recreational marijuana initiatives have popped up in several states since 2012, when Colorado and Washington voted to legalize private use. Washington, D.C., also voted to legalize recreational use in 2014, but Congress blocked it.

Colorado saw sales of nearly $1 billion in legal pot in 2015. Washington state’s sales lagged at first because of higher taxes. Once those were loosened, sales climbed, with more than $650 million in sales in 2016, an almost $170 million increase from the previous year.

Legalization advocates don’t expect Nevada sales as high as Colorado’s, even with its robust tourism industry. The Coalition to Regulate Marijuana Like Alcohol projects $393 million in sales in 2018, a possible $1.1 billion in economic impact by 2024 and around 6,200 jobs.

Jim Hartman, president of the anti-Question 2 group Nevadans for Responsible Drug Policy, said the business arguments against legalization go deeper than possible tax dollars and education funding.

“What we have in Nevada are people who are offering this initiative are exactly analogous to somebody from Phillip Morris writing the tobacco laws for the state of Nevada,” he said.

Hartman argued that those already in the industry with medical marijuana dispensaries, as well as several other interests in the state, are getting an unfair advantage in the initiative. Already a difficult industry to break into because of high costs, Hartman said the initiative would give wealthy dispensary owners complete control over the market.

Ohio also had a legalization initiative in 2015 that failed. The bill wrote specific companies into the legislation itself, inviting loads of backlash, even from the pro-marijuana community.

Joe Brezny, the spokesman for the Coalition to Regulate Marijuana Like Alcohol, said the Nevada initiative wasn’t like Ohio’s, but did include more barriers than other states'. More importantly, it was about passing a law the Legislature was too afraid to act on, he said.

Part of that was building a coalition and taking into consideration a way for Nevada to transition smoothly from just medical marijuana to fully recreational.

“The opponents are trying to have it both ways,” he said. “They’re saying this is a bunch of rich guys getting richer and it’s going to be all over the place.”

A leg up for medical marijuana dispensaries

The initiative itself does have several beneficial provisions for current marijuana businesses.

For the first 18 months, medical marijuana dispensaries would be first to market with recreational dispensaries. Startup costs for the medical industry are already stringent, with the application alone running $5,000 and startup costs easily reaching six figures. Specifics of the application process for recreational dispensaries aren’t included in the initiative, but the $5,000 application fee is.

Those high barriers freeze out average Nevadans, Hartman said.

Brezny conceded there likely weren’t going to be mom-and-pop marijuana stores, likening it to the gaming industry, which is mostly owned by large corporations.

“Even though we don’t have an ethical issue with gaming, even though when you get off the airplane, the first thing you hear is, ‘Bing! Bing! Bing! Bing! Bing!’ of the slot machines, we still don’t want them on every corner,” he said. “We want to be able to say where these are going to be. We want the people who do it to be vetted to a gold standard that the rest of the world emulates.”

Brezny said the reason for giving medical marijuana dispensaries carte blanche for the first 18 months was simple: they already know how the business works. Other states like Colorado and Oregon followed similar procedures when transitioning since medical dispensaries are already familiar with regulations.

Plus, they’re already zoned for business, Brezny said.

“If you look at the one in Ohio, they tried to give the licenses to 10 people forever,” he said. “With this, there are hundreds of businesses that have been doing the medical marijuana work for what will be a couple of years. This is the same path that they took in Colorado to say, let’s let the medical marijuana people to go first and let others in after that.”

The people behind the pot

But transparency has been an issue with the medical dispensaries, some of the owners and investors of which have hidden behind corporate shells. The city of Sparks redacted the names of business license holders who own dispensaries. The Reno Gazette-Journal filed a lawsuit to make the ownerships public information. A judge ruled in February the city had to identify who the owners were, though the case is still ongoing.

Transparency does need fixing, Brezny said, but that should be the job of the Legislature.

Will Adler, political director for the same organization as Brezny, said he was comfortable even with the transparency issues. Adler is also the chief lobbyist for the Nevada Medical Marijuana Association, the primary lobbying group for the medical industry.

“I have a comfort level because I know black market influences and literal bad characters cannot get in,” he said. “You have to go through a state and federal background check. You have to continue to go through those every year if you have any stake in these.”

Mikel Alvarez, a senior representative for medical dispensary Blüm in Reno, acknowledged those already in the industry stand to make money with the 18-month window, but didn’t think it created an unfair advantage.

“They just have the infrastructure down,” he said. “I don’t see a problem with it because the intent is we’re ready to take patients right way. We’re already set up for that and ready to go.”

Michael Bove, a partner at the Kanna dispensary in Reno, also said the marijuana industry isn’t just for the wealthy and connected, like Hartman claims.

“I’m 31 years old and I don’t have millions of dollars,” he said. “I got this license through hard work and through my own money. Once I got it, yeah, I took on investors, but I think that’s the same thing for any business. You need money to make money. Investors get that privilege, but you have to get there in the first place.”

Liquor distributors benefit, home growers don't

The liquor distribution companies also get their cut of the potential profits since they’re the only companies that can transport marijuana from grower to dispensary.

Giving the liquor distribution companies the initial contracts was a matter of infrastructure, Brezny said, adding he would’ve rather a security firm take the contract, but insurance issues prevented them from doing so. Several representatives from liquor distribution companies did not respond to requests for comment.

Hartman also pointed to one provision as an argument against Question 2’s libertarian appeal. Nevadans would be barred from home growing within 25 miles of a licensed dispensary.

"If you start putting 25-mile radius around all of the marijuana stores, you’re essentially making illegal cultivation for the small, six-plant grower," Hartman said.

Where will the dispensaries go?

Dispensaries are allocated by county size, with 80 allocated to Clark County, 20 to Washoe County, four to Carson City and two to the other 14 counties.

Assuming each of the largest cities in the state have at least one dispensary, this bars the majority of the population from growing within their homes. Carson City, Clark and Washoe counties account for around 90 percent of the state’s population.

Brezny said there is nothing nefarious behind the home growing ban. Rather, it’s a holdover from the medical marijuana bill where the 25-mile halo is in effect.

Had they not included this portion, the initiative would have been tied up in court as it would be in direct conflict with the medical marijuana law, Brezny said.

“The industry is not afraid of home grow,” Brezny said. “It ties us to our activist base. It ties us to the patients who got us started. And it brings them into the shops and they’re constantly buying new clones and new strains. And honestly, most of them can’t grow worth a crap. They kill their clones and buy more.”

More government, but more revenue too

Pat Hickey, co-chair of Nevadans for Responsible Drug Policy, argued there would be a business cost to the state, which would have to oversee licensing, taxation and any other regulations.

“This is going to have to be a huge growth of government, and front-ended,” he said. “No monies are going to come in for 12 or 18 months, assuming there aren’t any lawsuits, which a lot of people expect there will be from small growers and things.”

Cannabis tax revenue isn’t a saving grace in terms of taxes, but it has raised at least some money. Fiscal year 2016 saw Colorado collect around $85 million in tax revenue.

The Coalition to Regulate Marijuana Like Alcohol projected around $60 million in revenues, including $20 million for schools.

All revenues would be earmarked for education and enforcement of the act. Even with some estimates as high as $20 million per year in revenue for education, that accounts for less than one percent of education funding.

Still, that is money that otherwise wouldn’t be realized by the state, no matter how small, Brezny said.

“This is money that simply isn’t there now,” Brezny said. “It’s not there for the state of Nevada, but that economic activity is going on. It’s just cartels and gangs and drug dealers with it.”

Opposition despite Nevada's history of vice

While the initiative itself could benefit the marijuana industry immensely, the business community is hardly on board. Several large business organizations, including the Nevada Resort Association, have expressed either hesitation or outright opposition to the measure.

Despite the possibly large market and new businesses that could come to the state, among its detractors is The Chamber, which represents thousands of businesses in Northern Nevada.

Tray Abney, director of government relations for The Chamber, said the biggest concern wasn’t ethical, but practical. Medical marijuana is just getting started in the state and there are a lot of unanswered questions about what recreational marijuana means for the average workplace, he said.

“Obviously we also have some concerns with workers’ comp issues and workplace safety issues,” he said. “While we can test for impairment with alcohol, there’s really no way to measure impairment yet for THC or marijuana. We’ve also heard from and seen evidence from the Denver visitors bureau that there’s been some issues there with conferences and people concerned with bringing their conferences to that community.”

However, detractors' claims are somewhat stifled by the fact that Nevada's economic bread and butter has long been vice.

The state relies on gambling – and, by extension, alcohol – for a large portion of its state funds at more than $1 billion per year. Gaming and resorts make up a disproportional amount of the largest employers in the state.

That massive industry helps bring in more than 40 million visitors annually and is the main driver of Nevada’s economy. Adding a potential $390 million to that tourism market would be beneficial to the state as well as the money saved on criminal justice, Brezny said.

“This is not a perfect bill,” he said. “It’s not a perfect initiative. But I’ve never seen a perfect one go through the first time and I don’t make perfect the enemy of good.”

Question 2 will appear on the Nov. 8 ballot with three other initiatives.