On September 1, 2017, Independent Alcohol Distributors of Nevada, Inc. (“IADON”) appealed a decision by a Nevada trial court denying IADON’s motion for a preliminary injunction that would have halted the Nevada Department of Taxation issuing recreational marijuana distribution licenses to non-alcohol distributors. On October 20, 2017, the Nevada Supreme Court issued such an injunction. As a result, the DOT is prohibited from issuing any marijuana distribution licenses to anyone other than an existing alcohol distributor.
This legal battle stems from the ballot initiative that allowed adult marijuana use in Nevada. Question 2 created a new distribution tier into the marijuana industry. Under Nevada’s existing medical program, facilities that produced marijuana could transport their product to a dispensary for sale, or to a lab for testing. Question 2 required that this action had to be conducted by a third-party, similar to the alcohol industry. To that end, Question 2 also provided an 18-month exclusivity period for this license to alcohol distributors.
Throughout July, the DOT maintained that alcohol distributors could not deliver the marijuana needed by dispensaries, citing both a lack of interest, as well as a lack of qualifications. As a result, Governor Sandoval issued a much-publicized Emergency Regulation that required the DOT to assess the needs of the state and the abilities of the alcohol distributors to meet demand. On August 10, 2017, the DOT held a hearing where it determined that the alcohol industry could not meet the demand of the state, and that licenses should be issued to non-alcohol distributors. At that time six (6) alcohol distributors had been licensed to distribute marijuana.
IADON believed that the DOT’s decision on August 10 was predetermined and that it would be irreparably harmed by issuing licenses to non-alcohol distributors. Accordingly, IADON filed suit to stop the licenses from being issued. The district court determined that the DOT had followed appropriate procedures and allowed the regulation to stand. IADON immediately filed an appeal to the Nevada Supreme Court on September 1, 2017. The Nevada Supreme Court issued a temporary injunction should issue on September 14, 2017 and scheduled the matter for oral argument on October 3, 2017.
Following oral argument, the Supreme Court determined that IADON “will likely suffer irreparable harm absent an injunction, and [IADON has] shown an arguable likelihood of success on appeal” and ordered that the temporary injunction will stay in place until the end of the appeal process. The DOT is currently prohibited from “issuing marijuana distribution licenses to applicants other than those currently licensed to distribute alcohol”, however the injunction does not affect the marijuana distribution licenses that were already issued.
Thankfully at this time enough licenses have been issued that there is no longer any concern that dispensaries will run out of product. So the alcohol industry will effectively get its priority window (with some limited exceptions), and the dispensaries (and the state’s tax revenue) were able to avoid a costly shortages.