As we previously discussed here, excitement was high going into Nevada’s July 1st opening day for adult-use cannabis, but tensions were mounting after a Nevada District Court ruling left dispensaries without any means of resupplying once stocks ran out. Most reports cited long lines but an otherwise successful debut weekend. The growing question since opening day has been, without change, when will dispensaries run out?
To recap, during the 2016 Election, Nevada voters voted overwhelmingly for the passage of Question 2, the law to legalize the possession, sale, and private consumption of marijuana for adults over the age of 21. Included on the ballot initiative was the creation of a new license category for distribution. These distribution licenses would be limited, initially, to those entities already possessing a Nevada liquor distribution license. However, with the July 1st opening day fast approaching, and no alcohol distributors approved for cannabis distribution, the Nevada Department of Taxation (“DOT”), the state department charged with issuing distribution licenses, introduced regulations to allow others to apply. Specifically, Section 14(1) reads, “[p]ursuant to NRS 453D.210(3), the Department has determined that there is an insufficient number of distributor licenses from persons holding a wholesale liquor dealer’s licenses to serve the intended marijuana market…”
The DOT declaration caused several liquor distributors to file a lawsuit (Ind. Alcohol Distributors of NV v. NV Dept of Taxation, First Jud. D. Ct. of the State of NV in and for Carson City, Case Number: 17 OC 00098 1B) arguing two points. First, that DOT failed to properly solicit applications from licensed liquor distributors, and second, that DOT failed to define how it determined that an “insufficient number” of licensed alcohol distributors applied. On June 20, 2017, the District Court Judge agreed with the Independent Alcohol Distributors of Nevada, granting an injunction that prevents DOT from issuing distributor licenses to any person or entity other than wholesale alcohol distributors. The injunction also precludes DOT from making any sufficiency determinations on the number of alcohol distributors until it adopts valid definitions or rules for determining an adequate number of licensees to service the market.
The practical result of the ruling was that not a single distributor was licensed to legally supply Nevada dispensaries on opening weekend. In an effort to move the process forward and keep dispensary doors open, Nevada Governor, Brian Sandoval, issued a Statement of Emergency on Friday, July 7, 2017. The statement gives DOT the right to define the sufficient number of distribution licenses necessary to serve the marketplace. Additionally, on July 13, 2017, in an overwhelmingly pro cannabis industry decision, the Nevada Tax Commission voted unanimously to allow DOT to define the necessary number of licenses to service the Nevada cannabis market. This, in turn, will allow the DOT to determine whether alcohol distributors have the capacity to serve the market alone or whether other cannabis based businesses can distribute as well. This decision ensures that retail licensees can run their businesses without concern of supply running out and that producers and processors can conduct business without fear of having to sit on usable product without a means to sell it.
After several weeks of worry that highlighted national news coverage, the July 13th decision provides some relief to move on from the uncertainties and fears of dwindling supply, and truly celebrate the legalization of cannabis in Nevada that has been decades in the making. For an industry already facing so many hurdles, the best optics are successful optics, and Nevada looks to have put itself back in the right direction. We’re likely to see continuing growing pains and certainly some jostling between interested parties as Nevada waits for more permanent regulations to go into effect in 2018, but for now in proper Vegas style, it looks like the show can go on.