Medical marijuana industry facing challenges

Northern Nevada’s slow-growing medical marijuana industry may need recreational pot legalization to stay in business.

The number of medical marijuana cards doubled in the last year — from 10,119 through August 2015 to 22,170 as of August 2016 — and the process to get a patient card has recently been streamlined.

But initial projections that attracted businesses and investors overestimated demand and many in the industry say it could be difficult for everyone to make money if the ballot question legalizing recreational marijuana doesn’t pass in November.

“There is reciprocity with other states, but the resident population is not enough to sustain the industry,” said Bill Monroe, chief executive officer, BioNeva Innovations LLC, a medical marijuana cultivation and production business in Carson City.

“It’s not a gold rush,” said Steven Miles, an architect working on several medical marijuana establishment (MME) projects including the Carson City cultivation and production site for 5 Seats Investments Inc., which cut the size of another facility in Washoe County from a planned 25,000 square feet to 6,000 square feet to see if recreational passes in November and boosts demand.

Just under half the MMEs that received initial approval from the state are operating.

“Supposedly there’s a tremendous stockpile that’s been grown,” said Miles.

If recreational marijuana passes, the MMEs already operating here will have an 18-month window to apply for the needed licenses without outside competition.

Polling has shown Nevada voters are in favor of the ballot, but margins vary from wide to tight depending on the poll.

Regardless whether recreational use passes, there’s work to be done to bolster the medical marijuana business, industry participants says.

“Marijuana is not a continuous spectrum across the United States. You can’t take a projection based on the California model, say, and project from that. You’re going to get smoked here,” said Will Adler, executive director, Nevada Medical Marijuana Association. “We built a law that made it onerous to get medical marijuana cards here so that’s what we need to address. That’s where the projections fell short.”

Right now, card holders have to renew their cards every year and until recently had to apply in person at the Department of Motor Vehicles. They’re also subject to background checks.

State Senator Tick Segerblom, D-Las Vegas, currently has four bill draft requests concerning marijuana for the next legislative session, including a patients bill of rights.

“It does lots of little things: extends medical cards to five years, makes the process simpler with the state, and addresses the driving under the influence law,” said Segerblom.

Also keeping a cap on cards, say insiders, is the reluctance to apply by some potential patients, including gun owners and veterans, because it’s still illegal under federal law.

“Guns are federally regulated. When you purchase a weapon you’re asked if you are using illicit drugs. Are you going to say yes?” said Adler. “It’s a huge deal in Nevada. They feel immediately at risk.”

Adler also would like to see the agent cards required to work in the industry changed so they’re transferable.

Right now, an agent card, which requires a background check, is tied to a specific job and an employer so workers have to get new or additional cards if they move to a new company or want a second job.

While the MMEs are counting on recreational use to become legal, some say they have the right business model to weather the storm if it doesn’t pass.

BioNeva, for example, plans to turn its method for growing marijuana into its own business, consulting for other growers.

The Deer Run Road cultivation plant, when it’s built, will use aquaponics, which combines an environment of fish and water to grow plants, and a nearly opaque roof in order to reduce energy costs.

Tahoe Hydroponics, one of two cultivators now operating in Carson City, grows plants in water as well and its owners say their process results in exceptionally high yields.

“We grow 3.8 pounds per light while the industry average is 1 to 2 pounds,” said Ray Schiavone, CEO and co-founder.

Tahoe Hydroponics operates in half of a 55,000 square foot facility on Arrowhead Drive.

“We’re just waiting for recreational to build out,” said Schiavone.

But even if that doesn’t happen, Schiavone expects the business to thrive doing consulting to get other MMEs all over the country as well as developing varieties of pot plants.

“Breeding might be part of the future. Unique flavors will drive business,” Schiavone said.

New state regulations now allow laboratories in the state to do research for the cultivators.

The industry, too, is experiencing the growing pains of any new business, especially one so heavily regulated by the state.

“We’re establishing the foundation of the program and you don’t know what you don’t know,” said Steve Gilbert, program manager, medical marijuana, the Nevada Division of Public and Behavioral Health, which oversees the industry.

The department has had to use contractors for administration, inspections and auditing due to more work than anticipated.

“We got 519 applications (for MMEs) which is a more than we ever thought we would,” said Gilbert.

By law, the number of dispensaries statewide was limited to 66, but the number of other types of MMEs — cultivation, production and laboratories — wasn’t specified.

The division issued provisional certificates in November 2014 to 371 MMEs, which had until May 3 to be operational.

But getting up and running proved to be difficult and that deadline was extended indefinitely as long the MMEs demonstrated “significant progress” toward opening.

So far, 150, or less than half, of the MMEs have gone through inspections and received their final certificates.

In Carson City, two dispensaries, six cultivation facilities, and four production plants have received the needed special use permits to operate in the city.

So far, one dispensary — GTI Nevada’s RISE, recently opened on Clearview Drive— and two cultivation facilities — 5 Seat Investments’ operation on Highway 50 East and Tahoe Hydroponics on Arrowhead — are operating.

The MME application process is closed and won’t be opened again until if and when market demand isn’t being met, said Gilbert.

“I would say the market is not as big as we thought it would be, but it is growing substantially each month. It’s just taking time,” said Sen. Segerblom. “Recreational would be a shot in the arm, but even if it doesn’t pass, we should be OK.”