Nevada Tax Commission approves rules to move pot sales forward

After three hours of testimony, the Nevada Tax Commission on Thursday voted unanimously to approve emergency regulations that will pave the way for recreational marijuana retailers to restock and stay in business.

District Judge James Wilson ruled in June the Department of Taxation didn’t have regulations in place to fairly determine there are not enough alcohol distributors available to service the recreational marijuana industry. The voter-approved legalization of marijuana requires that ruling before Taxation can approve distribution licenses to businesses other than licensed alcohol and liquor distributors who, in the initiative petition, have exclusive rights to distribute recreational pot for the next 18 months.

Taxation Director Deonne Contine told the Tax Commission that Taxation has had a total of seven alcohol distributors apply for pot distribution licensing. She said just Wednesday, they issued the first license, and the second on Thursday.

The other applicants, she said, haven’t made it all the way through the thorough and mandatory licensing process.

Medical marijuana dispensaries that have been licensed to also sell recreational pot began sales July 1 using product they already had on hand. But, they’ve been doing a booming business and, with Wilson’s order preventing them from restocking from their own warehouses, Contine said most of them are either out of products or running out.

“That prompted the development of this regulation,” she said.

“Without the ability to make a sufficiency determination, the department cannot license other marijuana distributor applicants and, therefore, no marijuana or marijuana products can be transferred to a retail store,” she said in the emergency declaration letter.

The emergency regulations approved Thursday, she said, will provide the framework to quickly make that determination and enable those stores to restock their shelves.

Having no product to sell, she said, will force businesses that have invested hundreds of thousands of dollars in preparing for recreational marijuana sales to cut back, lay off workers and “cause this nascent industry to grind to a halt.” Without those marijuana sales, she said, the state will not realize the tax revenue it has budgeted from pot sales — a total of more than $70 million over the biennium.

“We have product; we just can’t deliver it,” said Claudio Ituriaga of Sierra Well.

Alcohol distributors including Carson City’s Kurt Brown accused the department of creating emergency regulations to end-run the judge’s ruling and cut them out of the business.

They have consistently argued once the businesses that grow, prepare and sell marijuana can also transport their product, there will be no business for them.

He said the emergency regulations basically tear down the three-tier alcohol distribution system voters approved.

That system, he said, separates the producers of alcohol from the distributors, from the retailers.

Hanna Sweis, a liquor distributor in Las Vegas, said the three-tier system that currently regulates alcohol must be protected.

“Even the black market has a three-tier system,” he said. “They have producers, they have distributors, they have retailers.”

Kevin Benson, representing Brown and a couple of other small alcohol wholesalers, said if there’s an emergency, it’s one of the department’s own making by its delays, refusal to work with distributors and refusal to approve licenses for them to start transporting pot products.

If non distributors are licensed, he said, “You can apply and you can get a license but it will be worthless.”

A long list of those in the marijuana business testified the emergency regulations are necessary.

Will Adler of the Sierra Cannabis Association and Contine both told the commission that contrary to distributor claims, the initiative petition didn’t give alcohol distributors a complete monopoly and doesn’t actually set up a three-tier system.

“It sets up a distribution network,” he said.

Contine said it sets up a system regulating recreational marijuana “in a manner similar to alcohol.”

She also took issue with the argument local government shouldn’t delay licensing because of zoning and licensing saying local control of those issues is clearly in the voter approved law.

Benson said after the vote he would have to talk with his clients before deciding whether to go back to district court and challenge the vote.