Nevada stands alone among the states in an unprecedented rush to “Early Start” recreational marijuana sales that began on July 1. This wild ride to “Early Start” resulted in national embarrassment with a self-created “pot emergency” being declared on July 6—just five days later.
The July 1 “Early Start” date was unilaterally and arbitrarily announced by Department of Taxation Executive Director Deonne Contine last December. There were no public hearings and there was no vote of approval by the governing Nevada Tax Commission. In passing Question 2, Nevada voters had been assured recreational sales would begin six months later, on January 1, 2018, after adoption of permanent regulations.
Hidden from public scrutiny, the “Early Start” program involved an “unholy alliance” of medical marijuana licensees and Nevada politicians. Under Question 2, medical marijuana licensees were given exclusive rights to sell recreational marijuana.
Medical marijuana owners, including Las Vegas Sun publisher Brian Greenspun, made it clear their businesses were unprofitable without recreational marijuana sales. The result was a hastily-conceived “Early Start” program — a state “bail-out” of medical marijuana licensees who were losing money. In exchange, state officials imposed a 10 percent retail marijuana tax that would yield a rosy forecast of $60-70 million over two years.
On June 20, “Early Start” was thrown into legal turmoil when an injunction was granted to Nevada liquor wholesalers against the Nevada Tax Commission. Judge James Wilson found the tax commission to have adopted invalid temporary regulations and engaged in improper “ad hoc rulemaking.”
The judge noted that Question 2 provided an “exclusive right” for liquor wholesalers to act as marijuana distributors. The tax commission appealed the case, now pending in the Nevada Supreme Court.
The Nevada liquor wholesalers’ lawsuit was based on their being denied “exclusive rights” to act as marijuana distributors.
Tax Commission Director Contine found there was an insufficient number of liquor wholesalers to serve the market. If that were true, Contine would be allowed to license marijuana companies as distributors. Judge Wilson ruled there to be no basis for Contine’s finding of insufficiency and ordered the tax commission to adopt valid new rules for determining sufficiency.
As a result of Judge Wilson’s decision, a “Statement of Emergency” was endorsed by Governor Sandoval to allow new expedited regulations to be adopted for marijuana distribution. One newspaper headlined: “Governor declares state of emergency as marijuana stash runs short.” The action was widely lampooned in the media across the country. These new regulations were adopted by the tax commission and are now the subject of a second lawsuit for injunctive relief by liquor wholesalers.
With media attention on the supply issue, dispensaries also became attractive magnets for theft of both product and cash. A Las Vegas dispensary reported four burglars stole $50,000 of material from their vault—before July 1. Almost a dozen other businesses experienced similar break-ins before opening day, according to the Nevada Dispensary Association. One news outlet described the first 13 days of legalization as “total mayhem.”
Rather than spend inordinate time distracted by who distributes marijuana in Nevada, Tax Commission Director Contine needs to focus on mechanisms that have been proven to work: inventory tracking, product testing, data collection, public health awareness, traffic safety, consumer education and youth prevention.
Jim Hartman is an attorney residing in Genoa, Nevada.