New Market: Nevada expected to have big, highly regulated rec MJ industry

This is the sixth article in a series looking at the potential cannabis market in each of the eight states that approved recreational or medical marijuana initiatives in the 2016 election. Check back each week through mid-January for new entries. Click here for previous installments.

By Bart Schaneman

Nevada’s recreational marijuana market is expected to be tightly regulated and slow to launch, but once the industry does take flight it’s likely to become a major player on the international MJ scene.

In November, 54% of Nevadans voted to legalize adult-use marijuana, a move that’s expected to attract a large number of cannabis tourists to the state.

With more than 40 million people visiting Las Vegas last year alone, industry watchers anticipate lucrative opportunities for businesses catering to marijuana-inclined tourists.

The gambling and marijuana industries won’t be able to work together, however, given that federal gaming regulators oversee casinos and cannabis remains illegal in the eyes of the feds. State lawmakers, meanwhile, are expected to pass stringent controls on the rec industry.

According to Marijuana Business Daily estimates, Nevada’s rec market could generate annual sales of $450 million-$550 million within a few years of the program’s launch. Tourist spending is expected to account for the lion’s share of sales.

“I think it will be an exceptional opportunity once we have our regulations squared away,” said Tisha Black, a business attorney with cannabis law experience in Las Vegas. “Las Vegas has a global reputation for entertainment. I’m sure that there’s a healthy number of people who will consider experimenting with cannabis something that is entertaining and acceptable to do while you’re in Las Vegas.”

New entrants to the Nevada cannabis industry, however, may have to wait several years to participate in the rec market. Scores of existing medical marijuana business license holders in the state – namely growers, processors and dispensaries – will get the first crack at rec permits. But, on the flip side, out-of-state entrepreneurs won’t face a residency requirement.

Business opportunities

Cultivation, processing and retail sales will provide the usual business opportunities available in a recreational market. But, as noted, existing MMJ license holders in those sectors will have the first opportunity to apply for adult-use licenses.

The tourism sector, by contrast, is expected to generate many opportunities, in part because on-site consumption of cannabis won’t be allowed at casinos.

“Cannabis-friendly vacation rentals are something that we’re going to see a very big explosion of in Nevada,” predicted Leslie Bocskor, founder of Las Vegas-based cannabis consulting firm Electrum Partners.

He also envisions opportunities for cannabis-accepting social clubs, where people can dine, take in musical acts and consume marijuana.

Another way Las Vegas visitors might enjoy marijuana is through a tour bus or limo services. Cultivation, production and dispensary operations are not allowed on the Strip, where the majority of casinos are located.

“It’s just like in Colorado,” Bocskor said. “You made it legal for people to buy it. You made it legal for people to use it, and there wasn’t anywhere for them to go. So tour bus operators sprouted up and said, ‘We’ll come pick you up to tour the dispensaries and, oh yeah, you can vape and smoke while you’re on the bus.’ ”

Cannabis consultancies could be another business possibility, particularly for experienced entrepreneurs from states where recreational sales already are legal.

“It’s an opportunity for the individuals with that technical know-how who have done those things successfully in Colorado or Oregon or California to come to Nevada and say, ‘Hey, look, I can provide you with this expertise and I can help you get off the ground,’ ” said Neal Gidvani, a Las Vegas-based attorney with Greenspoon Marder.

Black, for her part, envisions a cannabis-related massage industry as yet another possibility.

“And I don’t mean salacious,” she said. “I think that most people when they travel somewhere want that spa experience.”

Licenses, timeline

The Nevada Department of Taxation will regulate adult-use marijuana. It has until January 2018 to write the regulations governing the new industry.

But Nevada lawmakers are likely to have significant say in the rec industry’s regulatory framework. The state legislature will be in session until June, which is probably the earliest legislation underpinning the regulations could be completed.

When the new regulations take effect, only current MMJ cultivation, processing and dispensary license holders can apply for a recreational license. They will have an 18-month window to do so from the start date of the rules.  Nevada currently has 183 such MMJ business licenses.

Consequently, the earliest someone not currently holding an MMJ license could open, say, a retail shop will likely be three to four years. Much also will depend, of course, on how many new rec licenses ultimately are granted.

According to the Las Vegas Sun, in Clark County, home of Las Vegas, up to 80 adult-use licenses for dispensaries, cultivation and production facilities will be allowed. Washoe County, with between 100,000 and 700,000 residents and where Reno is located, can have up to 20 recreational cannabis licenses. Counties with fewer than 55,000 people will be limited to two licenses.

There is no vertical integration requirement for licenses and no residency requirement. However, Black said the majority of the successful MMJ applications she’s seen have had at least one Nevada resident in the group.

One area where licenses will be available immediately is in distribution. Any licensed alcohol distributor in Nevada will receive preference for a cannabis distributor license, which has been a sore point for some in the cannabis industry.

The best-case scenario, Gidvani said, would be if the Department of Taxation adopts temporary regulations based on similar experiences in Oregon, Washington and Colorado for a temporary fast track with limited, highly taxed sales. For example, it might allow for the early sale of flower, but with a 25% sales tax.

Individual counties can vote against allowing MMJ dispensaries – 12 of Nevada’s 16 currently ban MMJ businesses. However, personal use is permitted on private or rented property anywhere in the state.

Medical and recreational

The medical and recreational markets are expected to coexist without major problems. Black anticipates the industry will try to limit the community impact by preventing a spate of separate recreational stores in addition to existing dispensaries.

“The adult-use market is going to have an enormous benefit to the medical market,” Bocskor said.

He expects the medical market to end up with much lower prices because the taxation will shift to the adult-use market, which could provide a lift to MMJ sales.

“People don’t pay taxes on their medicine. Why should they pay taxes on medical marijuana?” he added.

Biggest challenges

Although the legalization measure passed with more than half the vote, advocates encountered significant opposition. Casino mogul Sheldon Adelson donated $2 million to an anti-cannabis campaign.

“The Nevada Legislature is going to be very cognizant of the opposition,” Gidvani said. That will drive lawmakers to develop strict regulations, including ensuring cannabis isn’t consumed by minors, he predicted. Gidvani expects stringent packaging regulations as well as tough lab testing.

Black sees edible consumption in casinos as one area of concern and expects lawmakers will consider how edibles are sold and consumed.

“I think ultimately the market will be robust, but I think it will take time,” Black said. “And I’m proud of that. I think slow and methodical is the way to do it.”

Bart Schaneman can be reached at [email protected]

Daily News | Nevada Medical Cannabis Business & Marijuana Legal News | Recreational Marijuana News | Special Series: New Markets

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