Independents say they’re being cut out of pot distribution in Nevada
April 23, 2017
Even as the Department of Taxation moves toward the goal of licensing recreational marijuana facilities by July 1, a lawsuit is looming that could put the brakes on the whole process.
It's not about growing the pot. It's not about selling the pot. It's about who gets to transport the marijuana from cultivator to store.
A group of independent distributors, including Kurt Brown of Carson City's Capitol Beverages, is arguing the department is deliberately cutting them out of the business. They say what Taxation Director Dionne Contine is doing not only cheats them out of their piece of the action, it violates the letter and the spirit of the voter approved law legalizing recreational marijuana in Nevada.
Lobbyist Sam McMullen, who represents the independents, says under that statutory initiative, marijuana is to be regulated the same way as alcohol products. He said that's why the initiative puts transporting pot products in the hands of independent distributors like Brown.
Voters last November made Nevada the ninth state in the nation to legalize recreational marijuana.
"The people who sold this initiative sold it that it was going to be as reliable as the alcohol industry," he said. "We were told this is going to be done by an independent person between the (source) and retailer and done right."
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McMullen said having a company like Capitol Beverages handle the transport provides protection because that company has a license "that would be at risk," if there were problems such as product disappearing en route. He said they do that with alcohol products now.
Contine, however, said it was Taxation's determination there weren't enough distributors interested. The voter approved initiative says in that case, she can open up licensing to alternative distributors.
According to Taxation spokesman Stephanie Klapstein, the small independents aren't being cut out of the business. It's just it would take them too long to get through all the federal, state and local hoops.
"We were concerned if we didn't open it up there wouldn't be enough distributors to serve the market," Klapstein said, adding only 13 small operators said they wanted in.
So, she said the department opened licensing first to the medical marijuana companies that are already licensed to grow, process, transport and sell pot because they can move into the recreational business almost immediately.
She said the second category is those businesses like Capitol Beverages. The third, she said, are those who are licensed to service but not owned by existing medical marijuana dispensaries.
She said those independents like Brown can "absolutely apply."
"There's a perception out there we've cut them off which we have not done," she said.
But she said it's unlikely any of them can be ready to go by July 1.
The reason the major companies like Southern Wine and spirits aren't interested is transporting marijuana would be a federal felony that would jeopardize their Tax and Trade Board license — a requirement to distribute alcoholic beverages nationwide.
"These guys are willing to take the risk," said McMullen.
He said he believes the department is violating the law because Contine made that decision in-house and didn't put it before the Tax Commission.
"You do not have the ability to do that independently by yourself in a back room," he said.
Brown said taxation officials never asked wholesalers like him about their ability to meet the demand of the marijuana market.
"I assume the marijuana people were guiding her toward this or having input to it," he said. "The liquor people never got that opportunity."
McMullen said some of those small independents actually serve more than 100 restaurants, bars and stores and can easily handle the needs of a few pot stores.
He conceded the TTB license "is an issue."
Brown, however, said he doesn't believe he really needs a TTB license to transport marijuana within Nevada.
"You don't need TTB if you don't go out of state," he said.
He also said it's possible to separate that part of the business from his alcohol distribution business.
"The state can issue a state license that has nothing to do with the TTB license," he said.
McMullen said he's considering filing for a writ of mandamus demanding Contine show how she arrived at the conclusion there weren't enough distributors to handle the demand. And why she hasn't asked the Tax Commission to review and approve the process she followed and the proposed regulations.
Klapstein said in the meantime, taxation is moving ahead to get regulations approved so they can begin accepting applications. The regulations are largely done because they're based on the rules already in place for medical marijuana establishments.
"If those things go according to plan, we expect to be issuing licenses that would be good starting July 1," she said.