Nevada moved Thursday to reduce supply problems at recreational marijuana stores that have faced overwhelming demand for newly legal pot and the possibility of their shelves going empty.
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Regulators approved emergency rules that would speed up licensing for pot distributors, a sticking point that launched a legal battle and threatened the flow of supplies after dozens of retailers started selling recreational marijuana on July 1.
Nevada's law is unique among legal pot states, dictating that only alcohol wholesalers can transport the drug from growers to storefronts for the next 18 months. But the state rewrote the rules Thursday used to enforce the state's pot law to make it clear that it's legal under certain circumstances to license some retailers to transport pot from growers to storefronts.
Gov. Brian Sandoval endorsed the proposal last week after a judge ruled in June state law dictates only alcohol wholesalers can transport pot from growers to store fronts the next 18 months.
The judge had rejected the state's claim it has the authority to license some pot retailers to serve as their own middleman if there aren't enough alcohol distributors to do the job.
The new regulation makes it clear that's legal, at least for now. A lawyer for the alcohol wholesaler groups that won the court injunction told the tax panel during Thursday's three-hour hearing that he's convinced the new regulation is just as illegal as the earlier one the judge threw out.
James DeVolld, chairman of the Nevada Tax Commission charged with regulating recreational marijuana, sought reassurances from state attorneys that they are on solid legal ground before joining the other commissioners in backing the emergency regulation unanimously.
"I think like all the commissioners, this is such an important time in the state of Nevada's existence that I just want to do it right," DeVolld said.
Many retailers were previously licensed to sell and distribute medical pot, so they started stockpiling supplies months ago in an anticipation of high demand for recreational marijuana.
But representatives of several of the 47 retailers now licensed to sell recreationally testified before the tax panel Thursday their shelves are nearly empty because there's no distribution mechanism that allows them to restock.
Nevada Department of Taxation Executive Director Deonne Contine announced at the hearing in Carson City that the agency has approved licenses for two alcohol wholesalers in compliance with a court order to begin distributing recreational pot to retailers.
But she said it's too soon to tell if Crooked Wine of Reno and Rebel Wine of Las Vegas will be able to handle the demand statewide. She said one of the new licensees is "pretty stressed out about what he's going to be asked to do."
"There's room in this market for plenty of more," Contine said, adding that she's hopeful some additional alcohol wholesalers could be licensed in the days or weeks ahead.
"Businesses could close their doors or are not going to be able to get products they are legally licensed to sell," she said.
The state has filed an appeal asking the Nevada Supreme Court to overturn Carson City Judge James Wilson's ruling prohibiting distribution licenses for anyone other than alcohol wholesalers.
Kevin Benson, a lawyer for the Independent Alcohol Distributors of Nevada won that injunction, stopped short of threatening another lawsuit but testified at the hearing Thursday he's convinced the emergency regulation is invalid. He told The Associated Press after the hearing he wants to review the regulation before deciding whether to challenge it in court.
The Tax Department last week declared the need for the emergency rules after marijuana retailers recorded more than 40,000 transactions in the first weekend.
"Without the ability to license marijuana distributors to continue the flow of product to the retail store, a high likelihood exists that consumers will revert to the black market," Contine said.
She said unless the matter is resolved quickly, the distribution bottleneck will cost both the state and investors millions of dollars, thousands of jobs and "cause this nascent industry to grind to a halt."