A judge cleared the way Thursday for Nevada to allow more businesses to move marijuana from growers to stores in an effort to keep up with overwhelming demand since recreational pot sales began last month.
Carson City District Judge James Russell lifted an order blocking regulators from issuing pot distribution licenses to anyone other than alcohol wholesalers. Nevada's voter-approved law is unique among pot states in providing liquor wholesalers exclusive rights to distribute marijuana unless they could not keep up with demand.
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Russell said after an hour-long hearing that there is overwhelming evidence alcohol wholesalers don't have the capability to meet the needs of dozens of recreational pot dispensaries from Las Vegas to Reno.
To launch sales July 1, the state adopted emergency rules to make it clear that some pot shops could serve as their own middlemen in some circumstances. The judge told a lawyer for alcohol distributors that sued over the matter that they're free to appeal to regulators.
But "it's not up to this court to supersede the authority of a state agency," Russell said.
The turf battle between the alcohol industry and the new retail marijuana business has been in and out of court for the last six weeks as state regulators complained that a delivery bottleneck was undermining an otherwise robust industry and the state revenue that comes with it.
Legal recreational sales of marijuana started with a bang July 1. Since then, state Tax Director Deonne Contine has insisted the tiny distribution network's inability to keep pace with demand is forcing up prices and sending buyers back to the black market.
As a result, Contine said sales had dropped as much as 30 percent at some marijuana storefronts in recent weeks. She also warned that the situation was jeopardizing worker safety at dispensaries forced to stockpile supplies and huge amounts of cash to accommodate erratic deliveries.
Russell lifted the temporary restraining order he granted to the Independent Alcohol Distributors of Nevada on Friday, a day after the Nevada Tax Commission concluded there were an insufficient number of alcohol wholesalers to meet the growing demand.
The judge said Thursday that he was convinced the state had proven what was necessary to trigger the exception to alcohol businesses' exclusive distribution rights.
"There is a substantial amount of evidence that there is a need for additional distributors over and above the liquor distributors," Russell said.
A related case is still pending before the Nevada Supreme Court, which has scheduled a hearing Sept. 6. But it's unlikely to have a direct impact on Thursday's ruling because it centers primarily on generic administrative powers of state agencies,
Kevin Benson, the alcohol group's lawyer, told the judge Thursday the meeting the Taxation Department held last week to authorize the determination of insufficiency violated his clients' right to due process. He said they were denied proper notice and prohibited from calling their own witnesses or questioning a state economist or three marijuana industry witnesses who testified in support of the state.
"Due process requires those people to have a meaningful opportunity to be heard at a hearing where the result is not pre-determined," Benson argued.
But Michelle Briggs, the state's senior deputy attorney general, said, "There is no property right."
"You do not have a due process right to a monopoly. That is what they are asking for," she said.
Contine said in a declaration signed Tuesday that delivery delays have forced retail prices up and have "driven sales down 20 percent to 30 percent."
"When there is inadequate supply and variety, the prices of legal marijuana increase and licensed retailers do not have products demanded by their customers," she said. "Both situations drive consumers to the black market."