Nevada pot retailers get supply relief, but not out of woods

Regulators took steps this week to make sure Nevada's fledgling but popular marijuana industry doesn't run out of pot to sell. But questions remain about whether newly minted distributors can handle the heavy demand, and the possibility of another legal roadblock may be looming on the horizon.

Tax commissioners charged with enforcing the unusual administrative structure that has led to a distribution bottleneck got their first real taste of the potential crisis at retail dispensaries during a three-hour hearing on Thursday.

"Being fully integrated, we have one facility so we can grow it in the back, have a production kitchen in the middle and a retail store in the front," said James Green, a retired police officer who runs Shango Las Vegas, one of the city's largest pot retail operations.

"But legally today, my shelves are partially empty, and I can't even go to the back room and move products to the front room," he said.

The 47 retailers currently licensed to sell recreational pot previously operated as medical marijuana outlets, which were allowed to move products between cultivators, manufacturers and retail store fronts. But that changed when recreational sales began July 1 and anyone transporting pot was required to obtain a distribution license.

The supply problem stems from competing interpretations of the state's pot law that dictates only existing alcohol wholesalers can be licensed as pot distributors for 18 months unless there is "insufficient interest" among them to do the job. In that case, others can be licensed, including existing pot retailers.

The Nevada Department of Taxation indicated earlier this year it was prepared to do just that, but Carson City District Judge James Wilson granted a temporary restraining order last month upholding the liquor industry's exclusive distribution rights.

The state is appealing that ruling to the Nevada Supreme Court, with opening briefs due July 21 on an expedited hearing schedule.

In the meantime, the department awarded distribution licenses this week to one alcohol wholesaler in Reno and one in Las Vegas. On Thursday, the Tax Commission adopted an emergency regulation its lawyers believe should satisfy Wilson's concerns by establishing specific criteria to decide whether there's sufficient interest among alcohol distributors.

"This gives us a structure to make that determination on whether we need more applicants to serve this market," said Deonne Contine, the department's executive director.

The department declared the need for the emergency rules last week 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.

Kevin Benson, a lawyer for the Independent Alcohol Distributors of Nevada who won the injunction blocking enforcement of the original regulation, said the new emergency rule-making is vulnerable to similar legal challenges. But he hasn't decided whether to seek another injunction.

"If this body adopts this regulation today, it will be invalid," Benson told the commission Thursday. "This emergency is really of the department's own making. People have been buying marijuana in the black market for decades. If it wasn't an emergency then, it isn't an emergency now."