On Saturday, July 1, anyone 21 years old or over with a valid photo I.D. can buy marijuana at one of the dozens of dispensaries in Las Vegas and across Nevada. But thanks to recreational sales launching early and a compromise the industry made with alcohol distributors to help get the law passed, dispensaries might lack a legal way to get cannabis from grow-houses and production facilities to retailers. That means if a dispensary runs out of product in the next month or so, the store will not be able to restock its shelves.
According to Scot Rutledge, a lobbyist who helped run the campaign for Question 2, the initiative voters approved to regulate and tax adult-use marijuana in Nov. 2016, the recreational market might not have distribution in place for 45 days or longer. The five companies that applied for marijuana distribution licenses have not been approved yet by Nevada's Department of Taxation. The state government is allowing entrepreneurs with medical marijuana licenses to stock inventory for the last couple of weeks until Saturday, July 1. That's when the new law, mandating that only licensed liquor wholesalers can distribute marijuana, goes into effect.
Entrepreneurs are scrambling to take advantage of the regulatory transition and preparing their businesses for the first recreational sales. Rutledge says some dispensaries are preparing inventory for three to six months to prevent shortages.
"What the dispensaries are doing today to stock up their inventory is critically important to the success of this industry for the next six months," says Rutledge. "We could be in a situation where we don't have enough adult-use marijuana."
Mikel Alvarez, the director of retail operators for Terra Tech, the firm that owns dispensary chain Blum which has four Las Vegas locations, says he has stocked two-and-a-half times his normal inventory to get ready to serve adult-use customers.
"Everyone is making a run [to get marijuana and THC products] before Friday; there might not be product on the wholesale market to buy until the new harvest," says Alvarez. "We are already placing pre-orders for next harvest in mid-July."
When voters approved the initiative to legalize adult-use, the law was passed with a mandate that only licensed alcohol wholesales could receive licenses to transport recreational marijuana for the first 18 months. Marijuana companies can apply for distribution licenses in a year and a half.
The 18-month monopoly favoring Nevada's liquor distributors was added by the ballot measure's authors as a political move to secure the alcohol industry's support and lobbying efforts to pass legalization, says Rutledge. It worked, Rutledge says, although many in the industry did not like the mandate.
Recreational sales were not supposed to start until 2018, but when Nevada's Governor Brian Sandoval implemented a new budget late last year, the proposal relied on $70 million to be generated by the 10 percent retail sales tax on adult-use sales over the next two years. Governor Sandoval asked the Department of Taxation to open the market early and start the first sales on July 1, 2017.
When it came time for alcohol distributors to apply for licenses to distribute marijuana, the majority of the companies chose not to participate because marijuana is illegal federally. Only five alcohol distributors applied and the Department of Taxation determined there was not sufficient interest. The Department proposed a new regulation on March 16, 2017 to allow marijuana companies to distribute their own products similar to Nevada's medical marijuana industry. The Independent Alcohol Distributors of Nevada sued to stop the Department of Taxation's move and ask for more time for the five distributors to apply, according to the lawsuit. The five alcohol distribution companies that did apply have not been approved yet.
Derek Peterson, the CEO of Terra Tech, says he would prefer to be able to distribute his own product from his grow house to his four retail stores.
"The frustration is if you're growing your own product and selling your own retail, being vertically-integrated like we are, the forced distribution network cuts into your margins," he says.
Peterson says the law mandating only licensed liquor distributors can transport marijuana after July 1 isn't ideal, but the Vegas market is too enticing to pass up. With 44 million tourists visiting the four-mile long Las Vegas Strip every year, Sin City is a big opportunity for entrepreneurs who want to take advantage of the hoards of people looking to have a good time.
"Las Vegas is almost a mandatory destination for anyone who works because most industries host business conferences in Vegas," says Peterson.
Krista Whitley, a marijuana entrepreneur who has been living in Las Vegas since 1998, says she thinks all the regulatory kinks will be smoothed out. Whitley is launching her newest venture this Saturday, the Weekend Box, a product she is marketing to tourists that contains ten of the best-selling marijuana edibles, joints, and vape cartridges. Whitley says even though distribution needs to be resolved, she believes regulators have created a strong framework.
"Recreational sales represents a turning point for our city as gaming revenue has continued to decline over the years," says Whitley. "Vegas was hit hard by the recession and the green rush boom has been promising. The city will become a beacon for legalization."