Nevada Cannabis Association executive director, Layke Martin, details the changes and challenges state operators face in 2024
Layke Martin
Nevada’s cannabis market has seen massive changes since its initial launch on January 1, 2017, and it’s also seen a dramatic decline in annual sales since hitting a high of just over $1 billion during the 2021 fiscal year. Operators are clamoring for tax relief and enforcement against the black market that is capitalizing on Las Vegas’ tourists in ways that are prohibited for legal operators.
To get a better understanding of the current market, Marijuana Venture reached out to Layke Martin, the executive director of the Nevada Cannabis Association (NCA), which is the oldest and largest trade association for licensed cannabis businesses in Nevada and represents the majority of dispensaries as well as cultivation, production and distribution licensees and lounges.
Marijuana Venture: Can you give us a snapshot of Nevada’s cannabis industry in 2024?
Martin: I’m happy to.
MV: Let’s start with some of the headlines about Nevada, such as “Sweeping changes coming to Nevada’s cannabis industry in 2024.” I saw there was an increase in how much people can buy at retail.
Martin: Yes, that’s one of the many things that changed. The daily purchase limit increased from one ounce to 2.5 ounces. You can stock up as if you were at a Costco. We don’t yet have enough data to say if customers are buying more and then coming back less frequently, some of the dispensaries that had really gone aggressively on bulk pricing did see some increase in sales during the first few weeks after the purchase limit increase.
MV: Was there anything else major that changed?
Martin: Yes there were a number of changes that had to do with our regulation and wholesale excise tax. We at the NCA brought three major bills which were supported by the entire regulated industry.
Nevada’s Cannabis Compliance Board (CCB) was set up in July 2020. There have been some growing pains as the regulator and the industry began working together. This past legislative session, we really sought to address some of the most significant pain points for the industry. One of those was called time-and-effort billing, which was the CCB’s practice of billing licensees for the cost of oversight.
For example, If inspectors came out to your property, they would bill you for their inspectors’ time at a rate of $111.00 per hour. If you called and asked them a compliance question, they would bill you for their time in answering that question. Time and effort billing started getting really expensive for licensees. We had a small family farm in rural Nevada who had time and effort bills of $47,000 coming out of one inspection. We brought a bill to end time and effort billing, which was successful and will save licensees about $2 million per year.
MV: And all of that was on top of what else they’re paying?
Martin: Yes, absolutely. So putting an end to that was very important to the long-term viability of the regulated industry.
In addition to ending those fees, we also focused on enforcement reform. Sometimes well-meaning enforcement can be quite heavy handed on licensees. We addressed three main areas, self-reporting, stacking of charges, and maximum monetary penalties.
The first big change was to require the CCB to consider self-reporting as a mitigating factor in disciplinary cases. We modeled this policy after Nevada’s successful gaming regulation, in which companies are encouraged to self-report. It makes sense from a policy perspective because you can’t have inspectors out in every single facility 24/7; you just don’t have the state resources. You need to encourage businesses to self-report, knowing they will be treated more favorably than if they discovered a violation that they did not self-report.
The legislature also limited stacking of charges, in which multiple violations were assessed for the same mistake occurring or discovered at the same time. The example I use is imagine you had 100 plants that were supposed to be tagged at 8 inches, and an inspector came in and saw 100 plants that were 9 inches tall and weren’t tagged, then you could get 100 violations.
The stacking of charges resulted in some very high fines for what otherwise would have been smaller or administrative violations. The disciplinary structure is set up as progressive discipline, but the progressive part was happening on the same visit or inspection, so if you had multiple smaller violations, they all could still add up to six-figure fines.
MV: What kinds of violations?
Martin: For anything. I don’t want to downplay it and make it sound like there weren’t any serious violations, but the violations that made it so important that we changed the law involved, for example, a situation where one licensee was charged a $40,000 fine for not having paper towels in the bathroom because of the way the progressive disciplinary system was set up.
It wouldn’t itself be $40,000 for not having paper towels in the bathroom, but because they had a number of other violations that were of that same category, it escalated to where something as minor as not having paper towels resulted in a $40,000 fine.
The third area we addressed was the maximum civil penalty for violations. We surveyed other states and looked at what the maximum fines were across the board and also which fines would receive the maximum. In some states, the highest penalty is assessed for operating without a license state and in our state the opposite was true. The legislature lowered the maximum civil penalty for licensees from $90,000 to $20,000. Suspension and revocation are still on the table. The CCB has full authority to address serious public safety violations, but we needed to try to move away from six-figure fines because they were just crushing businesses.
MV: Yeah, those all sound like very beneficial changes for operators. Was there anything else because those sounded like good revisions?
Martin: The other big legislative change the NCA focused on was fixing the wholesale excise tax. Our excise tax structure was modeled after Colorado, with a wholesale excise tax and a retail excise tax.
The wholesale excise tax is on the first transfer between a cultivator and another licensee, and it was calculated as 15% of Fair Market Value. The original policy set the Fair Market Value based on sales data that was almost a year old. Because of that, cultivators were paying tax on an amount that was much higher than the actual sales price. We fixed this by making sure that unaffiliated transactions paid tax on the actual sales price. This will save cultivators an estimated $11 million over the next two years.
MV: One of the things I want to ask was about how big has the market gotten? Is there a huge number of independents, such as cultivators and retailers?
Martin: That’s a good question. There are about 100 open dispensaries.
It’s a bit wonky because all of the original licenses were medical, and then those licensees were eligible for adult use licenses at the same facilities. But then in this past legislative session, the legislature merged medical and rec licenses, so now they count as one license.
MV: So on the website it says 730 licenses.
Martin: There are definitely not that many facilities.
MV: And there’s been a reduction on the cultivation side?
Martin: Yes we have seen some shrinkage on the cultivation side.
There has been growth on the tribal side. There are about 10 tribes that have compacts with the state to operate cultivation, production, and dispensaries.
The CCB hasn’t issued any new licenses since 2018 except for lounges.
MV: How big of a factor is the Strip for retailers?
Martin: In Nevada, since 2019 we have been zoned out of the resort district and so you won’t find many licensed cannabis dispensaries on the strip or in downtown near casinos. Dispensaries and lounges have to be 1,500 feet away from non-restricted gaming licenses. That is why in Las Vegas, you’ll find that most of the dispensaries are a couple streets off the strip.
Licensed cannabis businesses can’t deliver to strip hotels, which a lot of people don’t realize. If you’re at a hotel on the Strip and you search for cannabis delivery to your hotel, the ones that pop up are going to be unlicensed delivery companies.
MV: Are there a lot of unlicensed delivery companies operating on the strip?
Martin: Yes. It has created a robust industry for unlicensed delivery companies because tourists don’t even realize licensed companies can’t deliver to their hotels.
MV: Was there anything that we really glossed over? Do you think we hit the major ones?
Martin: Sales are down year over year, which has been a significant challenge.
MV: I noticed. It seems like tourism couldn’t be that big of a factor when the biggest years were during the pandemic lockdown.
Martin: Yes, and tourism hasn’t gone down. Gaming is having some of its best months ever. So it’s not tourism related – that’s quite clear.
I can’t say exactly what the cause of it is, but it is significant and it certainly is on everyone’s mind.
That’s why the NCA is focused on cutting excessive compliance costs and helping to fix the wholesale excise tax because we have to streamline costs for our operators and reduce excess fines, fees and taxes. It’s so important all the time, and even more so when we keep seeing declining sales.
MV: The decline has to be dominating most industry conversations in Nevada, right?
Martin: Yeah, it is. It certainly makes me nervous about issuing any additional licenses.
The Cannabis Compliance Board is doing a market study right now. They’ve hired a third party that is doing an assessment of the health of the market. That will be really interesting. It should come out later this year.