Southwest Update: Nevada

Nevada’s formerly $1 billion cannabis market has moved at a slower pace than in most states and sales continue to decline.

Residents legalized medical use in 2000, medical sales followed in 2015, then recreational sales in 2017. Although consumption lounges were legalized in June 2021, state-licensed lounge operators are still waiting to begin sales.

Declining sales

While Nevada operators may benefit from the state not having issued any new licenses since 2018 (other than the recent lounge licenses) and the 35 million or so incoming tourists visiting Las Vegas every year, sales seem to have peaked in 2021 and have been steadily declining every year since. This trend mirrors other established markets, including Colorado, Oregon and Washington. But in Nevada, what is even more concerning is that no one seems to know exactly why.

“I have yet to see one cause pinpointed for the decrease in sales because tourism hasn’t gone down,” says Nevada Cannabis Association executive director Layke Martin. “Gaming is having some of its best months ever in history.”

Ironically, Nevada saw its highest cannabis sales of just over $1 billion during the 2021 fiscal year, when tourism was at a low of 30.2 million visitors. Yet, as tourism rebounded in 2022, sales declined to $965 million; in 2023, when the state saw a surge in tourism growth, reaching more than 40.4 million visitors, annual cannabis sales declined again to $848 million.

The Cannabis Compliance Board, the state’s governing agency, is conducting a market study that should be released in spring 2024 and will hopefully shed some light on the contributing factors to the decreasing sales. Martin speculates one factor is the lack of enforcement on the illicit market.

Unlicensed retailers are illegally setting up storefronts and delivering to casino hotels, something licensed operators are prohibited from doing.

A fairer market in 2024

Although annual sales are down, Nevada operators have reasons for optimism in 2024, particularly in new legislation that is making it less expensive to operate.

One of the eliminated costs in 2024 was the time-and-effort billing, a $111-per-hour fee the Cannabis Compliance Board would charge operators for nearly any direct interaction with a licensee, including time spent on inspections and if an operator simply called with a compliance question. These fees were in addition to the wholesale excise tax set up to fund the CCB.

“We had a small family farm in rural Nevada who had bills coming out of one inspection for $47,000,” Martin says. “It ended up being huge in the industry because overall they (CCB) were billing $1.7 million a year or more.”

Another big change was to the state’s progressive discipline system which would stack small violations and fine operators close to the maximum penalty for each possible violation, often amounting to more than six figures. For example, if a cultivator had 100 plants that needed to be tagged at eight inches tall and an inspector found them untagged and measuring nine inches tall, then the operator would receive 100 violations. Martin says one operator was fined $40,000 for not having paper towels in a bathroom, mainly because there were a number of related violations cited in that same inspection that pushed fines higher and higher. The maximum penalty was lowered from $90,000 to $20,000 and individual violations are no longer stacked.

The other major change was to wholesale excise tax. The 15% tax on the first transfer of product from a cultivator to any other licensed facility was previously based on “fair market value,” the average sales value set nine months prior. Now, that tax is based on the actual sales price, a change that is expected to save cultivators $5.5 million annually.