-By Mark Fierro
Regulators of Nevada’s nascent cannabis industry are at a crossroads. Should they keep the estimated half-billion dollars a year of revenue entirely in the hands of local owners, who would logically seem to have a greater interest in the local economy and local issues like education? Or should they sit on the sidelines and allow that massive flood of cash to rush out of state or even out of the country through foreign ownership?
A point of disclosure, my firm, Fierro Communications, Inc., has been retained to handle public relations efforts on behalf of Nevada dispensary owners, many of whom had essentially perfect records of operation but were passed over in favor of business interests in Chicago and Canada.
As to where a huge chunk of the Nevada marijuana money goes, we are about to find out: Last year there were 64 new Nevada cannabis licenses granted. Of those licenses, more than one-third went to three companies — a public Canadian company, a company headquartered in Chicago whose majority investment is from Canada, and another public company headquartered in Chicago.
Our flood of cash may have just been diverted 2,500 miles away to our pals in Ottawa and Chicago. Something doesn’t smell right, and this time it’s not a cloud of marijuana smoke.
No doubt about it, the industry is proving to be an economic boon for the taxpayers of Nevada. Whatever happens, the tax proceeds from all those grams, “eighths,” and pre-rolls stay in Nevada one way or another. Also this is likely the legislative session in which lawmakers will put a much finer edge on where in Nevada those state tax dollars are allocated. In the early planning stages cannabis revenue was originally earmarked for education. Didn’t happen. It could happen this legislative session. One way or another, the opening year of recreational cannabis sales, July 2017 to June 2018, saw $500 million in gross revenue go to dispensary owners. That put just under $70 million dollars into state coffers. That was the first year.
Because of Nevada’s decades of experience in modern gaming and handling of cash in a highly regulated business, officials originally put a lot of emphasis on owners being Nevadans. It was far easier to conduct comprehensive background checks on local owners who would handle the goods from seed to sale.
But that “locally owned” approach may have had an economic impact far larger than Nevada state legislators ever imagined.
This year looks even better for sales and taxes. The question is, what does the horizon look like for the local economy when you take into account the “economic multiplier” that drives the local business climate? Local owners spend locally. After they pay their local employees and take care of their local business operations, they are sitting on a pretty big stack of cash. That money goes somewhere. Investment, new homes, new cars, new boats, other business opportunities. Wherever it goes it seems likely that more, not less, is going to stick to the local economy.
That’s where “economic multipliers” come into play. New home? Tax. New jobs to build that home. Tax. New car? Tax. New … you get the picture. It’s estimated in an economy like the Las Vegas Valley, where we are essentially an island, each new dollar turns over 3.5 times before it leaves our sphere of influence. That $500 million in revenue is looking more like $1.75 billion — that’s each year, assuming no growth. That is $70 million in tax dollars coming in to help education, homelessness and infrastructure. That number looks to be a bit beefier as well when all those investments and purchases by owners are taxed and taxed again when spent.
What’s a legislator to do? Well, the answers aren’t easy but if you care about Nevada and our local priorities the path seems fairly clear.
This massive shift of money to the Canadians had its roots in the 2016 initiative on recreational cannabis sales. Once the people of Nevada had spoken in favor of recreational marijuana sales, then-Governor Brian Sandoval made the decision to speed up implementation. He looked at medical marijuana license holders in good standing who had paid their taxes. Nevada operators were first in line and the rollout of recreational marijuana sales in Nevada went off as well as anyone in government had hoped. That was completely in line with the initiative petition which defined the “Qualifications for licensure that are directly and demonstrably related to the operation of a marijuana establishment”.
As part of that 2016 initiative process, the cannabis application process moved from Nevada’s Division of Public and Behavioral Health to the Department of Taxation. Sounds logical so far. But in the most recent round of licensing, much of the system that raked in those original big bucks and kept them here in Nevada got swept away.
Rather than the meticulous grading of applications that had been past practice by the Division of Public and Behavioral Health, the Department of Taxation used temp workers from Manpower.
It’s not the kind of move that tends to engender confidence when grading applications that will steer hundreds of millions, eventually billions, of mostly cash dollars on behalf of the good citizens of our state.
To make matters far, far worse, the new 2018 system is essentially opaque. It’s not up for review. You can’t see the process. You are not allowed. Hands off. Eyes closed. As a matter of fact, the licensees can’t even see the process behind their own grading.
The state became one giant leap closer to transparency as Governor Steve Sisolak has championed a new Cannabis Compliance Board based on Nevada’s vaunted gaming control regulatory structure. That, unfortunately, is only half of the answer because somewhere between the Manpower system and the governor’s new system, Nevadans got played.
One of the applicants in the new 2018 process, who was awarded 8 licenses, reached a definitive deal to sell their company during the application scoring process. They sold to a public company headquartered in Chicago.
The bottom line: 64 licenses were awarded. Of the 64, more than one-third went to three companies that were out of state or were Canadian companies or companies whose majority investor is Canadian. Sixty-two percent of the licenses granted went to six companies.
The Canadians are in — unless they aren’t.
Big questions loom on the horizon. How did the Manpower scoring result in out of state and Canadian firms and/or investors ending up with more than one third of the licenses? You won’t know and you aren’t allowed to find out unless someone in the executive, legislative or judicial system makes a sweeping decision right now. Quick. Could the entire 2018 process be thrown out and recast under the auspices of the governor’s new Cannabis Compliance Board structure? It could. It might not. A big green chunk of Nevada’s economic future is at risk.
One thing is certain: Billions of green dollars are in play and will likely end up being invested, spent, and taxed over and over again in the next decade, creating a mountain of positive economic momentum. The question is: Will that massive infusion of wealth benefit Nevadans or our good friends out of state and north of the border?
Mark Fierro began his career as a reporter/anchor at KLAS-TV, the CBS television station in Las Vegas. He worked at the U.S. House of Representatives in Washington, D.C. He served as communications consultant on IPO road shows on Wall Street. He provided litigation support for the Michael Jackson death trial. He is president of Fierro Communications, Inc., and author of several books including “Road Rage: The Senseless Murder of Tammy Meyers.”He has made numerous appearances on national TV news programs.