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Nevada Declares Marijuana State of Emergency to Avoid $100 Million Tax Shortfall

Marijuana, until recently illegal in Nevada, is now a major source of revenue the state can't afford to lose.
Nevada Declares Marijuana State of Emergency to Avoid $100 Million Tax Shortfall
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Typically, putting the name of a state and the phrase “state of emergency” in the same sentence means residents there are facing some serious trouble. Like “natural disaster” type of trouble.

Leave it to Nevada to put a new twist on things. State officials there declared an emergency this month because people couldn’t get enough of what they wanted. What did they want? Recreational marijuana. And the state’s dispensaries, in a continuation of some last-minute legal maneuvering that led to a bumpy roll out of the Silver State’s regulated recreational marijuana sales, couldn’t provide enough supply to meet demand.

Related: Policy Group Argues It's Time to End the Failed War on Drugs

But Nevada officials took action to fix the supply problem only after realizing that the state would miss out on a chunk of the $100 million in marijuana tax revenue expected over the next two years.

Distribution problems

As detailed here, the state had to allow existing medical marijuana dispensaries to sell adult-use marijuana while sorting out a legal case brought by the state’s alcohol distributors. By law, they were supposed to have exclusive rights to distribute adult-use marijuana for the first 18 months it was available.

But, while the state’s voters just approved recreational marijuana sales last November, Nevada officials decided not to wait until 2018 to begin sales as other states -- including California and Massachusetts -- chose to do while a system of regulation and taxation is created. They instead started in July 1.

That created an issue, as alcohol distributors did not yet have a license to transport marijuana. So state officials passed an emergency order allow medical dispensaries to sell recreational marijuana from their existing supply. The state is expected to need 60 to 90 days to sort out the legal issues with the alcohol distributors.

Related: Oakland Strives to Rejuvenate Economically by Becoming California's Cannabis Capital

This isn’t an issue in other states, such as Colorado and Washington, where dispensaries are allowed to transport their own supply.

Independence Day Weekend

Then came the long Fourth of July weekend. Dispensaries loaded up in preparation of big sales. However, they did not have near enough.

Dispensaries reported more than 40,000 retail marijuana transactions in the first few days of July (Nevada residents can buy up to one ounce per transaction, according to state regulations). The state also reported that some of the 47 licensed dispensaries had sales “of more than double their estimates.”

With no transportation system set up, supplies quickly started running out.

The state finally took action at a mid-July meeting of the Nevada Tax Commission, which decided to temporarily expand who is allowed to transport marijuana until the alcohol distributors are up and running.

Related: Do Something That's Never Been Done Before, According to This Marijuana Tech CEO

The main reason? The state has budgeted $100 million in marijuana tax revenue for the next two years. “Without the retail sale of marijuana, the state will not realize the revenue upon which the state budget relies,” Deonne Contine, executive director of the Tax Commission, wrote in a letter to commissioners.

Contine also said action was needed to keep buyers from moving into the black market to purchase marijuana if the supply of legal marijuana evaporated.

Follow on Twitter to stay up to date on the latest cannabis news.

By Javier Hasse
From retailers to growers, producers, and suppliers, there’s a seemingly never-ending list of startup opportunities in this emerging market. In Start Your Own Cannabis Business, marijuana, biotech, and entrepreneurship reporter Javier Hasse introduces forward-thinking entrepreneurs like you to the industry and shares hard-earned tips and success stories from pioneers and visionaries in the marijuana industry.
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