Legal pot in Nevada, 1 year later: Businesses must navigate myriad legal issues

RENO, Nev. — It’s no secret — cannabis is one of the fastest-growing industries in the United States.

This year alone, the U.S. cannabis sector could pump up to $33.8 billion into the nation’s economy, according to the Marijuana Business Factbook, an annual publication produced by the Marijuana Business Daily.

Further, the Factbook predicts the total economic impact of legal marijuana sales will increase by 234 percent over the next five years, from $23 billion in 2017 to as much as $77 billion by 2022.

These projections are key indicators why many entrepreneurs are rolling into the cannabis ecosystem in Northern Nevada.

Navigating state and federal laws, however, presents challenges for those eager to leap into legal cannabis, said Katie Hoffman, attorney at Fennemore Craig.

“Really, there are a couple of layers,” Hoffman said in an interview with the NNBV. “You’ve got your state issues, you’ve got your local issues, so you kind of have to make sure you’re working through all of those to get to the end result of opening up a cannabis business.”

hurdles to clear

It starts with the application process. The state requires companies to show liquid assets of $250,000, Hoffman said, and application fees are $5,000, plus an additional licensing fee if the company is awarded a license for the following: retail store ($20,000), cultivation facility ($30,000), production facility ($10,000), testing lab ($15,000) and distributor ($15,000).

“You have to have very good business plans and security plans,” Hoffman said. “You have to be able to show that you can track your inventory and that you have an educational process for your employees. So there is a lot of work that goes in on the front end to put together an application to give to the department of taxation. And that’s just the state side.”

In addition, aspiring cannabis businesses have to go through local licensing and be compliant with varying zoning ordinances, said Hoffman, adding: “A lot of cities and counties have restricted areas where these businesses can set up.”

Moreover, Nevada has limited the number of dispensary licenses available statewide to 132. To date, there are 63 dispensaries in the Silver State, including 14 in Northern Nevada.

After the Question 2 ballot initiative was passed in the 2016 election, legalizing recreational marijuana (which went into effect officially on July 1, 2017), the state only allowed businesses already holding a medical marijuana certificate to apply for an adult-use retail license.

However, in November 2018, the state department of taxation will likely open up the application process to anyone,” Hoffman said.

“That’s kind of the biggest hurdle,” Hoffman said, “finding the time when you can apply for a license to do this type of business.”

Cash problems ... and opportunities

There’s also the cash-only caveat cannabis businesses need to be aware of, Hoffman noted. Since marijuana is still federally illegal, there are no banks in Nevada opening their doors to cannabis businesses.

Hoffman said not having access to banking is one of the biggest sore spots facing the cannabis industry in Nevada and the nation as a whole.

Due to the complexities of paying taxes in a cash-only industry under federal scrutiny, Hoffman said having a really good accounting team is vital to a cannabis business.

“I think that’s an area where people could easily get tripped up, and that’s going to cause people the most heartache and pain,” she added.

With a background in gaming licensing, Hoffman knows what it’s like to work with clients in an industry with especially strict licensing requirements and compliance responsibilities.

Since 2014, when the state opened the doors to medical dispensaries, Hoffman has seen entrepreneurs with a marijuana business plan grow into thriving cannabis companies across the state.

“It’s kind of amazing how quickly things are moving,” Hoffman said. “This was brand new, never before seen work in Nevada in 2014. And now these are established companies, with multi-millions of dollars; they’ve got investors from foreign countries looking at helping out the market. It’s just really exciting to see how quickly stuff has developed.

“It’s an exciting industry and it’s an exciting time to jump in.”