Focus on Nevada Business

Legal Opinion by Alicia Ashcraft for Nevada Business Magazine published
October 1

Legal Opinion by Alicia Ashcraft, Esq.

Nevada’s Gaming Past Illuminates The Marijuana Industry’s Future

When the Nevada Legislature legalized gaming in 1931, the publisher of the Nevada State Journal called the act, “legalized liberality.” The small railroad stop of Las Vegas issued its first gaming license to a woman named, “Mayme Stocker.” A true pioneer, Ms. Stocker ran the Northern Club along Fremont Street, which had been operating in a gray legal area by offering patrons games of chance and alcohol in violation of federal law.

The railroads frowned upon their workers patronizing a speakeasy-like the Northern Club. It was no accident that Mayme held the Northern Club in her name—her husband, Frank, was a railroad executive who could have lost his job for his association with such vices. Four generations later, this “legalized liberality” is, of course, Nevada’s number one industry.

Nevada’s present experience with marijuana parallels its past experience with gaming. Like Mayme Stocker, many of Nevada’s cannabis entrepreneurs have operated in a gray area of legitimacy for years, and the stigma of the plant remains.

Nothing illustrates this stigma more clearly than the results of Ballot Question 2 in 2016, which legalized recreational marijuana use in Nevada. Though it won the popular vote, Question 2 passed in only three counties: Clark, Washoe, and Storey. Similar to gambling in 1931, marijuana sharply divides political opinion in 2017. But also like the monumental legalization of gaming in 1931, the passage of Question 2 will someday be seen as equally monumental in Nevada history.

The year since Question 2 has seen some remarkable events.
In July 2017, for example, sales of recreational cannabis began. In those first, few heady days, lines extended out the doors of dispensaries and in some cases, around the block. National news blared, “Nevada Governor Declares Pot Emergency,” when the Governor authorized emergency regulations as inventories ran low in the wake of a failed lawsuit to block distribution of product during the implementation of the temporary program. The permanent program goes into effect in January 2018.

When permanent retail marijuana sales begin, estimates for the size of the market vary widely from $400 million per year to $2 billion per year. These numbers are easy to imagine with a quick, back-of-the-napkin calculation: Roughly 50 million people visit Nevada every year. The National Institutes of Health reports “Past Year Marijuana Use” for adults over 26 was 10.4%. Thus, roughly 5 million visitors are potential customers. If 5 million visitors spent $100 on one transaction, the market is $500 million on tourist sales alone if this long-term trend holds true.

But we are seeing some short-term trends, too. Three seems to be emerging:

  1. Publicly-Traded Investments. Over the summer of 2017, we have seen a trend toward publicly-traded Canadian companies investing in Nevada marijuana establishments. Regulated by a provincial securities commissions and typically listed on the Canadian Stock Exchange, these investors are showing no signs of stopping.
  2. Tighter Regulatory Control. In the medical marijuana program, the Division of Public and Behavioral Health did an admirable job of regulating licensed establishments, balancing the needs of an infant-industry with Nevada’s strict regulatory requirements. Now that the regulation of marijuana establishments (both medical and adult-use) is under the jurisdiction of the Department of Taxation, we expect to see regulators enforcing the rules even more robustly in this maturing industry, including monetary fines for violations.
  3. More Entrepreneurial Opportunities. The marijuana industry has attracted an amazing number of entrepreneurs directly in the industry. But there are also seemingly endless opportunities indirectly or around the industry: security services, lighting companies, delivery services, tourism, software development, payment systems, ventilation and odor control, and mobile applications are just a few of the fertile fields surrounding the marijuana industry. We expect this trend to continue as the industry matures.
    Four generations ago, no one could have imagined the revolution that Mayme Stocker’s first gaming license spawned. Here is to hoping that four generations from today, Nevada’s experience with marijuana generates a similarly unimaginable revolution.

 

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