Injunction on Nevada Dispensaries Offers Hope for Mom-and-Pop Shops

The big names have been moving into Nevada at lightning speed. Curaleaf, Green Growth Brands, Green Thumb Industries and Acreage Holdings have all landed mega-deals with dispensary chains in the Silver State during the past year, and were on their way to overtaking its booming recreational industry.

But last month, the few locally-owned cannabis stores left were offered a glimmer of hope after a Las Vegas judge ruled to pump the breaks on issuing over 60 new dispensary licenses primarily to the major four North American companies. Clark County District Judge Elizabeth Gonzalez on Aug. 23 determined that the state’s cannabis regulating body — the Department of Taxation — acted beyond its legal authority while scoring over 460 applications for 61 new dispensary licenses last fall. In a 24-page injunction to temporarily stop the licenses from being issued, Gonzalez said the department’s illegal actions were “fatal to the application process.”

“The Department of Taxation acted beyond its scope of authority with it arbitrarily and capriciously replaced mandatory requirements for (legal marijuana),” the judge wrote.

Among violations, Gonzalez found the taxation department removed a necessary background check for some applicants, changed requirements for location and building codes, improperly trained temporary workers hired to score the applications and let personal relationships between department staff and business executives from the cannabis industry affect scoring.

The Silver State is one of just five recreational marijuana states to limit dispensary licenses, and recent sales of the licenses suggest each is worth at least $10 million, making such a purchase possible mostly for mega-corporations with millions in capital. Ballot Question 2, approved by Nevada voters in 2016, allows for about 130 total dispensaries to be open by the end of 2020, based on the state’s current population. That means only 64 new stores could be added to the 66 dispensaries already open statewide.

Curaleaf, which purchased a vertically-integrated dispensary, production and cultivation facility from Las Vegas-based Acres for $70 million earlier this year, last month also added Grassroots to its portfolio for a whopping $875 million. Operating in Nevada for just two years, Grassroots won seven of the 61 dispensary licenses in last year’s contest.

Curaleaf spokeswoman Megan Bishop said the injunction threatens to slow the company’s “accelerated expansion strategy,” but noted the injunction could be thrown out as early as next month.

A representative from Green Growth Brands, which last year bought The Source’s three dispensaries for just over $70 million and won seven more dispensary licenses in the recent draw, said the company would wait to comment on the litigation.

The few Nevada owned companies still remaining in the business were largely unsuccessful in the dispensary license lottery, but said the newly established injunction gives a light at the end of the tunnel.

Bob Groesbeck, who opened the 16,200 square-foot Planet 13 mega-dispensary last November, is among those holding his breath. Groesbeck, whose dispensary bills itself as the world’s largest legal cannabis store, applied for five licenses, finishing just outside the winner’s circle for all of them. He said he was shocked to come up empty handed.

Since using his only dispensary license to open one of Sin City’s flagship cannabis stores last year, Groesbeck has since made Planet 13 one of the few dispensaries worldwide to add a coffee shop and pizzeria. Unlike his local competitors, nearly all of whom have cashed in their successful marijuana stores by selling them to out-of-state and Canadian corporations, Groesbeck plans to keep Planet 13 Nevada-owned and operated.

“There’s something to be said about being from here,” Groesbeck said. “We’re Nevadans, we know how a Las Vegas business works and how to meet tourists’ expectations.”

Frank Hawkins, a former NFL running back who owns Nevada Wellness Center Dispensary in Las Vegas, believes if the results of the recent lottery are upheld, the few remaining locally owned dispensaries will be forced to merge or sell as bigger corporations’ assets multiply. Hawkins, a Las Vegas native who applied for four licenses, but received none, is one of nearly a dozen plaintiffs hoping the injunction leads to an eventual re-scoring.

“There’s compelling evidence the state erred many times,” he said. “The process should be thrown out and they should have to do it again.”

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