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The Highs and Lows of a New Market

UNLV alumni tell us why they took a chance on Nevada’s budding marijuana industry.

Business & Community  |  Apr 25, 2017  |  By T.R. Witcher
Tubes containing cannabis

(R. Marsh Starks / UNLV Creative Services) 

Recreational marijuana, with its stereotypes of stoned, easy-going fun, would seem a natural fit for a destination city that touts its escapist brand. But it has taken the better part of two decades for the state to progress from legalizing medical marijuana to actually dispensing it to legalizing its recreational use. Now that Nevada voters gave ballot approval to allowing residents to possess up to an ounce of pot, UNLV graduates, students, and researchers all are playing a part in the maturation of this young industry.

First, a little history. 

Marijuana was legal in the United States until 1913, when California banned it. Other states followed over the next two decades. The drug became illegal under federal law with the 1937 Marijuana Tax Act and is currently classified as a “Schedule I” controlled substance, which means the drug has been deemed to have no medical use and a risk of “potentially severe psychological or physical dependence.”

But states, starting with Oregon, have been decriminalizing marijuana since the 1970s; California began legalizing its medical use in 1996. According to Governing Magazine, 26 states and the District of Columbia now have some form of legalized marijuana. Colorado and Washington voters legalized recreational marijuana in 2012; Alaska and Oregon followed two years later. This past November, four more states — California, Massachusetts, Maine, and Nevada — voted to legalize recreational marijuana. 

The two major chemical compounds, or cannabinoids, found in cannabis are the psychoactive compound Tetrahydrocannabinol and the nonpsychoactive compound cannabidiol, the latter of which has many potential health applications, including providing relief from pain, without making people feel high. 

According to a 2015 study in the Journal of the American Medical Association, there was moderate-quality evidence to support the use of cannabinoids for the treatment of chronic pain and spasticity but “low-quality evidence suggesting that cannabinoids were associated with improvements in nausea and vomiting due to chemotherapy, weight gain in HIV infection, sleep disorders, and Tourette’s syndrome.”

Medical marijuana in Nevada actually dates to 2000 — when 65 percent of Nevada voters approved a ballot question allowing patients with medical conditions to obtain 2.5 ounce of cannabis every two weeks. But it took more than a decade for the state to build its regulatory framework to actually allow dispensaries to begin to sell it legally. 

Julie MonteiroJulie Monteiro, ’99 BS Kinesiology, spent nearly 20 years as a registered nurse before she became a convert to the health benefits of medical cannabis in 2010. After developing degenerative disc disease and being involved in two motor vehicle accidents, she experienced severe chronic pain that was failing to respond to traditional pharmaceuticals. So she investigated becoming a cannabis patient herself.

She was shocked to discover that there “was no dispensary, no safe access, no safe product” available to her. Though she had never been involved in politics, she and other nurses helped spearhead efforts to prod the Nevada Legislature to action. Monteiro also went on to found and edit Cannabis Nurses Magazine to connect medical professionals to evidence-based research and education tools.

“I never envisioned this for my career,” she said, “but as a member of the medical community, it’s frustrating when our laws haven’t caught up to the science yet.” 

In June 2013, Gov. Brian Sandoval signed Senate Bill 374, which established regulations for medical marijuana businesses, including cultivation, production, dispensaries, and laboratories. During the 10-day filing period for applications in August 2014, the state received 519 applications; that November, according to the state, “372 provisional certificates were granted: 182 for cultivation; 118 for production; 55 for dispensaries; 17 for independent testing laboratories.” The first businesses, a cultivator and a lab, opened in March 2015 followed by the first dispensary in August 2015. 

Riana DurrettGetting in the game wasn’t cheap. The state required dispensaries to have $250,000 in liquid assets to qualify for an establishment. According to Riana Durrett, ’08 JD, executive director of the Nevada Dispensary Association, that was intended to prevent those facing financial hardships from selling on the black market. “As a result, dispensaries are owned or backed by a lot of people who have been successful in other businesses,” she said.

Under the Boyd School of Law grad’s leadership, the dispensary association, founded to develop and promote best practices, has grown to represent more than 80 percent of dispensaries statewide. The association represents all three stages of the industry — cultivation, production, and distribution — and Durrett has been a constant figure at the Nevada Legislature as lawmakers refine laws for the budding industry.

Also on the NDA’s board is Ben Sillitoe, ’03 BS Finance, who built his career in the mortgage industry. When medical marijuana was getting off the ground in 2014, he saw an opportunity to be in on the ground floor of a new industry that involved significant social change. An old friend introduced him to an orthopedic surgeon interested in the medical applications of marijuana. The three applied for a license and opened Oasis Medical Cannabis in December 2015. At that point there were fewer than 10 dispensaries statewide. “That was a good number for what the market would bear,” Sillitoe said. 

Today there are 48 dispensaries across the state. The dispensaries vary in look and feel. Some resemble pharmacies, others look like an Apple store, still others look like a hobby shop. They sell a range of products, from flowers and edibles to tinctures, transdermal patches, and vape pens.

 But the gold rush on medicinal marijuana — even with Nevada’s reciprocity laws, which allows cardholders in other states to purchase cannabis here — hasn’t yet happened. 

“Companies are not making enough money to justify the amount of money they’ve invested, if they’re even making money at all,” Sillitoe says. “The market is just too small.” 

Of Nevada’s 26,500 cardholders, nearly 19,000 are in Southern Nevada, according to Nevada Division of Public and Behavioral Health. That’s quite a bit short of the 100,000 cardholders that policymakers initially projected. 

“For 44 dispensaries down here, it’s a number’s game. It’s just not enough,” Sillitoe said.

That makes the passage of recreational use crucial to those already in the industry, Sillitoe said. Many are optimistic that it will create a new niche in the tourism market. Colorado, for one, has certainly benefitted from establishing a recreational pot economy. A 2016 study by the Denver-based Marijuana Policy Group points out that in 2015, legal marijuana in Colorado created 18,005 jobs, $996 million in sales, and $2.39 billion in economic impact. Demand there is projected to increase 11.3 percent per year through 2020.

Nevada’s Department of Taxation is charged with developing rules and regulations governing recreational marijuana, and local jurisdictions are forming their own tasks forces to study how to accommodate these new businesses. Under the Question 2 ballot initiative, the state has until January 2018 to complete its regulatory regime. A law introduced this year by Democratic State Sen. Tick Segerblom would allow recreational sales to begin July 1 under a set of temporary regulations. 

The prospect of economic development from a new industry as well as the growing social acceptance of cannabis has also influenced the state’s quick timetable. 

Seth Floyd, ’10 JD, a principal with The Urban Law Firm, notes that one of the reasons lawmakers are moving fast is to address a loophole that permits state residents to grow up to six marijuana plants at home as long as they’re not within 25 miles of a recreational dispensary. “That creates an opportunity for a black market,” he said. 

Closing that loophole also will allow existing dispensaries — which will get first crack at temporary recreational licenses — to expand markets. Duevall Dorset, a UNLV journalism graduate student, helped found the university’s chapter of Students for Sensible Drug Policy, says dispensaries are biding their time until recreational cannabis gets off the ground. “The industry is a small baby. It can’t eat any meat right now. (But) wait a couple years — it’ll start getting bigger and growing stronger.”

“Nevada is not going to get all the details right on the first try — no one does,” said John Hudak, Senior Fellow at the Brookings Institution and an expert on marijuana policy. “Passing reform is the first step in a really long journey.”

As a visiting fellow in UNLV’s Brookings Mountain West, Hudak has taught policy courses on marijuana on campus and is an advisor to state legislators. He notes that legislators generally hesitate to be seen as boosters of recreational marijuana, but more are coming around. “It’s hard to find an elected official who will call legalization positive,” he said. “But you will often find these officials say, ‘This has worked out better than I expected. There have been fewer problems.’”

Nevada legislators have traveled to other states to study what has worked best. “They don’t want a carbon copy of what happened elsewhere,” says attorney Carlos Blumberg, ’95 BS Political Science, a founding member of the dispensary association. “They want to make this the gold standard in how you regulate it and sell it.”


Pot Policy

As the state of Nevada prepares to roll out regulations overseeing recreational marijuana, here are some key issues to keep an eye on:

Social Clubs

Marijuana has created a cottage tourism industry in Denver. If Las Vegas wants to compete, it will have consider following the Mile High City’s recent move to allow pot use in bars or other establishments. 

The gaming industry has steered clear of supporting legal marijuana, for fear of upsetting federal regulators. But areas like  Downtown Las Vegas appear well poised to be epicenters of a new casual pot consumption scene — if the state will permit it. State Sen. Tick Segerblom has introduced a bill to enable local jurisdictions to create rules for so-called “social clubs,” which are essentially pot lounges. 

“People go to Las Vegas to do things they ordinarily wouldn’t do at home. It’s called Sin City for a reason,” said John Hudak, Senior Fellow at the Brookings Institution and a national expert on marijuana regulation. “Because it’s such a booming tourism economy, domestic and international, I think the potential for this is tremendous. A much larger city such as Los Angeles will sell more, but per capita, Las Vegas should be huge.” 

Patient Protections

When medical cannabis was first regulated, patients had to obtain permission from their physicians to apply. The state lists several acceptable reasons, such as AIDS and cancer. Advocates want to make sure medical patients don’t get lost in the potential stampede to cater to recreational tourists. For one, they would like the state to make licenses for cardholders easier to get and less invasive, exempting cardholders from having to renew their license every year. They also want lower taxes for medical use. Julie Monteiro, a nurse and patient advocate, wants patients to be able to cultivate their own flowers to meet their own specific health needs. She also is advocating for protections for board-licensed medical practitioners. Without more explicit protections, doctors or nurses who provide education on medical marijuana or use the products as patients themselves could risk losing their licenses.

Prices

This isn’t a simple issue, Hudak notes. It involves tax rates, how many licenses are awarded, and how many plants the state allows producers to create. “If prices are too high people will not transition away from the black market. There will be fewer incentives for businesses to get into this space,” he said. On the other hand, “you don’t want to be the state that authorizes a flood of marijuana.”

Marijuana was very expensive in the early days of recreational sales in Colorado and Washington. People bought it as a novelty item, but it wasn’t sustainable. How Nevada manages the market “could mean life or death for the industry,” Hudak said.

Public Safety

The number of people testing positive for marijuana while driving has increased in Colorado, Hudak said,  and coroners have increased testing for marijuana in fatal crashes. So resulting uptick could be a result of simply looking for it more. Or it could be reality. At any rate, traffic deaths in Colorado have declined since legalization. 

The driving limit in Nevada is two nanograms of marijuana per milliliter of blood. But determining what counts as intoxication is far more art than science at this point. “You could have a positive result for someone who hasn’t smoked in days,” said Ben Sillitoe, board member of the Nevada Dispensary Association. “Blood metabolite levels can’t really determine impairment… Everybody recognizes that (establishing intoxication) really is a challenge.”

Federal Politics

While President Donald Trump has indicated he doesn’t want to touch medical marijuana programs, new U.S. Attorney General Jeff Sessions has talked tougher than his predecessors about recreational use. Attorney Seth Floyd contends the Trump administration could claim the states are acting unconstitutionally — violating the Supremacy Clause — but this may prove difficult politically for an administration that has trumpeted states’ rights on other issues. 

Meanwhile cannabis remains under the most restricted category of the Controlled Substances Act, thereby severely limiting peer-reviewed university research into the medical claims.