Builders, affordable housing advocates clash over bills that could increase fees for developers

Against a backdrop of increasingly unaffordable housing options, two measures heard at the Legislature on Tuesday highlighted the deep divide between developers and affordable housing advocates.

Proponents of the bills said the proposed legislation would give local governments the ability to raise money to support affordable housing projects. Opponents held that it would increase fees for developers and further negatively affect the market.

AB334, sponsored by Assemblywoman Shondra Summers-Armstrong (D-Las Vegas) and presented during an Assembly Government Affairs Committee meeting, would establish two options local jurisdictions could adopt to increase affordable housing stock. 

One option would allow local governments to require developers to follow inclusionary zoning policies, which would stipulate that a certain percentage of new construction has to be affordable for lower-income households — or pay a fee to avoid those requirements. The other would allow jurisdictions to adopt fees, known as linkage fees, ranging from $0.75 to $10 for each square foot of commercial or residential development.

Under the latter bill, the municipality or jurisdiction would have to create a local affordable housing policy or ordinance with other stakeholders before implementing the fees. The municipality would store money from both types of fees in an affordable housing trust fund that would fill financing gaps for developing and preserving affordable housing.

"[Affordable housing] is a critical issue within our state right now, and it cannot wait for more working groups," Summers-Armstrong said.

An amendment to the bill would reduce the maximum linkage fee that a local government could adopt on industrial development from $5 to $3, and exempt homes under 1,500 square feet, starter homes and small businesses. 

The amendment would also target 80 percent of revenue from linkage fees for affordable housing for people earning 60 percent of area median income (for a family of four that is about $47,200 in Clark County and roughly $50,100 in Washoe County) and prioritize at least 30 percent of the funds for revitalization efforts taking place at a neighborhood-level in lower-income census tracts. The allocations would not be mutually exclusive.

Summers-Armstrong said lack of investment and urban blight has led to abandoned homes in her district and other areas with large minority populations, such as Las Vegas' Historic Westside. The funding for revitalization efforts would allow community organizations to help move forward with preserving existing affordable housing and creating new affordable housing.

"We want affordable new housing, but not at the expense of decimating communities that are in existence," Summers-Armstrong said. "The preservation of a community is key to all of this because we want our children to live in our communities. I have sons, I want them to be nearby."

The other bill heard Tuesday, AB331, is sponsored by Assemblywoman Elaine Marzola (D-Henderson) and would allow local governments to incorporate the two options from AB334 (linkage fees or inclusionary zoning) into their affordable housing plans, while also asking counties and incorporated cities with populations greater than 100,000  (Washoe County, Clark County, Reno, Sparks, Mesquite and Boulder City) to establish five-year goals for preserving and producing affordable housing. The goals would be a non-punitive target for affordable housing units to be built or maintained during the five-year time frame. 

AB331 would also direct the Nevada Housing Division to consider the progress and tangible commitments to their housing goals made by those local governments when allocating funds from the division's Account for Affordable Housing and other sources of funding such as grants or the federal government. The affordable housing account is funded through a real estate transfer tax that generates anywhere from $8 to $10 million a year — but advocates say that amount barely makes a dent in the affordable housing market.

"Despite recent efforts of federal, state and local governments to address the issue, the problem has not improved. If anything, it has gotten worse," Marzola said during the hearing. "This bill provides clarity that local governments have the tools they need to advance affordable housing strategies that work for their community."

Christine Hess, the executive director of the Nevada Housing Coalition, said the five-year time span is designed to account for the time it takes to properly plan for and develop affordable housing that meets community needs. She added that fees need to be allowed to aggregate for three to five years to enable productive investments.

If passed, the two options in SB324 would join a dozen or so policies that local municipalities can already implement, and SB331 would require counties with populations greater than 100,000 to report on uses of inclusionary zoning and the fees. Current policies that local governments can adopt include subsidizing impact fees, selling land at 10 percent of the appraised value, donating land to a nonprofit, providing density bonuses or offering rental assistance. 

"These two [additional] tools balance out that toolbox by allowing local governments if they choose to, to enact additional fees to help put some more money in that pot to fill the gaps," said Nevada Housing Coalition lobbyist and one of the bill presenters, Sarah Adler.

Warren Hardy, a representative for the Urban Consortium (consisting of the cities of Las Vegas, Henderson, Reno and Sparks), testified in support of the two bills. As a general rule, he said, the consortium supports any legislation that gives local governments more options to address the need for affordable housing. 

"This legislation will give us the tools to reach out to the community, to reach out to the stakeholders, and to craft, at the local level, a solution to this problem," Hardy said. "We appreciate the sponsors for bringing this forward and particularly in a way that enables local governments to have a say and to make a decision about adopting these measures."

But the bills have attracted organized opposition from outside groups. Within the last week, Nevada Housing Now, a self-described "grassroots arm of the Nevada Home Builders Association," released two advertisements on YouTube against the bills, telling lawmakers, "Don't make housing even more expensive in Nevada'' and "oppose AB331 + AB334." 

"New home construction injects nearly $10.1 billion into the state's economy and accounts for $4.7 billion a year in total wages and salaries," text in one of the videos said. "Linkage Fees and Inclusionary Zoning act like a tax on housing."

Developers emphasized that the fee proposals would increase housing costs for buyers. The Legislature should consider bills that expand low-income housing tax credits and grants for rental assistance, not ones that burden developers, said David Goldwater, a lobbyist for the Nevada Home Builders Association.

"Linkage fees only add to the cost of housing," Goldwater said during the hearing. "Without control over how the money is spent, history suggests fewer affordable units built and more working families priced out of the market."

In response to the opposition, Adler said that inclusionary zoning has been authorized in Nevada statute since 1999, and the policies local governments would be required to write would stipulate how money is spent. None of the funds generated through the legislation would go toward a city’s general fund, she said.

"I totally respect the pickle that [developers] are in. They are already paying a variety of kinds of permit fees, licensing fees, impact fees, because that's how we pay for our community development is through growth," Adler said. 

Assemblywoman Jill Dickman (R-Sparks) voiced fears that additional fees would discourage development. Assemblywoman Annie Black (R-Mesquite) advocated for a different solution.

"If we need teachers, we don't make it harder to become a teacher. If we need doctors, we don't make it harder to become a doctor, we make it easier," Black said. "The answer is to reduce fees, to reduce restrictions, reduce red tape and make it easier for them to build, not make it harder for them to build."

Summers-Armstrong countered that Nevada offers so many benefits to businesses that AB334 will not halt development or growth. She added that the bill would help create affordable housing for people working for companies such as Amazon or Walmart that do not pay wages high enough for employees to afford housing.

"This is not going to make our environment so hostile that businesses will not want to come here," Summers-Armstrong said. "We still have a burgeoning economy ... but I think that Nevada also has to recognize that she has citizens that need help, that these jobs have a consequence." 

Cities such as Chicago, Boston and Washington, D.C. have enacted similar legislation to AB331 and AB334, Summers-Armstrong added. Developers would not stop building with the addition of these fees, she said. 

The proposed fees are based on rigorous economic analysis, not every industry is subject to them and local governments must work with all stakeholders, Hess said.

"I'm a former economic developer, I love new business, I love new development, it's exciting when new projects come to town, but there is an impact," Hess said. "We can't just talk about affordable housing anymore. And as even our opposition has noted, there's not one tool, and in fact, we would consider these two tools pretty small pieces of our ultimate success strategy to tackling affordable housing."

Tensions over 2018 marijuana licensing resurface with bill that would give losing companies chance to expand

A table of packaged marijuana for sale

An acrimonious battle over the distribution of coveted marijuana dispensary licenses in 2018 spilled over into the Legislature on Thursday, with sharp opposition to a measure that would allow applicants who lost out on the licenses another chance to open new stores.

SB235, sponsored by Sen. Dallas Harris (D-Las Vegas), includes a provision giving “social equity” applicants who have been adversely affected by the War on Drugs a leg up when applying for a Nevada marijuana license. The bill’s most controversial element by far would create a new path for additional dispensaries in the dog-eat-dog cannabis market.

“First, it will allow better access for patients to obtain their medicine. Second, it will address the major flaws in the last licensing process. Third, it will give local Nevada cannabis businesses the opportunity to help Nevada get back on its feet,” said supporter John Ritter, who is affiliated with the marijuana company The Grove and has long been fighting the licensing procedures from 2018.

Unlike most other business types, retail cannabis stores are capped in number by government. A 2018 round of licensing doled out 61 dispensary licenses to 17 different companies even though 127 businesses applied. That drew almost immediate backlash from those who didn’t win; they argued the state’s process was riddled with problems. 

After lengthy and complex litigation, Judge Elizabeth Gonzalez concluded last year that certain actions by the Nevada Department of Taxation, the state agency that issued the licenses, created “an uneven playing field because of the unequal information available to potential applicants.” But she said neither monetary relief nor new licenses should be doled out as a result.

A proposed amendment to SB235 allows applicants unsuccessful in 2018 a route to finally getting permission to expand by allowing those dispensaries, if they have both retail and medical licenses, to spin off the medical marijuana license into a completely new license and double their number of stores. 

Cannabis Compliance Board Executive Director Tyler Klimas said the bill could potentially yield new dispensaries for the 110 businesses that didn’t get a license in 2018. But attorney Mark Fiorentino, representing the Grove, a company that missed out on licenses in 2018, said the number of new dispensaries that might result from the bill was probably closer to 20 because of requirements such as dispensaries having local approvals. 

There are currently 81 dispensaries open statewide, and another 50 are expected to open by a February 2022 deadline.

Proponents commissioned an analysis from RGC Economics that projected the state could support up to 1,283 additional dispensaries. Nevada’s marijuana market grossed nearly $700 million last fiscal year and is on track to break that record this fiscal year.

But opponents cited another study from a different Nevada-based analyst, Jeremy Aguero of Applied Analysis, that concluded adding more licensees would dilute revenue for existing stores. They also say it would go against a settlement with the Cannabis Compliance Board that called for a study on whether new licenses are needed to serve Nevada.

They say licenses should be doled out in a competitive, merit-based process, arguing that inferior applicants are looking for a back door to get a license, and that bill proponents should go through proper channels when a future application window opens up.

“SB235 is clearly an end run around Judge Gonzalez’s decision in an attempt to award licenses to those that were unsuccessful, both in 2018 in obtaining licenses as well as unsuccessful in the litigation,” said attorney Rusty Graf, who represented Clear River LLC, which won three licenses in 2018.

The hearing, in the Senate Revenue and Economic Development Committee, also exposed an internecine conflict that has riven the industry. Nevada Dispensary Association (NDA) Executive Director Layke Martin indicated that an unnamed board member went behind the backs of association leaders, neglecting to give them a heads up about the provisions of the bill before it was introduced.

“There’s a reason for that,” she said, pointing to a portion of the amendment that creates a new pathway for unsuccessful applicants to expand. “The award of licenses as set forth in section 2 of the amendment threatens the strength and integrity of the industry at large, and it's not something that the NDA would ever support.”

Bill co-presenter David Goldwater, a board member of the dispensary association, said the five-member board is stacked against smaller operators who didn’t win a license in 2018, such as his business, Inyo Fine Cannabis Dispensary. 

“This is a unique situation where the association took a position on a bill that the members had a differing of opinion,” he said. “I look forward to working with the sponsor on seeing if we can improve this bill.”

In ruling critical of state’s oversight, judge says even smallest owners of marijuana companies should have been background checked

An employee prepares cannabis for planting in the propagation room at Reef Dispensaries

A Las Vegas judge has ruled that marijuana license winners that have not had background checks on all of their part-owners — even ones with small shares — cannot use the license to open a dispensary unless they correct the issue.

District Court Judge Elizabeth Gonzalez issued a permanent injunction on Thursday, bringing a level of closure to many major issues in a drawn-out legal case so large it’s sometimes called “World War Weed.” Her order gave credence to many of the complaints brought by plaintiffs who did not win coveted and limited dispensary licenses in 2018 and argued the state’s process for vetting applications was marred by favoritism and shifting standards midway through the process.

Certain actions by the Nevada Department of Taxation, the state agency that issued the licenses, created “an uneven playing field because of the unequal information available to potential applicants. This conduct created an unfair process for which injunctive relief may be appropriate,” Gonzalez wrote.

In the 2018 licensing round, 127 companies submitted 462 applications for licenses that would have given them a rare chance to expand their business in the strictly limited world of legal marijuana. Of that, 61 licenses were distributed among only 17 different companies, and many who missed out cried foul.

Gov. Steve Sisolak said in a press release on Thursday that he is confident the state, which has now created and appointed a Cannabis Compliance Board to regulate the marijuana industry, “will implement lessons learned from this case.” Democratic Attorney General Aaron Ford, whose office represents the taxation agency under fire, framed the decision as one that brings clarity to a cannabis sphere divided over actions taken in 2018.

“While some litigants have characterized this long, hard fought case as a war, my office’s policy is to do justice, which in this instance means opposing this lawsuit in an open, fair manner to enable the Court to determine the legality of the 2018 retail marijuana competition,” Ford said in a statement.

Gonzalez determined that the state agency violated the will of voters, who legalized marijuana through 2016’s Question 2, by approving applications of companies without conducting background checks on owners who held a share of less than 5 percent. 

Four companies could have been blocked by the injunction: Helping Hands, Greenmart, Lone Mountain and Nevada Organic Remedies. But a court filing indicates there is a path forward for getting approval for applicants who were truthful in their application, and Ford's office said that after questions about ownership were resolved for the four companies, it "did not identify any applicant to whom such a restriction would apply."

She also faulted the former head of the marijuana enforcement division, Jorge Pupo, for deleting text messages from a personal phone he used heavily for work after the attorney general’s office had asked him to preserve the evidence.

“The Court finds evidence has been irretrievably lost as a result of his actions,” Gonzalez said, concluding that the evidence presumably would have been detrimental to the state’s case.

Gonzalez also said that an established process of funneling applicant requests through a single point of contact was circumvented, and Pupo conducted significant conversations directly with certain applicants in violation of protocol. That led to some companies having key advice on how to complete an application that never made it to other applicants.

“The (Department of Taxation) made no effort to ensure that the applicants received the same answers regardless of which employee of the DoT the applicant asked,” she said. 

While the ruling found numerous faults with the state’s process, it did not find that any monetary damages could be awarded, nor could new licenses be granted.

“With the anticipated return of tourism after the abatement of the current public health emergency, significant growth in legal marijuana sales is anticipated,” she said. “Given the number of variables related to new licenses, the claim for loss of market share is too speculative for relief.”

The ruling could have implications for a recently approved partial settlement between some of the many former plaintiffs and the state. That agreement calls for reshuffling of licenses and expedited approval of certain dispensaries, but some of the licenses in question could be unusable — at least for now — because of the injunction.

A spokeswoman for the Cannabis Compliance Board said “the CCB is aware of the order and is currently reviewing it.”

But for some plaintiffs who opposed the settlement on the grounds that it didn’t include all parties and didn’t address what they view as the central injustices in the application process, the injunction is vindication.

“We always knew it was unfair and it’s nice to have a judge confirm what we actually knew,” said David Goldwater of Inyo Fine Cannabis Dispensary in Las Vegas. “It’s not an indictment of the people who got licenses. It’s an indictment of the state and the process they went through, and it’s mismanagement on the state’s behalf.”

Updated at 8:52 p.m. to clarify status of companies potentially affected by injunction.

Tax Commission approves partial settlement to start laying to rest drawn-out marijuana licensing lawsuit

Group of pedestrians outside Essence Cannabis Dispensary

The Nevada Tax Commission has unanimously approved a settlement that could partially put to rest a sprawling legal battle that pitted the state against a litany of marijuana companies that argued they didn’t get a fair shot at lucrative and limited dispensary licenses.

Commissioners unanimously voted on Friday to approve the settlement, which involves some 17 plaintiffs and reshuffles some of the licenses that the state awarded in the disputed 2018 application round. It comes in the middle of a trial so big that it had to be moved to the Las Vegas Convention Center and as part of a consolidated lawsuit with so many parties it has earned the nickname “World War Weed.”

"I know this is not a perfect agreement,” said Tax Commission Chairman Jim DeVolld, who had been tasked months ago to try to resolve the matter that has been building in court since late 2018. “It's a difficult concept for me to try and figure out how do I get everybody in the tent, and it was pretty obvious to me that that was impossible."

But some marijuana companies say DeVolld and the Nevada attorney general’s office, which represents the taxation agency, didn’t reach out to them and invite them to be part of the settlement. They fear that they can’t carry the trial forward with some of the other parties picked off by the other side and will be left with no share of the spoils.

"Not all parties were equally consulted or worked with in order to settle this case. We were never contacted. We were never offered the same settlement,” said David Goldwater of Inyo Fine Cannabis Dispensary, which did not win licenses in 2018 and was not part of the settlement.

The lawsuit comes after the state in 2018 awarded 61 licenses for additional dispensaries in the state. While 127 entities had applied, only 17 entities won any of the licenses, affording them a coveted chance to expand their retail operations and build a dominant footprint in the emerging industry. It’s unclear if or when chances for more licenses will come up again because the number of dispensaries is capped by the government.

Plaintiffs argued that the state’s process had major flaws. Among other things, they argued that the top marijuana regulator, Jorge Pupo, provided application tips to prominent cannabis attorney Amanda Connor over steakhouse dinners that gave her clients a decisive edge over the competition.

Opponents of the settlement, including former Secretary of State Ross Miller, who represents seven marijuana companies not included in it, say it commits the state to things that are factually false, does not end the lawsuit and was a rush job on an agreement that “may literally determine the future of an industry.”

Goldwater said it perpetuated the issues of favoritism at play in the original lawsuit.

“As long as the booty of the endeavor is substantial enough, you can cheat the system and then settle the case with that same booty,” he said. “We are all tired of this litigation and we are all drained of significant resources. But that should not discourage us in our quest for fairness.”

But commissioners opted to proceed with the settlement, contingent on approval from the Cannabis Compliance Board, which has assumed marijuana regulatory authority as of July 1. The board’s executive director, Tyler Klimas, said the board had reviewed the agreement and was prepared to carry out its provisions.

"It's not perfect and it doesn't resolve everything,” Commissioner Sharon Rigby said about the agreement. “But if it resolves 80 percent of the matters, puts them to bed, I think that this is a huge step forward.”

From marijuana to coffee shops, Nevada businesses cautiously opened doors after COVID-19 shutdown

As the state emerged from its coronavirus-induced hibernation over the weekend, Nevada residents faced a personal decision: Should I stay or should I go?

Even with sunny weather and a go-ahead from Gov. Steve Sisolak — who last week announced the state’s scheduled reopening date would be moved up by more than a week — many Nevadans remained cautious about going out to dinner, shopping or other activities put on hiatus because of the COVID-19 pandemic.

Stephen Lafer, a Reno resident, has limited his excursions over the past seven weeks to the grocery store, Costco for his prescription medication, Home Depot for gardening supplies and the occasional takeout dinner. The loosening of restrictions won’t change the 71-year-old’s habits for now.

“I’m in that age group that is vulnerable,” he said. “And, besides that, I kind of feel it’s wrong to go about doing what might possibly enhance the danger of the virus spreading.”

In spite of polls showing some skepticism about reopening too soon, Nevada is not alone. More than half of the states in the country have moved to some kind of gradual reopening, according to a tally kept by the New York Times, even as many continue to not see the kind of continued decreases in COVID-19 cases recommended by public health experts before reopening.

Local governments say they have taken a gentle approach to enforcement, focusing on educating businesses and residents rather than bringing down the hammer on crowds. Meanwhile, businesses that reopened say they’re navigating a world of broader safety precautions and lower volumes but grateful to break out of cumbersome delivery-only models.

Lafer, a retired University of Nevada, Reno, professor, doesn’t have a timeline for when he might feel comfortable patronizing more stores or restaurants. He said it depends on the circumstances. 

When a group of anti-shutdown protestors marched down his street several weeks ago, it didn’t leave him feeling confident about the broader public’s participation in safety measures.

“That kind of behavior bothers me immensely,” he said. “It makes me wonder whether or not a democracy is a good idea.”

Village Barber Shop in Reno opens with COVID-19 procedures on Saturday, May 9, 2020. (David Calvert/The Nevada Independent)

But the gradual reopening came as a welcome relief to some people. Jon Nichols, 45, said it felt like “Christmas shopping” walking into a Total Wine & More and viewing products in person. He also stopped by a drive-through sportsbook at the Golden Gate Hotel and Casino in downtown Las Vegas and dined at the off-Strip Del Frisco’s Double Eagle Steakhouse.

Nichols, whose brother died by suicide years ago, said that loss has instilled in him a zest for life. He worries what prolonged isolation will do for people’s mental health.

“I do my best and I keep distance, but I also feel like I’ve gotta live,” he said.

Nichols, a Henderson resident, said he knows some people will judge his decision. But the software engineer is quick to point out that he doesn’t align himself with the protesters gathering outside state buildings. He dons face masks in crowded public settings like grocery stores and respects others’ decision to stay home. 

From the safety precautions he observed this weekend, though, he’s not afraid to visit certain places. 

“It was kind of a quiet environment. It was cool,” Nichols said of his dining experience. “I certainly never felt like I came in even 10 feet of anyone other than the staff.”

Gary Sessa, 53, just wants people to display a bit more patience. As he picked up takeout from Nacho Daddy in Las Vegas, he witnessed a disgruntled group leave the restaurant after being told they needed to make a reservation. He felt badly for the staff, who had taken time to ensure proper social distancing inside and outside the restaurant.

“We’re all trying to do what we can to make this work,” he said. “It’s difficult for everybody. There are some people who are trying to make the best of the situation, and there are other people who just want to sit and complain.”

Sessa isn’t ready to dine in at restaurants or take a shopping trip, but it’s mostly because of a medical condition. He has a swollen lymph node in his chest courtesy of a disease called Sarcoidosis. His doctor has advised him to keep a low profile.

“I’m taking it slow,” said Sessa, a teacher at Bonanza High School. “I’d rather let things kind of settle down before I start going into restaurants for any length of time or going to get my hair cut. I’m all for these things being open, but I’ll wait a little longer.”

New requirements

Under Sisolak’s Phase 1 reopening plan, a broader array of retail stores are allowed to open as long as they do not exceed 50 percent of capacity as determined by the local fire marshal. Restaurants are also allowed to open for dine-in service, provided they follow the new capacity rules, space tables six feet apart and employees wear masks at all times.

Personal care services, including barbershops, hair and nail salons, are allowed to open if stations are six feet apart and if employees wear face masks. Customers must make appointments, and walk-ins are prohibited.

Businesses that are not allowed to open include bars, nightclubs, massage parlors, spas, gyms, fitness studios, brothels, strip clubs, movie theaters (except for drive-ins), bowling alleys, live sporting events and casinos.

Wingfield Park in Downtown Reno, along the Truckee River on Saturday, May 9, 2020. (David Calvert/The Nevada Independent)

Local governments respond

Sisolak’s Phase 1 directive contained plenty of details on mandatory and recommended best practices for different industry types, but was short on one topic area: enforcement.

The emergency directive merely authorizes local, city and county governments to enforce the directive and industry-specific guidelines, with suggestions on possible penalties including fines or suspension/revocation of business licenses.

But many jurisdictions have avoided taking direct enforcement action against businesses or individuals who may be violating social distancing rules or other requirements ordered under Sisolak’s directive.

North Las Vegas spokesman Patrick Walker said the municipality had worked collaboratively with other Southern Nevada governments to create a business reopening guide, and sent out Sisolak’s guidance document on Thursday to all of the city’s 6,200 business license owners.

Walker said the city’s enforcement staff was investigating complaints as they came in, but had received no complaints as of mid-day Monday.

“Our businesses thus far have done an outstanding job complying with the previous emergency directives, and we anticipate that cooperation to continue,” he wrote in an email.

Clark County Commission Chair Marilyn Kirkpatrick told the Las Vegas Review-Journal last week that the county would work with the Southern Nevada Health District, the Las Vegas Metropolitan Police Department and licensing boards to conduct business inspections, but did not say whether the county would take any additional steps to enforce social distancing or other requirements. 

Clark County spokesman Dan Kulin said business license agents visited more than 200 businesses over the weekend to help answer questions and offer guidance on how to comply with the required social distancing steps needed under Phase 1. He said the county did not receive any complaints over the weekend about businesses not following those guidelines.

It appears most jurisdictions are taking more of a public education than an enforcement route. Reno Mayor Hillary Schieve said she had heard scattered reports of people or businesses over the weekend not following social distancing rules, but that city code enforcement had generally tried to give businesses leeway in correcting issues before taking stronger corrective action.

“This is something that people are not used to, your customers aren't used to, your businesses aren't used to this,” she said. “It's a whole new environment that we have to adapt to.”

A city of Reno spokesman confirmed that outside of a few complaints of people not wearing masks — which is a recommendation, not a requirement — the city has not had any major complaints of businesses violating the governor’s orders.

Even so, businesses opening their doors now will be greeted with a much different environment, given lingering concerns about COVID-19 as well as rampant unemployment. Schieve, who owns second-hand clothing stores in Reno, said her businesses have not reopened and when they do, she expects much different consumer behavior.

“You don't just turn on the lights and everything goes back to normal,” she said. “Some businesses will do incredibly well and others, I think, are going to struggle if they're not essential or provide a service that people absolutely need right now.”

Randi Thompson, state director of NFIB Nevada, a small business association, agreed.

“If you open, they will come is not necessarily the case right now,” she said. “You’ve got people that are still wanting to hunker down.”

Hand To Paws dog groomer in Reno with a sign explaining COVID-19 procedures on Saturday, May 9, 2020. (David Calvert/The Nevada Independent)

Businesses navigate a new normal

Uncertainty about customer counts didn’t stop some businesses from opening their doors Saturday on short notice from the governor. Eric Jacobson and Kyle Howell, co-owners of Recycled Records in Midtown Reno, ordered gallons of hand sanitizer and wiped down the store for their reopening.

They estimated roughly two-thirds of customers wore masks, with everyone else maintaining a safe distance from one another.

“We haven't had to give anybody a hard time about getting too close to other people,” Jacobson said. “Everybody's been really, really great.”

Sunday was not as busy, but Howell and Jacobson said they are taking it one day at a time.

“We actually discussed not opening for safety reasons, but we thought we'll just do it this way and it's kind of an experiment and we'll see where that goes,” Jacobson said.

The Thursday announcement that Phase 1 of Sisolak’s reopening plan would begin Saturday surprised Alex Farside, the co-owner of Reno’s Coffee N’ Comics

Farside and his partner had much work to do in less than 48 hours, including setting up a plexiglass shield at the cash register and rearranging the store to increase space between tables.

Farside said it can be hard to hear customers’ orders when they speak through masks, but he’s glad for the chance to talk in person.

“We have a little patio and I went out and put a little sign next to a planter. It says, ‘The party's here!’ even though it's not really, but at least it has sparkles and it looks cute,” he said. “We're trying not to talk about doom and gloom the whole time when people come in.”

Iman Hagagg said new requirements have put a damper on reopening her Las Vegas Egyptian street food restaurant, POTs, which she said can only fit nine people under social distancing requirements. Hagagg is not closing POTs to walk-in diners, but she is also not advertising that it’s open for sit-down meals and hopes to keep serving customers via delivery for now.

“Expectation and reality are two different things,” she said.

She worries about the safety of her customers and staff and is trying to figure out how to open for full service without jeopardizing anyone’s health. 

“The face mask, how are you going to give people the hospitality they deserve?” she mused. “We cannot give the full experience to the customer, I would say.”

Inyo Fine Cannabis Dispensary in Las Vegas opened its storefront over the weekend after its reopening plan was approved by the Nevada Department of Taxation. Only 10 customers are allowed in the store at once, and customers — not just employees — must wear masks.

There’s even a contingency plan in place for how to address customers who revolt against the mask-wearing provisions.

Owner David Goldwater said allowing storefront sales has opened the dispensary up to customers who only want to spend a small amount of money on cannabis products. Under the original delivery-only model, dispensaries had to provide enough to make the trip worthwhile but not more than state regulators permit. 

“Delivery was tough because in order to do it compliantly you couldn’t have much volume. It didn’t scale,” he said.

Goldwater has added back almost half of his employees — not everyone has been chomping at the bit to come back — and is monitoring demand to see when the time is right to bring back the rest. 

“It’s been as good as can be expected,” he said of the reopening.

Village Barber Shop in Reno opens with COVID-19 procedures on Saturday, May 9, 2020. (David Calvert/The Nevada Independent)

Salons are among the businesses allowed to reopen in Phase 1 — something that thrilled Alana Davis until she realized only hair and nail salons are included. She doesn’t think it’s fair that lash and waxing salons like hers, Aesthetically Speaking in Reno, are still ordered closed. 

“I personally believe that because the hair stylists were causing an uproar because none of them can file for unemployment, that that’s why [Sisolak] allowed the hair and nails to open,” she said.

While she’s using the extra time before reopening to continue deeply disinfecting and implementing social distancing procedures, she pointed out that estheticians were wearing masks and sterilizing tools with Barbicide well before the pandemic.

“I feel that our sanitation and disinfection policies that were in place prior to this even happening were way more than Walmart or Home Depot,” she said. 

She isn’t worried about volume when the salon finally can reopen. Most of the estheticians are booked solid for three weeks, with lash extensions, eyebrow waxes and Brazilian waxes among the most in-demand services.

Globe Salon co-owner James Reza had planned to open his two Las Vegas hair salon locations on Saturday. But after receiving about 200 calls at each location in a 24-hour period, Reza quickly realized that the salon would need more time to accommodate clients safely.

“It’s hard when we were given 19 hours notice to close, and then we waited anxiously for 49 days, and then given about 36 hours to reopen,” he said. “That was kind of an emotional whipsaw, not to mention the processes of firing up the businesses from essentially a dead stop.”

During those weeks without an appointment, some of those clients did take hair matters into their own hands.

“There are some guests who have laughingly ‘warned’ us of what to expect,” Reza said. “We did our best to encourage guests to wait it out… grown out hair and hair color is a lot easier to fix than someone who tried to freshen their balayage at home or ‘trim’ their bangs with garden shears.”

Reza expects the appointment book will be full for the rest of May. Still, it could be hard to make ends meet long-term by operating at a reduced capacity.

“Operating at partial capacity is not a realistic long term solution for any business,” he said. “But we are happy we can do so right now.”

Small businesses that did not see a rush over the weekend were left dismayed, Thompson said. Given the rapid reopening, she said next weekend will be a better indicator of consumer behavior. By that time, businesses will have had enough time to restock and spread the word about their reopening.

Even then, they know business might be slow for several months.

“There’s some reasons for that no doubt,” Thompson said. “We’ll just live with them and adapt accordingly.”

Reporter Michelle Rindels contributed to this story.

Eight-member state tax commission delegates to chairman the authority to negotiate settlements with marijuana companies

Marijuana displayed inside Inyo Fine Cannabis Dispensary

The Nevada Tax Commission has voted to give its chairman the authority to negotiate settlements on behalf of state marijuana regulators, with the agreements going before the full commission for final approval.

Chairman James DeVolld said on Monday that he thinks his new duties will deal with major litigation between the state and marijuana businesses that argued they were unfairly denied potentially lucrative dispensary licenses. A trial on that matter is scheduled for April. DeVolld said he doesn’t think his new work will deal with smaller settlements with individual marijuana companies such as a recent one in which a testing lab paid $70,000 to resolve allegations of regulatory violations.

“I wouldn’t be comfortable doing anything with the ongoing issues — you know, if somebody has done something incorrectly or not, according to the regulations,” DeVolld said in an interview after the meeting. “That should go to the full tax commission, not just to me.”

Commissioners also opted not to give DeVolld power to promulgate emergency regulations. He said he didn’t think it was a good idea for one person to develop those on their own.

Melanie Young, executive director of the Nevada Department of Taxation that has regulatory oversight of the legal marijuana industry, declined to say what prompted the move to delegate authority on settlements, with her lawyer citing attorney-client privilege. Young will be assisting with the settlement negotiations.

Will Adler, a lobbyist who is active on marijuana issues, said the board’s involvement might improve the processes of a marijuana regulatory system that has been criticized for being opaque.

“The more participation with the tax commission the better, if it’s done in a public format,” he said. “If it doesn’t add to any increased transparency or public inclusion, I don’t think it will be much better.”

The process of approving settlements for regulatory violations within the marijuana industry came under fire on transparency grounds at a February tax commission meeting in which a penalty for a marijuana testing lab was finalized. Other labs complained that the past history of discipline against the lab should have increased the penalty and led to a revocation.

Young said she was not aware of past discipline issues, and said disciplinary action was confidential until final. The department did not answer written follow-up questions about the lab’s past discipline.

Taxation officials are also facing complex litigation from dispensaries that did not win additional licenses for retail storefronts. One dispensary owner who is involved in litigation, David Goldwater of Inyo Fine Cannabis Dispensary, applauded the move to establish a point person to work on a settlement.

“It’s good to see the commission taking an active role in settling these suits,” Goldwater said. 

While Tax Commissioner Francine Lipman asked whether the arrangement would run afoul of open meeting laws, Deputy Attorney General Rosalie Bordelove said state law allows delegation of settlement duties to the chairman. She noted that it can be difficult to wrap up settlements within the time constraints of court cases and convene commissioners with meetings relatively far apart on the calendar.

DeVolld said his goal was to move settlements forward and avoid further legal costs to the state.

“You’ve got various parties that are associated with this and I think sometimes that’s hard to come up with an agreement,” DeVolld said. “The alternative is everybody goes to court and spends a bunch of money to do that so I think we’re just trying to shortcut that … I think that’s part of my job is to try and save taxpayers money.”

Updated at 2:10 p.m. to add comment from Will Adler.

Many former elected officials and public employees have made their way to the marijuana industry

The interior of the Nevada Legislature

Nevada’s system of regulating marijuana was born in the halls of the Legislature. So perhaps it isn’t surprising that many who wander those halls, sit through hours of hearings to develop a regulatory structure and stay current on the latest twists and turns of cannabis law wind up involved in the industry themselves.

Records released through SB32 this spring reveal a number of former lawmakers and lobbyists on the list of owners and board members of marijuana companies. Among them are two who reached speaker, the highest post in the Assembly, but had become lobbyists by the time the Legislature authorized dispensaries.

“The experience that former elected officials, former lawmakers, former bureaucrats have with state agencies and how they operate, I think is helpful in advising and moving things forward in a way that is actually appropriate for our state,” said Democratic former Assembly Speaker Richard Perkins, who served in the Legislature from 1992 to 2006.

Nevada shifted from having the Department of Health and Human Services oversee dispensaries to the Department of Taxation in 2017. Understanding the differences between those two agencies was an important skill, he said.

John Oceguera, also a former speaker who left the Legislature after the 2011 session, is a board member with Las Vegas Wellness and Compassion LLC and represented 11 different cannabis companies in the 2019 legislative session. He said he thinks the company sought him out as a board member because of his knowledge in the regulatory arena and his public safety background as a firefighter.

There are also former mayors and council members whose skill sets could be helpful in navigating local government approvals. Municipalities have the power to enact moratoriums and approve local permits for individual businesses, so the fate of a business can sometimes hang on how well its leaders navigate local government politics and processes.

“You want people on your team to help you in the guidance through the rough water, and cannabis is a rough industry,” said Rebecca Gasca, a lobbyist and owner with Wendovera LLC. “So you want to rely on people who know how to get you where you want to go. They have the compass. They’re the compass holders. You’re the boat. And you trust them. And it makes sense because you haven’t been in their shoes.”

Also on the list are at least three people with intimate knowledge of marijuana regulation — one is Deonne Contine, who until February 2018 headed the Department of Taxation that oversees marijuana businesses. Although she is listed as a board member for Sierra Well, she says she was never a bonafide board member and was listed as a potential secretary while working as a private sector lawyer on Sierra Well’s unsuccessful applications for five dispensary licenses in 2018.

Reporting from the Nevada Current suggests there may have been a lapse in communication about Contine’s status that resulted in her name still being on a list that says it’s current through Aug. 1, 2019. She says that had the company won a dispensary license, it would still need to update its records and confirm bona fide board members.

Critics have questioned the propriety of Contine being involved in the industry at all because of her close ties to the regulation-development process. But Contine, who served as head of the Department of Administration in Gov. Steve Sisolak’s cabinet until her abrupt resignation last week, insists that she’s not running afoul of ethics law that calls for a “cooling-off” period for former public employees.

“No. I was working as a lawyer in the private sector and was thinking about issues that were active at the department (in any area) and if there were any conflicts related to my private sector legal work,” she said in an email to The Nevada Independent.

She added that she is no longer interested in working in the private sector and hopes to someday return to the public sector.

“I have spent much of my life dedicated to public service and ultimately realized rather quickly after working as a lawyer in the private sector for a few months that I am more suited to making sure systems and processes run smoothly and my heart is in public service and policy,” she said.

Below are some notable names in the political realm who are leaders in the cannabis industry.

Mynt dispensary in Reno

Mynt dispensary in Reno is seen on Nov. 9, 2019. Photo by Mark Hernandez.

Several former state legislators have a stake in the industry, including David Goldwater, an owner at Inyo Fine Cannabis Dispensary LLC. He is a former Democratic member of the Assembly and now a lobbyist.

Former Assemblywoman Lucy Flores, a Democrat who ran an unsuccessful bid for Congress in 2016, is a board member at GreenMart of Nevada.

Then there’s Sandra Tiffany, an owner at GWGA LLC and a former Republican state senator who served 14 years in the Legislature. She’s a businesswoman who established a nuclear medicine image processing company and worked at a large computer-aided design and engineering firm.

One-term Republican Assembly member Scott Sibley, an owner at Nevada Holistic Medicine LLC, is a real estate broker and a reporter with Nevada Legal News, a subscription-based website that publishes news stories, public notices and other public records.

Mark James is an owner with LVMC C&P LLC and LVMC LLC. He served in the Legislature from 1992 to 2002, and on the Clark County Commission from 2003 to 2007. In 1995, James wrote Nevada's "Truth in Sentencing Law," reducing the possibility that prisoners could get early release. He also authored Nevada's "Megan's Law" to notify the community when a sex offender has been released from prison. His time as CEO of Frias cab company was marked by a contentious breach of contract lawsuit. He is now is CEO of Integrity Vehicle Solutions, which developed the Ride Genie app that allows passengers to hail cabs.

Former Assemblyman Chad Christensen, a Republican who served from 2002 to 2010 and ran an unsuccessful bid for U.S. Senate in 2010, is an owner with Fidelis Holdings. He told the Las Vegas Review-Journal in 2014 that although he is a member of The Church of Jesus Christ of Latter-day Saints, which opposes the use of marijuana except for medicinal use, he became a supporter of medical marijuana after seeing his wife’s friend suffer from using prescription painkillers.

Josh Griffin, a former owner with Livfree Wellness LLC who has since left the industry, served as a Republican member of the Assembly in 2003 and is a lobbyist whose clients in the 2019 session included the City of Reno, City of Elko and casino companies MGM Resorts and Eldorado Resorts (casino companies are strictly prohibited from involvement in the marijuana industry). He is the son of Jeff Griffin, who served as Reno’s mayor for eight years.

High-ranking legislative leaders on the rolls include Oceguera, a former owner at Exhale Brands Nevada II LLC and current board member at Las Vegas Wellness and Compassion LLC. He is a lobbyist and the former speaker of the Assembly who ran unsuccessful bids for Congress in 2012 and 2016.

And then there is Perkins, an owner at Nevada Holistic Medicine LLC and Nevada Natural Medicines LLC and the former Speaker of the Assembly. He worked as a police officer starting in 1984 before becoming chief of police in Henderson and retiring in 2008. He is now president and chief lobbyist for The Perkins Company, a firm whose clients include Newmont Mining and the City of Henderson.

Perkins said he’s long supported medicinal marijuana after his stepson battled cancer in the early 1990s. But coming around to support recreational marijuana was a longer evolution. After conversations with narcotics officers, he has come to believe that marijuana is not a gateway drug when it’s brought out of the shadows and isn’t only available through criminal activity.

Family members of political figures include Ross Goodman, an owner with Paradise Wellness Center LLC. He is a criminal defense attorney and the son of Las Vegas Mayor Carolyn Goodman and former Mayor Oscar Goodman.

Mayor Carolyn Goodman has been known to abstain from marijuana-related policy discussions, such as a debate about cannabis consumption lounges in the city, because of her son’s involvement.

Mynt dispensary in Reno

Las Vegas Mayor Carolyn Goodman and her husband, former mayor Oscar Goodman, ride in a pink Cadillac during the annual Veterans Day parade in downtown Las Vegas on Sunday, Nov. 11, 2018. (Daniel Clark/The Nevada Independent)

On the other end of the state, Catherine Cashell-Mannikko, daughter of former lieutenant governor and Reno Mayor Bob Cashell, is an owner at Livfree Wellness. She told the Reno Gazette-Journal she got into the business because medical cannabis has helped her daughters, and as an investment opportunity.

John Griffin is a former owner at Livfree Wellness LLC who said in 2014 that his father had relied on medical marijuana to alleviate the symptoms of Parkinson’s disease. Griffin is a lobbyist whose clients include casino companies.

Lori Rogich, a Las Vegas-based attorney, is a former officer with Deep Roots Medical LLC. She is married to Sig Rogich, a Republican political consultant, the founder of prominent advertising and lobbying firm R&R Partners, and a former U.S. ambassador to his native Iceland.

In 2014, the revelation that Sig Rogich was a minority owner in a marijuana company was one of the most surprising that came out of a license application period in Clark County. Rogich was a senior White House adviser to President George H.W. Bush from 1989 to 1992 and also advised President Ronald Reagan, who in 1980 said marijuana “is probably the most dangerous drug in the United States.”

"It was 30 years ago, a lot has changed," Sig Rogich said in 2014.

Former local government figures include Larry Scheffler, an owner at MM Development Company Inc. He is a former councilman for Henderson who founded the commercial printing company Las Vegas Color Graphics, Inc. in 1978. He also has served as a commissioner on six major commissions in Southern Nevada government. 

His business partner Robert Groesbeck, an owner at MM Development Company Inc, served as the mayor for the City of Henderson from 1993 to 1997. He has practiced law for more than 25 years. 

Mynt dispensary in Reno

The Nevada Legislature as seen on June 4, 2019. (David Calvert/The Nevada Independent)

Lobbyists who have a stake in the industry include John Sande III, an owner at Nuleaf. He’s an attorney at the firm Fennemore Craig, and previously was chairman of First Independent Bank of Nevada. He played football for four years at Stanford.

Legislative observers may remember Rebecca Gasca for her past work as a lobbyist for the ACLU of Nevada. She is now CEO at the lobbying firm Pistil + Stigma, which helps businesses navigate the cannabis regulatory process, and is an owner at Wendovera LLC.

Other lobbyists include Tia Dietz, who works with government affairs firm The Griffin Company and was a registered lobbyist in 2017, and Piper Overstreet-White, who was a lobbyist for Uber in 2018. Both are board members at Livfree Wellness. 

Amy Ayoub, an officer with Deep Roots Medical LLC, is a former political fundraiser and public speaking coach.

Two lobbyists for Barrick Gold are part owners of a marijuana company. Judith “Be-Be” Adams is an owner with HSH Lyon LLC (High Sierra Holistics), as is Sean Gamble, who also lobbies for a coalition of Boys and Girls Clubs.

Serial participants on state boards round out some of the ownership. Luther Mack, an owner at Nevada Wellness Center LLC, was a longtime operator of McDonald’s and Popeyes franchises. Previously, he held positions in several state government agencies, served on the Nevada State Athletic Commission for 13 years, served as the chair of the University of Nevada, Reno Foundation and on the board of Boyd Gaming. 

He said he got into the marijuana world as a business opportunity, but also appreciated the benefits he found when using CBD cream for muscle soreness after workouts, and finds many former athletes are customers at his business.

Tisha Black, a Republican who ran unsuccessfully in 2018 for the Clark County Commission seat held by Justin Jones, is a board member at Clear River LLC. She is a lawyer in Las Vegas, and the founding partner at the Black & Lobello law firm. After years of involvement in the state’s medical marijuana program, developing regulations and helping companies file applications for their marijuana business licenses, she took the helm as president of the Nevada Dispensary Association in 2019. 

Former state employees who are now involved in the industry include Chad Westom, a board member at Forever Green LLC who was previously the bureau chief of the Nevada Division of Public and Behavioral Health until October 2017, according to his LinkedIn profile. As such, he oversaw the state’s medical marijuana program before it was transferred to the Department of Taxation.

On the website for his company, Westom touts that experience to potential clients, saying “built Nevada’s first-ever marijuana regulatory structure from 2013 through 2017, and oversaw the licensing and opening of all of Nevada’s marijuana establishments.”

Lisa Vick, who works as a compliance officer and board member at Clark Natural Medicinal Solutions, notes on her LinkedIn profile that she was an auditor with the Nevada Department of Taxation until February 2018. In that job, she said she would “audit all inventory and procedures for Dispensaries, production, cultivation, and laboratories for medical and recreational marijuana in the State of Nevada.”

Jodie Snyder, Riley Snyder, Michaela Chesin, Taylor Avery, Trey Arline and Zach Murray contributed research to this project.

Growing Pains: Records paint a picture of unrest in Nevada marijuana industry

Customers at Nuwu Dispensary

In just two years, the narrative surrounding Nevada’s legal marijuana industry has shifted from praise for the improbably smooth and lucrative launch of recreational cannabis sales to an industry divided by legal wrangling and clouded by questions about the adequacy of state regulation.

Many questions remain unanswered: Who’s on a secretive new governor-convened task force focused on “rooting out potential corruption” in the marijuana realm? Was there corruption to begin with, either by the state or by businesses? Will anyone lose a license? 

Thanks to a bill signed into law this spring, there’s a bit more sunlight on a process that was once completely shrouded in secrecy because of taxpayer confidentiality laws.

Over the next few weeks, a series of stories called “The Cannabis Files” will explore the trends laid out in the data released from SB32 and analyzed by The Nevada Independent. The records not only reveal who has a stake in the business, but paint a picture of a rapidly changing industry that is becoming increasingly corporate, with ownership transfers so frequent that elected officials find it hard to keep up.

Opening up the information “ushers in a new era of transparency that will benefit the industry and the public,” Gov. Steve Sisolak said when he signed the bill in May, and it offers a glimpse of the challenges that will lie ahead as Nevada once again overhauls its marijuana regulation next year and adopts a Cannabis Control Board oversight regime not unlike the one that reined casinos into a respected mainstream.

“I will say, overall, I think our industry is at a point that is not terribly different than gaming was,” said John Ritter, a board member with The Grove and the Nevada Dispensary Association. “I welcome the fact that the industry is treated seriously and being treated like gaming.”

Buyers outside marijuana dispensary

Hundreds of people line up to purchase recreational marijuana in Nevada at Reef Dispensaries on Saturday, July 1, 2017. Photo by Jeff Scheid.

A house divided 

Nevada’s launch of recreational marijuana sales in July 2017, six months ahead of schedule, was met with great fanfare, especially in light of troubles neighboring states encountered with their rollouts. 

But in spite of the high-flying revenue numbers — the state brought in $70 million in its first year, or 140 percent of what it had projected — critics now wonder whether corners were cut in the rush to unlock the recreational marijuana market, which dwarfs the size of the medical marijuana market. And they wonder whether the Department of Taxation that assumed responsibility of marijuana regulation in 2017 was prepared for a task that has since dominated its workload and that in the future will be assigned to a marijuana-specific board with more enforcement teeth. 

“This is another area where I think there was a rush to get revenue into state coffers,” Sisolak said on Thursday at the release of an audit of the state’s Marijuana Enforcement Division. “We’re doing everything we can to clean up those issues.”

Chief among those issues are questions about whether the state was unfair when it awarded 61 conditional dispensary licenses in late 2018, in response to more than 460 applications. While many dispensary owners agree the initial voter-approved dispensary cap is prudent to keep the quality of the stores high and avoid having one on every street corner, the concentration of those new licenses among just 17 businesses — including one business that captured a full 11 licenses — surprised and angered those who did not win. The state is involved in about a dozen lawsuits over the situation.

An audit launched in March and released last week concluded that the state’s licensing process was adequate, if not perfect. Auditors said more transparency about the scoring criteria and automation to reduce human errors while reviewing business applications would help, as well as redistributing licenses that can’t be used because they’re for jurisdictions that have a marijuana moratorium. 

The audit revealed no bombshells or conclusive evidence that the process was rigged. But the questions will be further litigated in court at trial, scheduled to begin this spring.

Court proceedings stemming from a lawsuit filed by dispensary owners who did not win additional licenses lasted for months this summer and led to a partial preliminary injunction in August that barred the state from granting some dispensaries final approval to open. Clark County District Court Judge Elizabeth Gonzalez agreed that there were flaws with the process, saying it “was impacted by personal relationships” and that a diversity category was “subject to manipulation by applicants,”  but did not toss the entire licensing round out of hand. 

Marijuana enforcement agency leader Jorge Pupo, whose dinners with certain applicants and apparent selective sharing of information about applications was a focal point of the court proceedings, left the post under circumstances that have not been fully explained. But one of the biggest consequences of the lawsuit and subsequent moratorium has been a split between the haves and have nots, with dispensary license winners blaming the losers for lawsuits that have jammed up their efforts to open the new stores.

“It’s created a giant schism with the industry,” said David Goldwater, a board member of the Nevada Dispensary Association and owner of Inyo Fine Cannabis Dispensary, which did not win additional licenses in the latest round.

Late last month, eight cases against the state were consolidated as they head for trial.

Employee at Acres Cannabis
Amber Jansen organizes marijuana merchandise inside the Underground, a cannabis farmers market inside Acres Cannabis in Las Vegas on Friday, April 20, 2018. Daniel Clark/The Nevada Independent

Foreign influence

On top of that dispute, a recent indictment alleges that two associates of former New York City Mayor Rudy Giuliani with ties to Eastern Europe conspired to get involved in the industry. Once they missed the deadline, they allegedly made illegal campaign donations to Republican gubernatorial hopeful Adam Laxalt and attorney general candidate Wes Duncan — financed by a foreign national — in hopes that they would sway well-positioned politicians to change the entire licensing scheme.

Though the two men were unsuccessful in obtaining a license, the revelation prompted Sisolak — a champion of the industry, if the marijuana world’s more than $700,000 in campaign donations in the 2018 cycle is any indication — to proclaim his outrage and order sweeping action.

Ask industry advocates, though, and they point to the haplessness of the conspirators: They appeared to hatch their plan in early September 2018, the same time as a deadline for a complicated application that some businesses had worked on filling out for months or years. They tried to woo a gubernatorial candidate who, in 2016, campaigned against legalizing marijuana and then lost the 2018 election.

“I think what happened with the Ukrainian thing was a Three Stooges thing,” said Clark County Commissioner Tick Segerblom, a champion of the industry now and in his former career as a state lawmaker.

Nevertheless, it’s prompted Sisolak to convene a secretive task force aimed at “rooting out potential corruption” in the industry. Sisolak has declined to so much as name the agencies that are part of the task force, saying he doesn’t want to compromise their investigations. While insiders say the force is comprised of law enforcement, Sisolak’s office said Friday it still needs time to answer a records request about the membership, three weeks after The Nevada Independent first submitted the inquiry.

In neighboring California, The Sacramento Bee found loopholes in the process of changing ownership on marijuana licenses that had allowed dispensary ownership to fall to a small number of people — including a Ukrainian-born businessman indicted on campaign finance charges — in spite of anti-monopoly rules. Sacramento is now considering a moratorium of its own on license transfers, and the FBI is investigating whether bribery of city officials played a role in the licensing process.

Still, Segerblom believes Sisolak’s response has cast too much suspicion on the system.

“I understood what [Sisolak] was saying but I think he tarnished the whole industry unnecessarily,” Segerblom said. “Does he know something I don't know? … While there could be a few problems here and there … it’s phenomenally successful.”

Senator Tick Segerblom standing in front of a cash register
Democratic Sen. Tick Segerblom makes the first marijuana purchase at The Source in Las Vegas on July 1, 2017. Photo by Joe Fury.

Moratorium on license transfers

Even more sweeping, state officials in mid-October called for an indefinite moratorium on transfers of licenses. Transfers are common, and can result from things like shareholders wanting to sell out or going through a divorce.

But critics say the process of transferring a license is too much easier than the initial application process, and could lead to unsavory characters getting a foothold in the industry. The Department of Taxation said it would not be processing new or existing applications as it tries to ensure “a more thorough and appropriate vetting process within the industry.”

The moratorium can also stall major mergers and buyouts, though, causing businesses to miss contractual deadlines and face fines. At an Oct. 23 Reno City Council meeting, officials with Deep Roots Harvest went so far as to say the hold is likely to scuttle New York City-based Acreage Holdings’ plans to acquire the company for $120 million.

“With everything that is going on at the state … there is a very low likelihood that that transaction will manifest,” Keith Capurro, part-owner of Deep Roots Harvest, which won five new dispensary licenses in the latest round.

“It’s definitely affecting folks,” Goldwater said. “We’re all trying to figure out the moratorium. It came as a surprise.”

Asked for details on the timeframe of the moratorium, Sisolak deferred to the leader of the Nevada Department of Taxation and his appointee to lead the forthcoming Cannabis Control Board: Tyler Klimas, a former lobbyist serving the governor’s office in Washington D.C. who was also previously a spokesperson for Gov. Brian Sandoval and the Silver State Health Insurance Exchange.

“No,” Sisolak said in a brief interview Thursday when asked if he knew when the moratorium would end. “I’ve got total confidence in [Taxation] Director [Melanie] Young and Tyler and they’re going to move forward.”

Tryke Companies, which owns Reef Dispensaries and this fall announced plans to be acquired by Cresco Labs, is urging quick action. Late last month, the company completed a Hart-Scott-Rodino Act review, a detailed antitrust probe involving the U.S. Federal Trade Commission and Department of Justice.

“While we fully support the Governor’s efforts to ensure a strong and empowered regulatory framework for Nevada cannabis, we strongly urge a swift resolution to the moratorium,” said Brett Scolari, Tryke’s general counsel. “We look forward to working with state officials on a quick resolution of the approval process in the coming months as we take the final step in this highly regulated public transaction.”

Some in the industry say they support the moratorium, although they sympathize with companies hampered by it. It’s a step toward bolstering public confidence in the business of marijuana, they say.

“Look at how the public perceived gaming 50 years ago —  that was a huge sin and it was looked down upon,” Ritter said. “Because of what Nevada did to clean up the industry, get the mob out, we proved that can be done and now gaming has proliferated across the world. That’s why I think that in the long term, making sure that this industry is properly regulated, that the owners and managers are properly vetted — in the long term [that’s] good for our industry.”

A man, asking to be identified only as Junior, selects marijuana products inside Exhale Nevada dispensary in Las Vegas on Friday, April 20, 2018. Daniel Clark/The Nevada Independent

Consolidation

Data released by the state through SB32 illustrate the trend of businesses once led by prominent local names selling for sometimes hundreds of millions of dollars to major, multinational companies that seek to launch powerful chains. It has troubled some local government officials who envisioned a more home-grown, local industry and not a Wal-Mart for pot.

“I think the idea was to keep it local and home-grown and sadly I think it’s been lost,” Reno Mayor Hillary Schieve said in an interview. “How is someone from Canada going to care about the local environment? … Are they watching out for the community?”

Some companies have gone public on the Canadian Stock Exchange — a move that critics say is making it harder to tell who is in control, but that industry advocates say is a fact of life because marijuana remains illegal on the federal level and traditional banking and access to capital is out of reach in the U.S.

“You can’t go to a bank and borrow money to expand,” said Segerblom, who was previously on the board of a publicly traded Canadian marijuana company that purchased Greenmart of Nevada. “You have to get to a stock exchange somewhere.”

The data also show an industry where female owners are firmly in the minority, in spite of efforts to promote diversity. High barriers for entry, which included $250,000 in liquid capital, appear to be getting higher as the industry grows in sophistication.

The professionalization also shows in the Nevada Dispensary Association’s recent decision to create a PAC aimed at shaping more unified state marijuana policy going forward. The PAC, called the Nevada Can Committee, aims “to assist Nevada's legal cannabis industry in coalescing its political efforts and engagement, including providing education and support for candidates for elected office,” said NDA Executive Director Riana Durrett, and “will support candidates from all parties and a variety of backgrounds.”

While some lament that a substance that landed low-level dealers in jail even a few years ago has evolved into a multibillion-dollar industry that is the purview of the wealthy and sophisticated, others say the industry’s evolution into an increasingly corporate political and legal powerhouse is a sign of a healthy and maturing industry, and is ultimately a good thing for the state.

“Nevada marijuana excise taxes fund our states education program … Growth in the cannabis industry is not just good for jobs and redevelopment, it is good for education,” said Bob Groesbeck, an owner with Planet 13. “We cannot speak specifically to all mergers and acquisitions taking place in Nevada – but generally we view this as a positive sign of a healthy industry.”

Check back with The Nevada Independent in the coming days and weeks for more stories in the “Cannabis Files” series on the most notable names in the industry, diversity in the business, and the consolidations and transfers that are changing the face of the nascent marijuana business in Nevada.

Sour grapes by dispensary applicants not given licenses delayed openings, cost taxpayers money

Cannabis plant ready for harvest

By Brandon Wiegand

In the most recent round of retail marijuana dispensary licenses issued by the State of Nevada, there were 116 applicants who submitted 461 applications vying for 61 licenses. The selection process was arduous and had the full support of the majority of companies applying for the licenses – until a handful of applicants with a sense of entitlement, including Nevada insiders, former politicians and real estate tycoons, were not chosen. When the process didn’t work in their favor, they cried sour grapes and have delayed the opening of new dispensaries by the companies that were granted licenses. Unfortunately, it is Nevada’s taxpayers that shoulder the costs of these delays in deferred jobs and lost tax revenues.

There are as many claims about how the process was flawed as there are plaintiffs in the lawsuits. This is evidenced by the five separate lawsuits in existence caused by the plaintiffs’ unwillingness to work together because they disagree on the issues, even amongst themselves. 

One of the major complaints espoused by plaintiffs is that the Department of Taxation (DoT) hired temporary employees to evaluate the applications submitted for the latest round of retail dispensary licenses (the same process that was used to evaluate the 2014 medical applications). Without this assistance, the volume of work required to grade and evaluate the 461 applications received would have ground the DoT’s primary responsibility of industry oversight to a complete halt. The state selected professionals that were not associated with the industry in any way and removed identifying information from the applications in order to ensure a fair and impartial evaluation. 

It has been revealed that some of the applicants, including select plaintiffs, put so little effort into their applications that they recycled their medical marijuana applications from five years ago, simply replacing the word “medical” with “retail.” Rather than accepting responsibility for their lack of preparation and poor execution, the plaintiffs are now focusing their attention outward and blaming other applicants, the government, and the process for their own abject failure to complete an application that met or exceeded the benchmarks needed to secure a license in the industry as it exists today.

The plaintiffs have argued that the state did not make any efforts to determine whether applicants were in compliance with state regulations and properly conduct background checks. On the contrary, the state required that all applicants be in good standing to even apply. The state conducted background checks on all officers and board members, including any owners with an interest of 5 percent or greater. This was consistent with all policies adopted under medical marijuana licensing. Like the regulators of other industries in Nevada, the DoT is allowed specific latitude to ensure that regulations grow with the industry. No one could have anticipated that we would have publicly traded companies when Question 2, the ballot initiative that legalized retail marijuana, was written. The fact is, publicly traded companies are beneficial to Nevada’s regulatory process in that they bring additional oversight, compliance, and scrutiny – rigor that we should welcome to the industry.

Plaintiffs claimed that the state improperly eliminated a location requirement from the application; however that is patently false. In order to pass a final state inspection and open for business, the state verifies that the applicant’s location meet all local jurisdiction and state requirements before issuing an operational license. The local jurisdictions are required by state law to uphold the minimum requirements of the state.

In almost every instance, the local jurisdictions have adopted more conservative policies that exceeded these benchmarks. This was a thoughtful and deliberate policy change that was discussed and considered far in advance of the applications. In fact, Gov. Brian Sandoval sponsored a task force to discuss retail marijuana policies in which this very topic was discussed – and at least two of the plaintiffs, John Ritter from The Grove and David Goldwater from Inyo, were a part of that task force

Much has been made of the preliminary injunction issued by Clark County District Court Judge Elizabeth Gonzales. It must be noted however that this order was issued without the benefit of discovery having even been started. While the lawsuits and debates will continue, the real findings of fact are already evident – after failing to wield their influence on the licensing process, Nevada insiders, former politicians, and real estate tycoons are using political leverage in an attempt to call the entire process into question.

Brandon Wiegand is the Regional General Manager of Nevada Organic Remedies.

Developers, trial lawyers face off over bill revising construction defect law changes made in 2015

A backhoe on a cleared lot

Usually, an in-depth discussion on the characteristics of expansive clay soil wouldn’t draw much attention outside of an engineering classroom or a construction site.

But on Tuesday, dozens of lobbyists and representatives from two of the most powerful industries in the state crowded committee rooms in Carson City and Las Vegas to hear that presentation amid an emotional hearing on a long-running point of contention: construction defect lawsuits.

The actual subject of the hearing was AB421, a bill heard by the Assembly Judiciary Committee that would reverse many of the substantive changes Republican lawmakers made in 2015 on lawsuits related to construction defect claims, a move derided by Democrats but lauded by Republicans including Gov. Brian Sandoval and developers as necessary to stem the growing tide of alleged “frivolous” lawsuits on residential construction defects.

Since the 2015 law was passed, the number of construction defect lawsuits has dwindled significantly — declining by nearly 90 percent from the 2014 peak, according to a study by Applied Analysis, with only 20 defect lawsuits filed statewide last year.

But newly won Democratic control of the governor’s office and both legislative chambers has both sides geared up again for a fight over the section of state law allowing homeowners to sue builders and contractors for shoddy or dangerous residential construction practices.

The hearing also brought into stark relief the bitter conflict between two of the state’s most powerful industries: trial attorneys and developers/real estate companies. Both were top campaign contributors during the 2018 election cycle; real estate companies and developers contributed more than $997,000 to legislators, while law firms and individual lawyers contributed $630,000 to lawmakers during the election cycle. The issue has spilled out of the Legislature; the Builder’s Association has run ads opposing the bill on social media, and Republican Sen. Ira Hansen — the sponsor of the 2015 bill — has placed ads on Facebook opposing the bill.

The measure doesn’t entirely replace the 2015 law, but reverses many of its primary provisions.

Notably, it would extend from six to 10 years the period after home construction in which a construction defect lawsuit can be brought and indefinitely if the defect is caused by fraudulent or willful misconduct. Prior to 2015, Nevada had a “complex” system for bringing construction defect cases, typically between six to 10 years after the home was built depending on whether defects were patent or latent, known to the contractor or caused by willful misconduct, with time added on if the defects were discovered in the last possible year a claim could be brought.

But the 2015 bill instituted the universal six-year time period in which to bring construction defect claims once the home is “substantially” completed. Although most defect claims relate to more obvious issues with a home — wrongly fitted doors or windows, issues with lights or plumbing — Tom Marsh, a civil and geotechnical engineer, gave lawmakers several examples of how the clay soil composition on which most homes in the state are built spelled the possibility of major foundational issues with home construction that wouldn’t be apparent until eight to 10 years after the home was built.

“It really takes time for these things to manifest,” he said.

The bill also amends the definition of a construction defect beyond something that “presents an unreasonable risk of injury to a person or property” to include any defect done in violation of local law or ordinances.  Attorney Ardea Canepa-Rotoli, a member of the Nevada Justice Association (the trial lawyers’ lobbying arm), told lawmakers that limitation meant a clearly dangerous defect or issue in a house would not be grounds for a civil construction defect lawsuit under the current law.

“Until or if that electrical code violation results in a fire, harming a person or property, it may not be considered to be a defect,” she said. “That’s just morally repugnant and just doesn't make sense."

The bill also removes certain pre-litigation requirements for homeowners, including a requirement that the homeowner be present when obtaining an expert opinion on the alleged defect, and a requirement for homeowners to first exhaust all warranties and limiting defect lawsuits to alleged defects denied by an insurer. It also removes prohibitions on homeowners associations to institute or to defend a defect lawsuit.

It also would remove limitations on recovery in lawsuits to only constructional defects proven by the claimant and allow for recovery of “reasonable” attorney’s fees. Canepa-Rotoli said many construction defect lawsuits were argued by attorneys working contingent fee contracts, as many homeowners cannot afford hourly rates for an attorney, so allowing recovery of those fees would allow more individuals to access the legal system.

Eva Segerblom, a trial attorney and member of the Nevada Justice Association, told lawmakers that the dwindling number of defect lawsuits was not because of higher construction standards but because the 2015 law made it nearly impossible to bring such a lawsuit.

“Unfortunately, this is not because all the homes in Nevada are being built without defects, but it is because the changes in the law have made it virtually impossible for homeowners to have a remedy,” she said. “The fact of the matter is that the current law puts all of the risk on the homeowner purchasing it.”

But a wide variety of lobbyists and representatives of the construction and real estate industry said that dwindling number was proof that pre-litigation dispute resolution processes were working, while helping keep down insurance and construction costs in a period of high demand for affordable housing.

Opponents pointed out that between 2000 and 2012, construction defect lawsuits in Nevada increased by more than 355 percent while home sales dropped by 86 percent, with a UNLV study finding homeowners in the state were 38 times more likely to be involved in such a lawsuit than the national average.

David Goldwater, a lobbyist for the homebuilding industry, said that the current construction defect system was set up to give homeowners as many opportunities as possible to quickly resolve issues with their home before going to court.

“I wish there was a bill you could vote for to force all builders to build the perfect house,” he told lawmakers. “I promise I’d work day and night to get that passed. The truth is, houses are not built perfectly, and when they are not, the home buyer needs fast and effective remedies. No one who buys a house wants a check from protracted litigation that lasts several years and drains them of time and resources.”

A study by Applied Analysis on behalf of the homebuilders found that the industry-wide cost to settle construction defect claims fell from an average of $32.1 million between 2010 and 2015 to just $3.8 million between 2016 and 2018. The study also estimated that costs fostered on all home sales as part of insurance and settlement costs related to construction defect lawsuits had fallen from an average of $5,000 to about $360, which advocates said allowed thousands of homeowners on the margins to access housing that they otherwise would be priced out of.

At the hearing, subcontractors, real estate agents and developers testified that approval of the bill would result in higher insurance rates and tougher barriers for housing development. Jesse Haw, a Reno-based contractor (and former state senator), told lawmakers that he and his brother’s company built their first residential subdivision in more than 14 years in 2016, which he credited to the 2015 changes in defect law. He warned that reversal of those changes would hurt smaller builders such as him the most.

“I’m here to tell you that private builders will be impacted the most,” Haw said. “My stock price doesn’t go down when I get sued; I simply go out of business.”

Updated at 9:50 a.m. to correct the name of the individual testifying on behalf of the bill.