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.”

Proposed settlement could end massive dispute over Nevada marijuana licenses, but some say they’re wrongly excluded

Customer at The Source dispensary

A major legal battle between the state and a long list of marijuana businesses that were not granted dispensary licenses in 2018 could finally be nearing its end with a partial settlement that would reshuffle some of the licenses.

The proposed settlement, which was announced in court on Wednesday and circulated among the parties, involves 17 marijuana business entities and the Nevada Department of Taxation, which regulated the industry until this summer. The Nevada Tax Commission is scheduled to take action on the settlement Friday afternoon, but a hearing on an effort to stop it — brought by plaintiffs who say they were edged out of the deal — set for Friday morning.

A series of lawsuits dating back more than a year and a half accused the state of unfair practices in deciding in 2018 who should receive coveted and strictly limited licenses to expand the number of retail locations of their business. The plaintiffs argued that top Nevada marijuana regulators — including former Department of Taxation employee Jorge Pupo, who has since left — showed favoritism and offered advice to certain applicants that put their application scores above the competition.

There were 127 applicants in the 2018 application round, but only 17 received one or more of the 61 additional dispensary licenses handed out, including one entity that received 11.

A trial that had been delayed because of the pandemic is ongoing in Clark County and had to be moved to the Las Vegas Convention Center to allow for social distancing among the multiplicitous participants.

Beyond the shuffling of the licenses, the settlement would also see plaintiffs agree to drop their lawsuits. The state agrees to expedite transfers of ownerships and inspections of completed projects for settling parties, and extend by 14 months a deadline by which license winners must have their dispensaries constructed and inspected.

The Cannabis Compliance Board, a new regulatory agency that is assuming oversight of the industry from the Nevada Department of Taxation, agrees to recommend an industry-funded study to its advisory commission that will make recommendations on deterring black market sales, protecting minors, changes to local fees and taxes on marijuana businesses and whether caps on the number of licenses should be changed.

But other plaintiffs that were not included in the settlement, including THC NV (doing business as Canna Vibe) and Herbal Choice, have filed a request for a restraining order to block the settlement, saying a partial settlement would gut their chances of succeeding at a future major trial and also leave them without the benefits of the agreement. They say they were purposely excluded so the gains would be divided among a smaller group.

“It has been and continues to be said settling Plaintiffs’ position that if a majority of Plaintiffs settle, than the smaller Plaintiffs could not carry this trial and would be forced to take smaller nuisance fee type settlements,” the filing says.

Summary of proposed transfers

Plaintiffs listed on the settlement include LivFree Wellness (doing business as The Dispensary in Reno), MM Development Company (Planet 13), Nevada Wellness Center, Qualcan, Lone Mountain Partners (Zenleaf), Nevada Organic Remedies (The Source), Greenmart of Nevada (Health for Life), Helping Hands Wellness Center, CPCM Holdings, Cheyenne Medical and Commerce Park Medical (Thrive). 

It also includes a group known as the “ETW plaintiffs,” which includes ETW Management Company (Gassers), Global Harmony (Top Notch), Just Quality (Panaca Cannabis / Hush), Libra Wellness Center, Rombough Real Estate (Mother Herb) and Zion Gardens.

Lone Mountain, which was issued 11 licenses in 2018 but was enjoined from moving forward with them after a judge determined background checks were not performed on all owners, agrees to give away:

  • 1 Las Vegas license to Qualcan
  • 1 Reno license, 1 Lincoln County license, 1 Esmeralda County license, 1 Eureka County license to the “ETW plaintiffs” group
  • 1 Douglas County to Thrive
  • Also giving Lander, Mineral and White Pine licenses to be distributed to a global settlement, if one involving all parties is reached.

Helping Hands, which was awarded three licenses but also subject to the injunctions, is giving away:

  • 1 license in unincorporated Clark County to LivFree Wellness

Nevada Organic Remedies, which was awarded seven licenses in 2018 but also subject to the injunction, is giving away:

  • 1 license in unincorporated Clark County to MM Development Company
  • 1 license in Carson City to Qualcan

Greenmart, which was awarded four licenses but also subject to the injunction, is giving away:

  • 1 license in unincorporated Clark County to Nevada Wellness Center

Thrive is giving away:

  • 1 Henderson license to ETW

Vegas marijuana magnate sues, alleging competitor is waging a jealous campaign of slander

People stand in line at dispensary

A dispute between two prominent Las Vegas marijuana business owners has reached the courts, with the proprietor of Essence dispensaries accusing a former owner with The Apothecary Shoppe of embarking on a jealous campaign of slander aimed to do him more than $1 million in damage.

Armen Yemenidjian, a former casino executive who’s affiliated with three dispensaries, won another eight dispensary licenses last year and is part of a company that was recently acquired for $290 million, filed a lawsuit in Clark County Nov. 4 against Dr. Nick Spirtos. Yemenidjian alleges that Spirtos has accused him of criminal activity to other people, including lobbyist and former Assembly Speaker John Oceguera during an encounter at Gov. Steve Sisolak’s inaugural ball.

“Spirtos, in concert with others, undertook a scheme to slander Mr. Yemenidjian, because he has proven to be one of the most successful businessmen in the legal cannabis business,” the complaint says. “Rather than own his failures, Spirtos has resorted to smearing and spreading lies against others to harm their existing and future business opportunities.”

Spirtos, a gynecologic oncologist, was formerly affiliated with The Apothecary Shoppe, which has one dispensary in Southern Nevada but fell short in its attempt to win three other licenses in 2018. Reached by phone on Friday, Spirtos said he was travelling overseas and referred questions to his lawyer, who did not immediately respond to messages seeking comment on Friday and Monday.

The suit alleges that Spirtos made about a dozen private phone calls to George Kelesis, a member of the Nevada Tax Commission, to discuss undoing the result of the licensing round. Spirtos and Kelesis attend the same Greek church and are godparents to each others’ children, the suit says, but Kelesis spearheaded criticism of the state’s licensing process as a commissioner without disclosing the relationship.

Yemenidjian accuses Spirtos of talking to Oceguera at Sisolak’s inaugural ball this year and accusing Yemenidjian of “outright corruption” and criminal activity. He also said Spirtos surreptitiously recorded a meeting with Nevada Department of Taxation officials as part of an attempt to dupe the state employees in a meeting they had set up to review Spirtos’ application scores with him. 

“Spirtos also hoped and planned that his slander would interfere with the State of Nevada’s licensing process for recreational marijuana, since he did not obtain a license,” the complaint says. “Spirtos and those acting in concert with him have simply decided that maintaining their own market share and delaying competition in the marketplace is preferable.”

Yemendijian’s lawyer, Todd Bice, said that in a deposition for one of the lawsuits challenging the licensing process, and then when personally confronted by Yemenidjian, Spirtos denied making such comments and said he didn’t have a factual basis for making such allegations.

Bice said that to “insinuate that they were only chosen because of some nefarious criminal activity is just outrageous” in light of Essence scoring highly in licensing proceedings in different years in Nevada, and also in jurisdictions in California with different scorers. Bice also said the allegations could get published and then would be brought up in licensing reviews going forward.

“He’s just got to fight back against this. He can’t allow that kind of stuff to stand. It will then be weaponized ... against him in the future,” Bice said in an interview.

The suit is the latest stemming from a contentious round of marijuana business licensing, in which more than 400 applications were submitted and 61 licenses awarded to 17 different companies including Essence. Many dispensary owners who did not win have sued the state, including Spirtos’ former company, whose suit alleges the state engaged in “rampant illegality and corruption.”

Spirtos has been a vehement critic of the licensing process, testifying to the Tax Commission that he believes that levels of corruption similar to that in the Nixon White House took place. The suit brought by his former company also alleges that Yemenidjian offered a job to the state’s former top marijuana regulator, Jorge Pupo.

Bice said there was no job offer, just a “passing reference,” and that Yemenidjian’s conversations with Pupo have been “wildly mischaracterized.”

Yemenidijan - Complaint by Michelle Rindels on Scribd

For more on the marijuana industry, check out our series “The Cannabis Files” — an analysis of a recently released trove of state data that paints a picture of a cannabis industry at a crossroads.

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.

Shadowy Ukraine intrigue? Another day at the office in Nevada pot business

Marijuana plants

Few who are trying to keep up with the plot twists in the state’s nascent marijuana industry were surprised when embattled Nevada Department of Taxation official Jorge Pupo was placed on leave last month and then later terminated.

Pupo’s cozy relationships with industry representatives courted controversy. No reason was given for the forced leave, but then none was needed. Any protests aside, I suspect we haven’t heard the last of Pupo’s questionable behavior.

The state’s cockeyed marijuana dispensary licensing process culminated in September 2018 with a disproportionate number of applications being approved for some companies at the expense of others. It’s not only drawn intense litigation from disappointed applicants, but also has redoubled Gov. Steve Sisolak’s call for greater regulation of the state’s new tax revenue gold mine.

The governor is onto something. But to paraphrase Roy Scheider in “Jaws,” I think Sisolak’s going to need a bigger boat. Although industry representatives and state officials surely must hope the Pupo mess remains a self-contained scandal, in reality it calls into question the whole licensing process.

Last week, it got weirder with the revelation that the four men charged with federal campaign violations in connection with President Donald Trump’s attorney Rudy Giuliani and the Ukraine impeachment investigation were pumping cash into Nevada politics in hopes of winning a lucrative marijuana dispensary license. In addition to fomenting conspiracy theories for Giuliani and Trump, Lev Parnas, Igor Fruman, David Correia and Andrey Kukushkin in early September 2018 met in Las Vegas with an unnamed foreign national to discuss a “business venture.” “While in Las Vegas, Parnas, Fruman, Correia, Kukushkin also attended a fundraiser for a state candidate in Nevada,” the indictment states.

An unnamed foreigner wired $500,000 from an overseas bank account through New York to the defendants, who used the money for contributions to two Nevada state political candidates, according to the indictment. Although not identified in the charging document, former gubernatorial candidate Adam Laxalt and fellow Republican attorney general candidate Wesley Duncan have been identified as the candidates involved. Both men, who lost their elections, have said they will return the donations — presumably not to the Fruman-Parnas-Correia-Kukushkin defense fund.

At this point, it begs the obvious to say that Nevada wasn’t prepared to regulate the marijuana industry it rushed to create. And playing catch-up won’t be easy. Although some companies are locally owned, others have far more complex histories.

Take Massachusetts-based Curaleaf Holdings, for instance. Although it failed to gain much interest in March, Curaleaf agreed to purchase Nevada’s Acres Cannabis for $70 million in cash and stock. A vertically integrated operation that has emerged as an industry giant in multiple states, Curaleaf is publicly traded on Toronto’s Canadian Stock Exchange, which marijuana industry insiders commonly refer to as the “Cannabis Stock Exchange” because of its popularity with pot business public offerings.

These days Curaleaf’s website touts its partnership with Blackjack Collective, but Nevada is only part of the what the company calls its “aggressive expansion West.” In July, Curaleaf grew even more and emerged as the undeniable leader when it agreed to pay approximately $900 million for privately held GR Companies. As of July, its 19-state reach included 68 dispensary locations and 131 licenses. That’s enormous — and expanding. By anyone’s measure, Curaleaf is a rip-roaring success. So it’s only natural that it would seek to expand into the lucrative Nevada market, right?

But if you’re looking for an intriguing business back story, look no further than Curaleaf and its “Deep Russian Roots,” as Barron’s described it. The company is the creation of Russian-heritage billionaires who are American citizens. Its chairman is Boris Jordan, a banking success who was integrally involved in Russia’s complicated capitalist transition. His major investment partner is Andrei Blokh, well known as a former business associate of Russian oligarch Roman Abramovich.

Abramovich is chronicled in the popular press as the owner of England’s Chelsea Football Club and for his behemoth “superyachts.” In some intelligence circles, Abramovich has made news for his close ties to Russian President Vladimir Putin and his friendly association with President Trump’s daughter Ivanka and her husband Jared Kushner.

For his part, Blokh grew immensely wealthy in Abramovich-tied oil deals and, of all things, milk products. His consolidation of the Russian dairy industry under the Unimilk umbrella and its subsequent 2010 sale in to Danone made him wealthy beyond most imaginations.

With a net worth of more than $12 billion, Abramovich can afford to miss an investment or two. When British officials declined to renew his investor’s visa in 2018, there was wide speculation that his proximity to Putin was behind it. Abramovich quickly gained citizenship in Israel.

In an interview with Barron’s, Jordan was emphatic: Blokh’s old friendship aside, Abramovich has nothing to do with the company. Curaleaf remains a remarkable success story with roots stretching from Russia all the way to Las Vegas.

It’s a good thing the company is so legitimate.

At this point, can Nevada be trusted to conduct a comprehensive background check?

John L. Smith is an author and longtime columnist. He was born in Henderson and his family’s Nevada roots go back to 1881. His stories have appeared in Time, Readers Digest, The Daily Beast, Reuters, Ruralite and Desert Companion, among others. He also offers weekly commentary on Nevada Public Radio station KNPR. His newest book—a biography of iconic Nevada civil rights and political leader, Joe Neal—”Westside Slugger: Joe Neal’s Lifelong Fight for Social Justice” is published by University of Nevada Press and is available at Amazon.com. Contact him at jlnevadasmith@gmail.com. On Twitter: @jlnevadasmith

Nevada’s flawed marijuana legalization leads to corruption and lawsuits

Marijuana displayed inside Inyo Fine Cannabis Dispensary

By Geoffrey Lawrence

Nevada’s marijuana licensing agency “acted beyond the scope of its authority,” took actions that were “arbitrary and capricious,” and engaged in “conduct that is a serious issue,” according to a court order filed in late August by District Court Judge Elizabeth Gonzalez.

The case is a blow to the marijuana legalization movement overall and shows how the licensing process can become subject to corruption when not set up correctly.

Nevada is one of 11 states to have legalized recreational marijuana and among five states that have placed statewide limits on the number of marijuana licenses that will be granted, although Nevada does so only at the retail level.  When the Legislature finally authorized a commercial system for medical marijuana in 2013—13 years after voters had approved a constitutional amendment approving its use—it allowed for a statewide maximum of 60 medical marijuana dispensaries.  No limitations were placed on the number of cultivation centers or processors.

Later, when advocates filed the initiative to legalize marijuana for recreational purposes that passed in 2016, they allowed that number to roughly double to 130 dispensaries.

The original licensing process for medical marijuana was fraught with problems.  Clark County, the state’s most populous county and also home to Las Vegas’s lucrative tourist market, decided to award licenses using its own criteria before the state had chosen which applicants would be approved.  This resulted in some applicants being approved at the state level but denied licenses in Clark County, and vice versa. A series of lawsuits followed.  Complicating matters further, several Clark County commissioners were exposed as receiving large campaign donations from applicants immediately before voting on which dispensaries would receive county medical marijuana licenses.  

The initiative to legalize recreational marijuana then granted existing medical marijuana licensees the exclusive ability to apply for recreational licenses for the first 18 months after the state began to accept applications.  The Nevada Department of Taxation, which regulates the industry, allowed these businesses to apply to co-locate a recreational license with their existing medical marijuana businesses shortly before the recreational program went live in July 2017.  It would subsequently make all additional, statutorily authorized licenses available in a second application period that spanned a few weeks in September 2018. This would effectively ensure that businesses that didn’t already possess medical marijuana licenses in Nevada would never be able to apply for a recreational dispensary license, regardless of what clouds might hang over that original process.

At a February 2018 hearing where state lawmakers approved the department’s proposed regulations to govern the application process, I testified that the draft regulations ran afoul of statutory protections meant to ensure the process would be fair and objective.  The voter-approved initiative required the process to be “impartial and numerically scored.” However, the regulations contained scoring criteria that demonstrated bias toward some applicants. For example, total tax revenues already collected from each applicant was a criterion, although only existing dispensaries paid retail excise taxes and dispensaries sell inventory at marked up rates, which effectively guaranteed only existing dispensary licensees would score well. They also failed to clarify the scoring system being used and instead declared the Department of Taxation could, arbitrarily, assign different weights to each scoring criteria every time it opened an application period.

Lawmakers considered these concerns briefly, but were advised by legislative counsel they had no choice but to pass the regulations as written because the existing emergency regulations would expire later that week.

Once the Department of Taxation announced it would accept applications in September 2018, it notified applicants they would be eligible to receive only one dispensary license in each jurisdiction where they applied.  This was a last-ditch effort to ensure fairness in execution, if not in written law.

This is where things really went haywire. Despite its written guidance, the Department of Taxation awarded several entities multiple dispensary licenses within the same jurisdiction.  Only 17 of 127 companies that applied received any of the 61 licenses made available and more than half of those licenses went to just four companies.  The winners were heavily associated with a group of insiders at the Nevada Cannabis Coalition and court records show that group’s attorney, Amanda Connor, enjoyed privileged access to department staff despite written warnings from the state against such activity.  

Nevada Department of Taxation Deputy Executive Director Jorge Pupo was wined and dined by applicants and acknowledged that he changed the application in ways favorable to these applicants.  For instance, he allowed applicants to be considered separate companies simply by altering their name slightly or setting up shell entities.  The department also circulated different versions of the application to different applicants—some required a specific street address and others did not, which is important because securing an address adds up-front costs to an applicant that may be lost if they don’t get a license.

After applicants who were denied licenses filed suit against the department, even more discrepancies came to light. According to court records, the department hired temporary workers to score the applications without providing significant training or oversight to those workers.  Points awarded for gender and racial diversity among ownership groups invited gamesmanship from applicants, who hired or promoted frontmen to boost their scores. Ultimately, though, what led Judge Gonzalez to issue an injunction against the state’s licensing decisions was the Department of Taxation’s decision to not require background checks on owners with less than a five percent stake in licensed businesses.  That ran afoul of a statutory requirement that all owners the state’s marijuana industry submit to background checks.

Nevada’s mishandling of marijuana licensing is sadly the predictable result of a flawed regulatory structure and is likely to be repeated elsewhere.  First, states contemplating marijuana legalization should take caution not to place arbitrary limits on the number of licenses. This only invites the types of political gamesmanship and corruption seen in Nevada. Nevada should move quickly to open up its licensing process and allow the market to balance supply naturally against demand.

The Reason Foundation’s conceptual framework for marijuana regulation cautions against these limits.  It also recommends specific agency structures and basic licensing criteria that would help states avoid the types of problems seen in Nevada.  We’ve found warm reception for many of those recommendations in places like Michigan, but forecast looming difficulties in places like Illinois.  

Nevada’s experience now offers a cautionary tale that other states should seek to avoid.

Geoffrey Lawrence is a senior policy fellow at the Reason Foundation.

Taxation Department executive who played key role in marijuana licensing process is no longer with agency

Marijuana displayed inside Inyo Fine Cannabis Dispensary

Jorge Pupo, who oversaw a recent round of marijuana dispensary licensing that came under fire for being unfair, is no longer with the Nevada Department of Taxation, officials confirmed Tuesday.

Taxation officials said they couldn’t comment further, but the move comes several weeks after the agency placed him on leave. It's unclear whether he resigned or was terminated.

Pupo’s name came up frequently this summer during a court hearing involving a dispute between marijuana companies and the state. Ultimately, Clark County District Court Judge Elizabeth Gonzalez issued a partial injunction and cited numerous flaws in the state’s application-vetting process. Her decision prevented some dispensaries from taking the final steps toward opening.

Shortly after her ruling, marijuana companies that didn’t receive a dispensary permit filed an amended lawsuit, which requests that the entire application review and licensing round be redone. The lawsuit prominently featured Pupo, alleging that he was too cozy with representatives of marijuana companies and even offered jobs by executives at certain companies.

Pupo has denied engaging in unfair practices and receiving job offers — instead saying executives casually mentioned he should call them if he ever left his state gig. 

The ongoing drama over the licensing process speaks to the lucrative nature of the industry. Winning a dispensary license in the competitive application process puts those companies at a distinct advantage with a retail storefront. The taxation department received more than 450 applications for dispensaries, but only 61 conditional licenses were distributed among 17 different companies.

Marijuana regulator Jorge Pupo, who faces criticism over disputed dispensary licensing round, placed on leave

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

Officials from the Nevada Department of Taxation say Jorge Pupo, who headed the state’s embattled recent round of marijuana dispensary licensing, has been placed on leave.

The state has not released further details about why Pupo is on leave from his job as the agency's deputy executive director, citing the fact that the matter is a personnel issue. But Pupo came under fire in court over the summer and most recently in a newly filed lawsuit by marijuana companies that want the entire application review and licensing round redone.

Plaintiffs allege Pupo was too cozy with representatives of marijuana companies, socializing with an attorney whose clients won numerous licenses and providing her guidance on the application process. They also say that Pupo was offered jobs by executives at certain companies.

Pupo has said that he would have provided such information to any applicant who asked for it, and that he didn’t view certain interactions from executives as job offers, but rather as casual mentions that he should call them if he left his job at the state.

Nevada caps dispensary licenses, and winning one in a highly competitive application process opens up business opportunities worth untold millions and a major advantage over companies that lack a retail storefront. Of the more than 450 applications for dispensaries, only 61 conditional licenses were distributed among 17 different companies.

Clark County District Court Judge Elizabeth Gonzalez last month issued a partial injunction preventing some of the dispensaries from taking the final steps toward opening. She cited numerous flaws in the state’s application vetting process, including that “the process was impacted by personal relationships.”

Updated lawsuit from marijuana companies that did not win licenses accuses state of 'rampant illegality and corruption'

Marijuana displayed inside Inyo Fine Cannabis Dispensary

A group of cannabis companies that did not win marijuana dispensary permits in the latest round of state licensing have filed an amended lawsuit, alleging corruption in the state agency that regulates the industry.

The complaint — filed Friday in District Court in Clark County as an amendment to a lawsuit originally lodged in January — also names a long list of marijuana companies that did and didn’t receive dispensary licenses. It reiterates many of the points made against the state in a lengthy hearing this summer, and adds pointed accusations of leaders at the Nevada Department of Taxation, including top marijuana program executive Jorge Pupo.

The department and related entities “are now engaging in a cover-up of the rampant illegality and corruption that infected the license application process for the recreational Dispensaries,” the complaint says.

A department spokeswoman did not immediately respond to a request for comment on Friday afternoon on the allegations. Plaintiffs are representatives of The Apothecary Shoppe, NuVeda and Inyo Fine Cannabis Dispensary.

Among the allegations, the complaint said that Pupo testified he was offered jobs by marijuana industry executives, including applicants that won dispensary licenses. It says Pupo testified that he was approached by — among others — Armen Yemenidjian, who had a stake in Essence dispensaries, which won numerous licenses in the latest round.

During questioning in court in June, Pupo testified that several marijuana company affiliates told him they should call if he leaves the state job.

“To me they’re not really offers,” Pupo said in testimony June 20, according to a court transcript. “They’re just, like, Hey, if you leave, you know come see me, we could use you, type thing.”

The complaint frames it differently.

“In addition to being an ethics violation, offering any ‘compensation, gratuity or reward to any executive or administrative officer . . . with the intent to influence the officer with respect to any act, decision, vote, opinion or other proceeding, as such officer’ is a felony in the State of Nevada,” the complaint says.

The complaint also emphasizes points from a recent ruling in this summer’s court case about the closeness of some applicants to state employees.

“Licensees who chose to socialize with Mr. Pupo received favorable treatment in exchange,” the complaint says. “Mr. Pupo allowed favored licensees to call him on his personal cell phone number and provided them with additional instruction regarding the application process (by email, phone, or in person).”

Judge Elizabeth Gonzalez, in a ruling granting a partial injunction on the state’s final approval of certain licenses, wrote that personal relationships played a role in the licensing process.

“The process was impacted by personal relationships in decisions related to the requirements of the application,” she said, although “this in and of itself is insufficient to void the process.”

The 106-page complaint also alleges that the department did not properly keep public records, did not thoroughly explain its scoring decisions and improperly denied a public records request for the agency’s visitor logs.

Plaintiffs want the scoring to be done all over again, and are seeking a court order preventing the state from recognizing any of the conditional dispensary licenses it issued last December.

NV tax department lawsuit by Riley Snyder on Scribd