According to Marijuana Business Daily estimates, Nevada's recreational market could generate $75 million or more in sales this year and $450 million to $550 million annually down the road. Tourist spending is expected to account for a heavy portion of sales.

DENVER (AP) — Now that Nevada has approved an early start to recreational cannabis sales, existing medical marijuana companies in the state are readying for a burst of new business that could equate to tens of millions of dollars in additional revenue this year.

With Las Vegas alone drawing 40 million-plus visitors in 2016, the overall recreational cannabis industry is set to take another big step forward.

The early rollout will make Nevada the fifth state with an operational recreational market and the first to launch since last November's election, when voters in four states approved adult-use programs. Nevada will also be the first new recreational state to go live under the Trump administration.

"It's great news for everybody," said Ben Sillitoe, the CEO and co-founder of Oasis Cannabis, a medical marijuana dispensary in Las Vegas.

Nevada's recreational marijuana industry got the thumbs-up for an "early start" program, when state tax authorities approved temporary regulations that allow licensed medical marijuana companies to begin adult-use sales July 1.

The recreational program isn't expected to fully launch until 2018 because the tax commission has until January to finalize rules for the industry.

According to Marijuana Business Daily estimates, Nevada's recreational market could generate $75 million or more in sales this year and $450 million to $550 million annually down the road. Tourist spending is expected to account for a heavy portion of sales.

The early recreational marijuana program will run from July 1 until January 2018 and will be open to roughly 190 medical marijuana dispensaries, growers and processors.
Sillitoe said the industry, state officials and other stakeholders "all worked together to make this happen quickly, and I think Nevada is a good example of how good regulation works to advance the industry."

However, there are plenty of caveats. The biggest: At the outset, only existing medical marijuana businesses will be allowed to obtain recreational sales licenses; other interested companies must wait until January to jump in.

How it will work

Any licensed medical marijuana business that's operational and "in good standing" with the state will be eligible to tap the recreational market this year.

Interested businesses must submit an application for a temporary recreational license to the Department of Taxation by May 31. Application extensions may be possible under the regulations, so some businesses might be allowed to file as late as June 7.

Businesses must submit a nonrefundable $5,000 application fee along with license fees that will vary by license type. Growers will pay the most for a temporary license — $30,000. Retailers will pay $20,000, testing labs and distributors $15,000 apiece and product manufacturers $10,000.

Those license fees will be applied to whatever permanent fees the commission establishes for the full recreation program. That means Nevada companies that want to participate in early recreational sales won't be charged twice for the same permit.

In addition, the early recreational licenses:

• Will be valid through March 2018.
• Won't carry any restrictions on selling edibles, concentrates or topicals to recreational customers. (That originally was the situation in Oregon, the only other state that has had an "early start" to recreational sales).
• Won't require retailers to establish separate physical spaces for recreational customers and medical marijuana patients. That means dispensaries won't incur costs associated with revamping storefronts or adding new locations for recreational sales.
• However, businesses must also get written support from their local governments to be granted temporary recreational licenses.

That could complicate things for licensed medical marijuana businesses in towns or counties that have installed moratoriums on recreational cannabis companies. For instance, Las Vegas suburb Henderson enacted a six-month moratorium on recreational sales in February, meaning the city's 15 licensed medical marijuana companies could be prohibited from early recreational sales until that moratorium expires — likely sometime in August.

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Cultivation manager Mike Rognier leads a tour of the Sparks-based cultivation center where Tahoe Reno Botanicals grow operation and Tahoe Reno Extractions lab is based on Feb. 24, 2017. (Photo: Jason Bean/RGJ)

"If anyone gets denied, that'll likely be the reason," said David Goldwater, a managing partner of Inyo Fine Cannabis, another Vegas dispensary.

Although there's also a provision in the tax commission's regulations that would require any marijuana companies to designate their inventory proportionately as either "medical" or "retail" - which would force businesses to estimate how much they will sell of each to properly stock - it looks like companies won't have to make that choice.

Under the commission's regulations, that provision will be nullified if the legislature changes state law to apply the same tax rate to both medical and recreational.

Such a measure is in the works and apparently has broad support at the state capitol. Two separate measures, Assembly Bill 463 and Senate Bill 487, would accomplish tax parity, and one is almost certain to pass before the legislature adjourns June 6, said Rianna Durrett, executive director of the Nevada Dispensary Association.

If the measure fails, however, businesses must submit their inventory designations to the tax department by June 16.

Issues remain

Once early recreational licenses are handed out, there will be questions surrounding a new distributor license, which didn't exist under the state's medical marijuana law. It was added by the recreational legalization measure voters approved last year.

The tax commission's regulations appear to allow existing medical marijuana businesses to obtain distributor licenses so they'll be able to ship cannabis to and from retail operations without the need for a third party.

"The general sense" in Nevada is that current medical marijuana businesses will try to land distribution licenses to save on overhead, said marijuana attorney Neal Gidvani.
There's also a question of preparing for what could be a mad rush of customers come July.

Both Sillitoe and Goldwater said their priorities are to increase staff and inventory so they're not overwhelmed by demand.

"We're preparing for a large increase" in business, Sillitoe said. "We're hiring people to beef up our staff, we're acquiring additional inventory, and we're getting ready for the unknown at this point."

Goldwater said Inyo isn't worried about whether it will get a temporary recreational license - he believes most of Nevada's licensed medical marijuana companies will be able to obtain one.

Rather, he said, the bigger concern is keeping customers happy and ensuring there's enough supply.

"There's such a glut of inventory right now that I think we can work through a lot of that. But we're going to work through that excess capacity really quickly," Goldwater said. "It might be a problem, but given the capacity that's out there, I think it's a short-term problem."