Judge rules Nevada taxation can issue marijuana distribution licenses
August 17, 2017
Agreeing the bid to block taxation from issuing pot distributor licenses isn't ready for a court ruling yet, District Judge Todd Russell Thursday told liquor distributors they should take their case to the Nevada Tax Commission.
Russell denied the petition for a preliminary injunction barring taxation from issuing licenses to anyone except liquor distributors.
"The Tax Commission, if it wants to, could issue a stay with regard to going forward with any license," he said adding that has to take place before the issue can come before him.
Kevin Benson, representing liquor distributors trying to get into the pot business, said the problem there is there's no statutory scheme to require the Tax Commission to consider a stay. Asked what happens if the commission does nothing or refuses to block the department from issuing licenses, he said, "we're right back here."
He said he and his client, Carson City's Kurt Brown of Capital Beverages, would immediately ask the Department of Taxation and the Tax Commission to block issuance of licenses to non-liquor distributors pending a review of that decision.
The voter approved recreational marijuana law specifies licensed alcohol distributors have exclusive rights to distribute pot for the first 18 months — unless the Taxation Department finds there are insufficient licensees willing to serve the market. Only six have been licensed so far and there was extensive testimony from pot retailers last week that isn't enough.
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After an hour-long hearing last week, Taxation Director Deonne Contine approved emergency regulations allowing licensing of non-liquor licensees to distribute recreational marijuana.
In his ruling from the bench, Russell did make comments supporting that decision.
"There appears substantial evidence supplied at that hearing there is a need for additional distributors over and above liquor distributors," he said. "The testimony was overwhelming according to the court's review there was a need to expand beyond the alcohol distributors."
He also said he wouldn't override taxation's review of the evidence.
"It's not up to this court, it's never up to this court, to supersede the authority of any agency," he said. "The department and tax commission have this authority and the court believes that's where it belongs."
Michael Hagemeyer representing Mighty Sun West, a licensed alcohol and recreational marijuana distributor in Las Vegas, said allowing others to be licensed violates the clear language of the voter approved statute and would kill his client's business — especially because the "vertically integrated" pot businesses with both cultivation and retail would completely cut distributors out of the market.
"When you take away the exclusivity that was expressly provided in statute, you harm my client," he told Russell. "You are going to devastate his business and that's what is going on when the department completely ignores what is in the initiative."
Michelle Briggs, senior deputy attorney general representing taxation, said those distributors had the chance over the course of recent months to make a case they could handle the industry's needs: "They haven't presented evidence that they are sufficient and it's not for the court to decide. It's for the department to decide."
She said the liquor distributors haven't exhausted their administrative remedies before taxation officials and so, "It's not ripe for this court to look at."
She argued they want a monopoly on distribution: "There is no due process right to a monopoly."
But Benson argued they have a right to a fair hearing and they didn't get one last week because Contine even prepared a written version of her decision declaring the department would immediately begin issuing licenses to non-alcohol licensees before that hearing even started.
"We have an admission that it was pre-determined," he said.
Benson argued it was up to the department to show the liquor licensees couldn't do the job, not the other way around.
Briggs, however, said with the number of dispensary and retail pot licensees who testified at last week's hearing, "there is overwhelming evidence to the department that the needs of the market are not being met."
Russell agreed, ruling the intent of the law was to give Taxation the discretion to make that judgment. He lifted the restraining order barring issuance of pot distribution licenses, telling Benson there's a right to appeal but it's with the tax commission.