On October 20, 2017, the Nevada Supreme Court issued an injunction, halting the Nevada Department of Taxation from granting recreational marijuana distribution licenses to non-alcohol distributors. A requirement by the state to possess an alcohol license had previously been challenged, and momentarily lifted. Nevada rushed to open recreational sales in July, and dispensaries have struggled to meet demand ever since. Distribution has been a primary choke point.
In Nevada, the alcohol industry is…a big deal. In drafting Nevada’s cannabis measures, its authors incorporated carrots to entice support from big alcohol. Nevada followed other states, mimicking the same post-prohibition era, three-tier model adhered to nationally by the alcohol industry. Alcohol companies were given dibs on distribution, but big alcohol balked.
Exactly who is to blame for the supply shortage is open to interpretation. Some in the alcohol industry claim that, due to the state’s accelerated timeline, they simply weren’t ready. It’s also no secret that many dispensaries would rather not rely upon the alcohol industry at all, prompting accusations by alcohol distributors of collective efforts to shut them out. Disputes have landed everyone in court.
The Silver State is an interesting case for two reasons. First, it demonstrates how unprepared or unwilling some large corporations are to operate in the cannabis market. One obvious subtext to the drama in Nevada is the fact that federal drug and banking laws make cannabis very risky for bigger businesses. While frustrations with the federal government are one thing on which everyone in the cannabis industry can agree, they may, initially, act as a blessing in disguise. By trapping large corporations in limbo, federal laws allow smaller, more experienced players to set norms, and establish reputations.
For an example of how threatening corporate interests are to the cannabis industry, consider Insys Pharmaceuticals. Insys gave $500,000 last summer to Arizonans for Responsible Drug Policy, the group opposing marijuana legalization in Arizona. When efforts failed, Insys performed an about-face, and in March received preliminary approval from the Drug Enforcement Administration for Syndros, a synthetic marijuana drug. A speculative scenario in which a company like Insys proceeds to secure exclusive rights to manufacture and sell a product which, one year ago, they insisted nobody in Arizona should have access to, isn’t hard to imagine.
The second lesson from Nevada comes courtesy of Blackbird Logistics. Prior to recreational-use, Blackbird had been servicing the medical marijuana market in Nevada as a distributor for a number of years. They had already developed and implemented their own point-of-sale software for tracking and quality control. When the alcohol industry failed to meet the distribution demands in Nevada, the state turned to Blackbird to fill that gap. With around 25 employees, Blackbird was able to draw upon its experience – as well as upon relationships cultivated, in part, through the modest service fees the company had consistently been charging – to meet around 95% of distribution demand.
It’s early in the game, but thus far veteran companies, with their institutional knowledge, have proven better suited at introducing cannabis to the general public.
Our politicians can rarely be trusted to risk their reputations on a worthy cause, but thanks to American voters, twenty nine states have broadly legalized marijuana in some form. Preventing the alcohol industry from blocking the legalization of cannabis was perhaps Nevadans’ most significant accomplishment. (You don’t need an MBA to understand how essential drunk people are to the economy in a place like Las Vegas.) But once legalization becomes a reality in your state, public officials and law enforcement face an entirely new set of challenges. For guidance, states could start by looking to small, established, tech-oriented companies like Blackbird.