SB374 and the legalization of Medical Marijuana Establishments

Before the passage of SB374 (the bill that legalized Nevada’s marijuana industry) the only legal avenue for Nevada marijuana patients two acquire their medicine was to grow their own (of course state law did not provide a legal means to acquire clones or seeds). Unfortunately, this required investment in time and expensive equipment and often required renovations to patient’s homes. If a patient did not own their home, they faced eviction by landlords for violating the terms of their lease agreements. Patients were often contacted by law enforcement who would receive reports of possible illegal grow operations that were actual legal patient gardens. Patients also faced the risk of violent home invasion robberies by criminals looking to steal their medicine. As a result, many patients were unable to grow their own medicine legally and were forced to turn to the black or gray market.

After a long legal battle Nevada’s medical marijuana patients finally won the right to legally buy their medicine at a state licensed marijuana establishment thanks to state senators Tick Segerblom (D NV) and Mark Hutchinson (R NV) who sponsored SB374 and paved the way for a safe, legal, marijuana industry in Nevada. The Nevada Legislature passed SB 374 and on June 12, 2013, Governor Brian Sandoval signed the bill into law. SB374 made sweeping changes to Nevada’s medical marijuana laws.

Question 2 and the Legalization of Recreational Marijuana in Nevada

In November 2016, Nevadans voted yes on ballot Question 2 to legalize the recreational use of marijuana. The ballot required the state to begin sales by January 1, 2018, but the Nevada Tax Commission approved temporary regulations that would allow businesses launch as early as July 1, 2017. The “early start” program has been a resounding success generating revenue for marijuana establishments and millions of dollars of tax revenue for the state and local governments.

The Four Types of Medical Marijuana Establishments:

Nevada law provides for four types of medical marijuana establishment licenses. Under Nevada revised statutes 453A, the four types of medical marijuana establishment certificates are:

  • Medical Marijuana Dispensary
  • Medical Marijuana Cultivation Facility
  • Medical Marijuana Production Facility
  • Independent Testing Laboratory

Each medical marijuana establishment certificate only allows the specific type of activity permitted by the certificate. For example, a cultivation certificate only permits the holder to engage in the cultivation of marijuana, they cannot make retail sales to customers or produce marijuana infused products like edibles. Similarly, a production facility cannot cultivate marijuana. All transactions with a marijuana establishment must be made in accordance with Nevada law, any sales to unauthorized individuals or businesses are strictly forbidden and are subject to severe penalties including loss of licensure and criminal prosecution.

The following provides a brief description of each type of facility:

Medical Marijuana Dispensary

A marijuana dispensary certificate allows the holder to purchase marijuana from state licensed marijuana cultivation facilities and state licensed edible facilities. Dispensaries cannot purchase marijuana or marijuana infused products from any unauthorized sources, including out of state facilities regardless of whether or not those facilities are licensed in their jurisdiction (i.e. no importing from other states). A marijuana dispensary is the ONLY facility permitted to make sales to individual patients and customers. The number of dispensary licenses are held to a specific number by state law, meaning once they are all taken no more will be issued by the state unless the law were to be amended.

Medical Marijuana Cultivation Facility

A marijuana cultivation certificate allows the holder to cultivate marijuana. Marijuana cultivation facilities may acquire their initial plants from those patients authorized to possess marijuana plants. Marijuana cultivation facilities may sell the marijuana they cultivate to marijuana production facilities and dispensaries after such products have passed Nevada’s rigorous testing processes. Marijuana cultivation facilities, like all marijuana establishments in Nevada, are subject to very strict regulations regarding safety, security and cleanliness.

Medical Marijuana Production Facility

A marijuana production certificate allows the holder to produce marijuana infused products, including edibles and extracts. A marijuana production facility may only purchase marijuana cultivated at a Nevada licensed facility. A marijuana production facility may only sell its products to a Nevada licensed dispensary or another production facility. Like all marijuana establishments, marijuana production facilities are strictly regulated by the state for the safety and security of their products.

Independent Testing Laboratory

A marijuana independent testing laboratory certificate allows the holder to test marijuana grown at a state licensed facility, or products produced at a state licensed production facility, to test for the presence of banned or unsafe substances. Independent testing laboratories must remain truly independent. If you own any part of one of the other three types of marijuana licenses in the state of Nevada you may not own any part of an independent testing laboratory. The reason for this separation of ownership is to ensure that the labs remain objective in their analysis of the products.

Retail Marijuana Licenses:

When the voters passed Question 2, marijuana for adult-use became legal (called retail marijuana). This initiative petition was codified in Nevada Revised Statutes 453D. While some facilities are dual-licensed (medical and retail), each license should be treated separately.

The following license types exist in the retail program:

Retail Marijuana Store

A marijuana dispensary certificate allows the holder to purchase marijuana from state licensed marijuana cultivation facilities and state licensed edible facilities. Dispensaries cannot purchase marijuana or marijuana infused products from any unauthorized sources, including out of state facilities regardless of whether or not those facilities are licensed in their jurisdiction (i.e. no importing from other states). A marijuana dispensary is the ONLY facility permitted to make sales to individual patients and customers. The number of dispensary licenses are held to a specific number by state law, meaning once they are all taken no more will be issued by the state unless the law were to be amended.

Retail Marijuana Cultivation Facility

A marijuana cultivation certificate allows the holder to cultivate marijuana. Marijuana cultivation facilities may acquire their initial plants from those patients authorized to possess marijuana plants. Marijuana cultivation facilities may sell the marijuana they cultivate to marijuana production facilities and dispensaries after such products have passed Nevada’s rigorous testing processes. Marijuana cultivation facilities, like all marijuana establishments in Nevada, are subject to very strict regulations regarding safety, security and cleanliness.

Retail Marijuana Production Facility

A marijuana production certificate allows the holder to produce marijuana infused products, including edibles and extracts. A marijuana production facility may only purchase marijuana cultivated at a Nevada licensed facility. A marijuana production facility may only sell its products to a Nevada licensed dispensary or another production facility. Like all marijuana establishments, marijuana production facilities are strictly regulated by the state for the safety and security of their products.

Independent Testing Laboratory

A marijuana independent testing laboratory certificate allows the holder to test marijuana grown at a state licensed facility, or products produced at a state licensed production facility, to test for the presence of banned or unsafe substances. Independent testing laboratories must remain truly independent. If you own any part of one of the other three types of marijuana licenses in the state of Nevada you may not own any part of an independent testing laboratory. The reason for this separation of ownership is to ensure that the labs remain objective in their analysis of the products.

Marijuana Distributor License

A marijuana distribution license can be thought of as a fifth type of marijuana establishment certificate. The law regarding adult use or recreational marijuana in Nevada required that recreational marijuana be regulated like alcohol. Therefore, the system is modeled on Nevada’s three-tiered alcohol distribution system. Accordingly, any marijuana designated for adult use must be transported by an state licensed marijuana distributor. This system has created some confusion in the state and a lot of litigation due to the perceived availability of individuals eligible to apply for distributor licenses and their ability or lack thereof to service the needs of the marijuana industry. Medical-only marijuana may still be delivered to other marijuana facilities by the medical marijuana licensees.

Requirements for Opening a Marijuana Establishment:

Acquiring a marijuana establishment certificate in Nevada, like most parts of the industry, is subject to strict regulations. Applications are not open 365 days per year; you may only apply for a marijuana establishment license during periods when the state is accepting applications. By law, the state must announce when it is accepting applications so pay close attention to announcements made by the Nevada Department of Taxation and the news. If the application period is closed, there is NO WAY to legally apply to the state for a marijuana establishment certificate. Further, individuals or groups wishing to open a marijuana establishment must be able to demonstrate the following:

  • That they control $250,000.00 in liquid assets
  • That no member or owner of the proposed establishment has prior convictions for certain felonies or for distribution of a controlled substance (subject to certain exceptions)
  • That they have submitted all relevant fees (described below)
  • That physical address is located 1,000 feet from any school and 300 feet from any community facility such as religious institutions
  • Evidence that the applicant owns the proposed property where the establishment will be located, or that they have written notarized permission from the landlord to operate a marijuana establishment on the premises
  • Applicants must submit the name, address, date of birth and a complete set of fingerprints for each person who is proposed to be an owner or officer of the establishment
  • The name, address and date of birth of every proposed employee of volunteer of the establishment
  • Proposed policies and procedures consistent with the rules of the Department of Taxation and with the laws and administrative regulations
  • Each marijuana establishment must be located in a separate building or facility located in a commercial or industrial zone or overlay
  • Each marijuana establishment must comply with all state and local ordinances and rules pertaining to zoning, land use and signage (these rules vary from one jurisdiction to another, so check with the local governing authority and your lawyer before committing to any location)
  • Each marijuana establishment shall have discreet signage consistent with traditional medical offices and pharmacies
  • Each marijuana establishment shall have a professional interior in the traditional style of medical offices and pharmacies
  • Each marijuana establishment must have one secure entrance, notwithstanding relevant fire codes

In addition to the above, each medical marijuana establishment or retail marijuana establishment must follow very stringent regulations regarding the purchase, cultivation and production of marijuana infused products. All marijuana and marijuana products sold in dispensaries must be purchased from licensed medical marijuana establishments in the state of Nevada.

Licensing Fees

There will also be significant fees associated with opening a marijuana establishment. These fees are in addition to any fees relating to forming and registering a business or corporation with the Nevada Secretary of State and any local licensing fees (which vary from one jurisdiction to another). The fees for the separate types of establishments are as follows:

Medical

Dispensary Licensing Fees:

  • $5,000.00 nonrefundable application fee
  • $30,000.00 initial licensing fee
  • $5,000.00 annual renewal fee

Cultivation Facility Licensing Fees:

  • $5,000.00 nonrefundable application fee
  • $3,000.00 initial licensing fee
  • $1,000.00 annual renewal fee

Edibles Production Facility Licensing Fees:

  • $5,000.00 nonrefundable application fee
  • $3,000.00 initial licensing fee
  • $1,000.00 renewal fee

Independent Testing Laboratory Licensing Fees:

  • $5,000.00 nonrefundable application fee
  • $5,000.00 initial licensing fee
  • $3,000.00 annual renewal fee

Retail

Application fee of $5000 for all applications

  • For the initial issuance of a retail marijuana store license – $20,000 ($6,600 for the renewal)
  • For the initial issuance of a retail marijuana cultivation license – $30,000 ($10,000 for the renewal)
  • For the initial issuance of a retail marijuana production license – $10,000 ($3,300 for the renewal)
  • For the initial issuance of a marijuana distributor license – $15,000 ($5,000 for the renewal)
  • For the initial issuance of a marijuana testing facility license – $15,000 ($5,000 for the renewal)

In addition to the above fees each applicant for a marijuana establishment license must pay to the Department of Taxation the actual costs of processing the application including the costs of background checks. Putting together a quality application is very time consuming and can be very costly.

Marijuana Support Businesses:

In addition to business licenses for marijuana establishments, local governments require marijuana support business licenses for businesses that operate to support the marijuana industry. This could include consulting businesses, lighting companies, security companies, and staffing companies. It is important to know if your business will require a marijuana support business license in order to operate in compliance.

Additional Considerations:

In addition to the above fees and requirements each marijuana establishments are strictly regulated. All marijuana produced and sold in the state of Nevada must be strictly accounted for. The facility must track all marijuana produced from seed or clone all the way to the consumer. Each facility must enact strict policies to ensure that all marijuana distributed to patients and retail customers is accounted for to ensure that none of it is entering the illegal stream of commerce. Each facility must also utilize strict security measures including alarms and real-time monitoring systems in order to track the marijuana. In short, marijuana establishments will be subject to complex regulations and any violation will result in a loss of the establishments license or potentially criminal prosecution. As a result, we strongly recommend consulting with an attorney to ensure strict compliance with the regulations.

Again it is important to understand that a person may still face prosecution under a litany of Federal Laws as the Federal Government does not recognize Nevada marijuana laws.