Professional Documents
Culture Documents
Electronically Filed
Sep 01 2017 10:17 a.m.
Elizabeth A. Brown
Clerk of Supreme Court
INDEPENDENT ALCOHOL
DISTRIBUTORS OF NEVADA, INC.;
and PALIDIN, LLC,
Appellants, CASE NO.: 73883
vs.
THE STATE OF NEVADA District Court Case No.: 17 OC 00153 1B
DEPARTMENT OF
TAXATION, NEVADA TAX
COMMISSION,
Respondents.
its attorneys, Kevin Benson, Esq. and Will Wagner, Esq. of ALLISON
MacKENZIE, Ltd., and Plaintiff PALIDIN, LLC (Palidin) by and through its
attorney Stephanie Rice, Esq. and WINTER STREET LAW GROUP, respectfully
requests this Court to issue a stay of the district courts order denying a preliminary
1
Docket 73883 Document 2017-29411
of Taxation (Department) and Nevada Tax Commission (Commission) from
IADON and Palidin also respectfully request that the Court permit this Motion
to exceed the page limitations set forth in NRAP 27, because it is impossible to fairly
I.
INTRODUCTION
This appeal raises what appears to be issues of first impression in Nevada: (1)
that deprive certain persons of valuable statutory rights, without any evidence that
an emergency actually exists, and (2) may a district court simply rubber-stamp an
IADON and Palidin additionally appeal from the District Courts order
denying their motion for a preliminary injunction based on due process. The
Department violated IADON members due process rights by finding that alcohol
where the result was admittedly pre-determined, inadequate notice was provided,
and the hearing was designed to prevent IADON members from having any
2
II.
and Tax Marijuana (Initiative). The Initiative became effective January 1, 2017.
Initiative, 18. The Initiative imposes a 15% tax on wholesale sales of marijuana
additional 10% tax on retail sales, and directed all of those revenues to the Rainy
Day Fund. Senate Bill 487, 9(5). Accordingly, there are no State programs that
Under the Initiative, for the first 18 months after the Department begins
licenses for marijuana distributors only to persons who hold an alcohol distribution
license pursuant to NRS Chapter 369, unless the Department determines that an
insufficient number of marijuana distributors will result from this limitation. NRS
453D.210(3).
which set forth certain requirements for alcohol distributors to apply for a marijuana
3
IADON filed a lawsuit challenging the temporary regulation, because it
sufficiency. On June 20, 2017, after a day-long hearing, the First Judicial District
distribution licenses to anyone other than alcohol distributors, until it adopted valid
regulations defining sufficiency and setting forth relevant criteria. That order was
on appeal before this Court in Case No. 73362. The Department recently voluntarily
Because of the numerous problems with the temporary regulation and the
on June 15, 2017, the Department announced that, starting July 1, 2017, medical
marijuana dispensaries that also hold a license to operate as a retail marijuana store
June, so that they could sell it as recreational marijuana beginning July 1. See e.g.,
http://www.lasvegasnow.com/news/some-pot-dispensaries-gear-up-for-july-
1/749541216; https://www.reviewjournal.com/news/pot-news/nevada-retail-
marijuana-sales-on-track-to-begin-in-july/
4
Retail marijuana stores began sales on July 1, 2017. On July 6, 2017, the
Emergency cites three reasons for the alleged emergency: (1) potential loss of
revenue, (2) customers who bought legal marijuana after July 1 might revert to the
black market if legal supplies run out, and (3) marijuana businesses might suffer
financial loss and lay off workers if they cannot restock their inventory. Exhibit 2,
The Emergency Regulation sets forth certain criteria that the Department will
consider when determining if alcohol distributors are sufficient to serve the market.
The first criterion is a sample of the historic market demand for marijuana
distribution in the last three months based on survey responses from a sampling of
Other criteria that will be considered include: delivery within 24 hours, 3-5
products are not always ready at the same time, and any other criteria the
Department determines necessary to protect the public health, safety and general
welfare. Id. These criteria were created with input from the marijuana industry, but
5
On July 13, 2017, the Tax Commission adopted the Emergency Regulation.
At the meeting, the Department stated that, as of July 13, 2017, two alcohol
distributors had been licensed to distribute marijuana. IADON and Palidin objected
existed, and the Emergency Regulation would therefore be invalid. The Tax
Restraining Order and Preliminary Injunction in the First Judicial District Court on
July 17, 2017. On July 27, 2017, the district court denied the temporary restraining
order and preliminary injunction. No evidence was presented at the hearing that
indicated revenue would actually fall short of projections, nor that marijuana
retailers were running out of product. Nevertheless, the district court determined that
the potential threat to the State budget by a reduction in revenue from marijuana
Regulation.
those surveys was July 23, 2017. On August 7, 2017, the Department posted notice
that it would hold a meeting on August 10, 2017 to determine whether alcohol
6
August 10, 2017, six alcohol distributors had been licensed to distribute marijuana.
The August 10, 2017 meeting suffered from numerous procedural defects.
The Department readily admitted at a later preliminary injunction hearing that the
distributors were insufficient prior to even calling the meeting. The Department
meeting, and did not disclose that it would have an economist testify as well as
three representatives from the marijuana industry, all of whom advocated for
were allowed to testify for a maximum of only five minutes. There was no
opportunity for the alcohol distributors to examine the data the Department used
to make its determination or to ask questions about the data in order to rebut any
Benson, Exhibit 5.
In light of these procedural flaws, IADON and Palidin renewed their motion
for preliminary injunction in the district court. The district court found that
Tax Commission, but it also reached the merits of the claim, stating that the August
10, 2017 meeting met the requirements of due process. IADON and Palidin have
7
appealed the Departments determination to the Tax Commission. On August 29,
III.
IADON and Palidin did not make a motion for a stay or injunction to the
district court, because doing so would be impractical in this case. The standard for
granting a preliminary injunction is very similar to this Courts standard for granting
a stay or injunction. Compare NRAP 8(c); with Excellence Cmty. Mgmt. v. Gilmore,
131 Nev. Adv. Op. 38, 351 P.3d 720, 722 (2015); NRS 33.010. All grounds for relief
presented here have already been presented to the district court in the motions for
preliminary injunctions. Because the district court has already denied those motions,
it would be futile to request a stay or injunction providing the same relief, since the
IV.
ARGUMENT
NRAP 8(c) provides that the Supreme Court will generally consider the
whether the object of the appeal or writ petition will be defeated if the stay or
serious injury if the stay or injunction is denied; (3) whether respondent/real party
8
in interest will suffer irreparable or serious injury if the stay or injunction is granted;
and (4) whether appellant/petitioner is likely to prevail on the merits in the appeal or
writ petition.
invalid, as well as the determination that alcohol distributors are insufficient because
that determination was made in violation of due process. The appeal seeks to enjoin
the Department and the Tax Commission from issuing marijuana distribution
violates IADON members due process rights because no actual emergency existed,
Unless this Court issues an injunction, the Department will issue distribution
licenses to non-alcohol distributors, which will defeat any practical relief IADON
and Palidin would otherwise receive by succeeding with this appeal. Accordingly,
if an injunction is not issued, the purpose and object of the appeal will be entirely
defeated.
9
B. Issuance of distributions to non-alcohol distributors would cause
alcohol distributors irreparable harm.
This Court has recognized that acts committed without just cause which
irreparable injury. Finkel v. Cashman Prof'l, Inc., 270 P.3d 1259, 1263 (Nev. 2012)
(quoting Sobol v. Capital Management, 102 Nev. 444, 446, 726 P.2d 335, 337
(1986)). Accordingly, such acts will support the issuance of an injunction. Guion v.
Terra Mktg. of Nevada, Inc., 90 Nev. 237, 23940, 523 P.2d 847, 848 (1974).
medical marijuana businesses. Those are the same businesses who operate retail
stores, cultivation facilities, etc. Many of them are vertically integrated and, if
for the Department to revoke that license. This will cause IADON members to be
entirely shut out of the marijuana distribution business, likely permanently, because
Like in Sobol and Finkel, this constitutes irreparable harm because it will
10
Compensatory damages are inadequate because the alcohol distributors will never
have a fair opportunity to actually serve the market, as provided for in NRS
453D.210(3).
IADON and Palidin are informed and believe that the Department has already
begun, or will imminently begin, issuing licenses to applicants other than alcohol
distributors. They therefore respectfully request that the Court act as quickly as it
C. The State will not suffer any irreparable or serious injury if the stay
or injunction is granted.
The State will not suffer any irreparable harm or serious injury if the stay or
there are now six licensed distributors, and sales are continuing.
The vast majority (over 75%) of the revenues from recreational marijuana
sales must be deposited in the Rainy Day Fund. Because there are no government
programs that are dependent on these funds, there is no irreparable or serious injury,
even assuming revenues are somewhat less than originally projected. Irreparable or
serious injury would only occur if marijuana sales entirely stopped for most of the
biennium. The facts demonstrate that that has not happened, and there is no real
possibility of it happening.
11
D. IADON and Palidin are likely to prevail on the merits because there
are no facts that support the conclusion that an emergency actually
exists.
if it submits a written statement of the emergency to the Governor, and the Governor
with the usual requirements for adoption of regulations under the APA. If the agency
finds there is an emergency, it need not hold any workshops on the matter and it
need not even give advance notice or copies of the regulation itself to the public or
interested parties. See NRS 233B.0613(2), (3) (omitting requirements for workshops
or hearings, and requiring one days notice before adoption of the regulation, and
safeguards for notice, hearing, and public input. The power to adopt rules that have
the force of law, without any public notice or input from affected parties, is an
America. It is therefore crucial that an actual, real emergency exist to invoke this
enormous power.
12
1. The agencys statement of emergency must state facts that provide a
basis that an emergency exists.
law from other jurisdictions and the analogous emergency exception to the Open
Meeting Law show that an emergency must be something unexpected that poses a
serious and imminent threat to the public welfare, like a fire, earthquake, outbreak
provision under federal law, the D.C. Circuit Court explained: it should be clear
beyond contradiction or cavil that Congress expected, and the courts have held, that
narrowly construed and only reluctantly countenanced. State of N. J., Dep't of Envtl.
Prot. v. U.S. Envtl. Prot. Agency, 626 F.2d 1038, 1045 (D.C. Cir. 1980)
For these reasons, a mere recitation that an emergency exists is not sufficient.
is not an escape clause in the sense that any agency has discretion to disregard its
13
2. The courts must perform a meaningful review of the agencys assertion
of emergency.
Not only must an actual emergency exist, but the statement of emergency
must adequately set forth the facts showing that there is an emergency, or, at an
absolute minimum, the agency must be able to support its statement of emergency
with evidence in court. Id. The role of the courts is not to simply rubber-stamp an
unsupported statement of emergency. Instead, the courts role is to ensure that a true
power to make rules with the force of law, without any notice or opportunity to be
announce its reasons for declaring an emergency that requires protection of the
public health or welfare, and attempts to justify dispensing with public notice and
comment, the reasons should be truly emergent and persuasive to the reviewing
court. Mauzy v. Gibbs, 723 P.2d 458, 46162 (Wash. App. 1986). The court further
When the emergency is something that is obvious and easily verifiable to the
emergency is likely sufficient. But in a case such as this, where the claimed
emergency is not obvious and there is no information available to the public to verify
14
the existence of the emergency, the agency must set forth specific facts persuasive
to the court demonstrating that an emergency exists. In all cases, the agency bears
the burden of demonstrating that an emergency actually exists. See State of New
Jersey, 626 F.2d at 1045 (a declaration of emergency is not an escape hatch); Mauzy,
723 P.2d at 46162 (reasons in the statement of emergency must be truly emergent
In this case, the Statement of Emergency contained no facts that support that
at the hearing to adopt the Emergency Regulation confirm that the emergency was
not based on the Departments own expertise or investigation, but instead was based
solely on reports from the media and the marijuana sellers themselves, who have
substantial self-interest in the matter. This self-serving evidence cannot form the
emergency exists, it must provide at least the basic facts on which it makes that
determination. Given that the particular emergency asserted in this case is not
obvious and cannot readily be verified by the public or any interested parties, in
order to protect the publics rights, both the Department and the District Court had
15
a duty to affirmatively determine that there are sufficient facts showing an
emergency exists, and that those facts are published in the Statement of Emergency
(or proven in court). See State of N. J., 626 F.2d at 1046 (a true and supported or
Accordingly, it is given its ordinary, plain meaning. McGrath v. State Dep't of Pub.
Safety, 123 Nev. 120, 125, 159 P.3d 239, 243 (2007). The plain meaning of
action is not taken. The Oxford English Dictionary defines emergency as: A
requires immediate action, and includes, but is not limited to: (a) Disasters caused
by fire, flood, earthquake or other natural cause, or (b) Any impairment of the health
The emergency exception to the Open Meeting Law serves a similar function
16
dispense with the normal protections of notice and public input. The Court should
therefore interpret emergency in NRS Chapter 233B consistent with the definition
in Chapter 241. This is also consistent with the plain meaning of emergency and
The Department asserts that, absent the Emergency Regulation, there may be
significant disruption of the recreational marijuana market, which will lead to lower
tax revenues than were projected, users of marijuana reverting to the black market,
First, the Statement of Emergency does not set out any facts that could
immediate action. That 40,000 retail transactions took place during the first weekend
of sales has little or no bearing on whether sales will be interrupted, because that
number alone does not tell us how much inventory was sold, or how much remains.
Similarly, that some establishments report the need for delivery within the
next several days (emphasis added) does not explain how many establishments
establishments could mean that a small number of establishments are indeed facing
shortages of inventory, while the vast majority are not. Since the statement does not
17
define or explain what type of delivery is needed, it could also mean simply that
statement showing that the Department, which has authority to inspect and audit
licensees, has investigated the situation and in fact found that inventories are rapidly
diminishing, to the point that sales will be seriously interrupted without imminent
resupply. Indeed, during the Tax Commission meeting on July 13, 2017, the Director
of the Department stated that the determination that inventories were running low
was based on media reports and reports from the industry. Exhibit 5.
to do the same with recreational marijuana. Thus the marijuana establishments have
have a strong incentive to exaggerate their need for new inventory. Given these
media reports and reports from the industry to determine that an emergency
exists.
18
Furthermore, it was stated at the July 13, 2017 Tax Commission meeting that,
as of that date, two licenses had been issued to alcohol distributors to distribute
recreational marijuana. Thus, at the time of adoption, there were already two
licensed distributors who would presumably begin operating very soon, if they had
not already.
conclusion that in fact inventories are so low that there is a real threat that
recreational marijuana sales will be seriously disrupted if the Department does not
Assuming for the sake of argument that inventories are in fact running low,
that is relevant only the urgency of the situation. It does not mean that significant
harm will result if inventories do run out. If no significant harm to the public would
occur if recreational marijuana sales stop due to a lack of distributors: (1) there will
be less tax revenue, (2) people might revert back to buying marijuana on the black
revenue from taxes on recreational marijuana that is included in the biennial budget.
It also asserts: Without the retail sale of marijuana, the State will not realize the
19
revenue on which the State budget relies. That statement would likely be true, if
To the contrary, it is extremely unlikely that any budget shortfall will occur.
First, at the time the Emergency Regulation was adopted, there were already two
licensed distributors. (As of August 10, 2017, there were six.) Thus there was no
reason to believe that sales (and hence, revenue) will stop at all. Furthermore,
IADON members on average serve 207 alcohol retailers each, and only 69 alcohol
retailers throughout the state. Given these facts, there is no reason to believe that a
Second, the vast majority of the projected revenues over the biennium must
be deposited in the Rainy Day Fund, which would be more than sufficient to cover
first year and $39.8 million in the second year, for a total of $69.3 million over the
biennium. Id. This revenue goes to the Rainy Day Fund. No state programs directly
because the revenue in the Rainy Day Fund would be more than sufficient to cover
20
the relatively small amount of revenue earmarked for the DSA. Furthermore, given
the facts that recreational marijuana sales started on July 1 using existing medical
inventory and there were two licensed distributors as of July 13, 2017, there was no
The Department next asserts that media reports highlight the customer relief
that they no longer have to purchase product from the black market. It states:
product to the retail store, a high likelihood exists that consumers will revert to the
black market.
The supposed reversion of customers to the black market does not constitute
an emergency. The Department cannot use a situation that has existed for a long time
The New Mexico Court of Appeals rejected a very similar justification for an
Med., 288 P.3d 902, 908 (N.M. App. 2012). In that case, the state board of
acupuncture had spent two years crafting permanent regulations to deal with
confusion over what types of drugs acupuncturists were allowed to inject into
patients. Id. The permanent regulations were struck down by a court for reasons not
relevant here. Id. at 908. After the regulations were struck down, the board declared
21
an emergency, citing the same confusion over what drugs acupuncturists could
The New Mexico court held that the emergency regulations were invalid
because no emergency existed, since the alleged emergency was the same situation
that existed when the first set of regulations were created. Id.
Just like in Wilcox, the Department cannot use a situation that existed at the
time it adopted its first set of regulations to claim that an emergency now exists after
marijuana businesses will suffer economic harm if they cannot obtain more product
to sell. It asserts that many employees may be laid off and that some retailers
indicate that without the continued market they will go out of business.
procedural protections of the APA is something that threatens the public health and
safety, not just certain business interests. See NRS 241.020(10) (defining
emergency as a threat to the health and safety of the public.) (emphasis added).
Myriad events that can cause harm to private businesses or even entire
industries, e.g., contract disputes, equipment failures, strikes. These do not constitute
an emergency under the APA. If they did, every time a business or industry might
22
lose significant money, it could get a state agency to declare an emergency and make
rules - which have the force of law to protect that business, all without any notice
or input from the public or other interested parties. That is not the purpose of the
IADON and Palidin have a likelihood of success on the merits of the claims
that the Emergency Regulation is invalid because no actual emergency exists. The
with NRS Chapter 233B. Accordingly, all actions taken by the Department to
enforce the Emergency Regulation are void and in violation of due process.
bound by the preliminary injunction issued by the First Judicial District Court in
Case No. 17 OC 00097 1B, prohibiting the Department from issuing distribution
E. IADON and Palidin are likely to prevail on the merits because the
Department deprived them of due process by determining alcohol
distributors were insufficient in a hearing where the outcome
was pre-determined, and there was no meaningful opportunity to
be heard.
23
No person or entity can be deprived of a property interest without due process1
of the law. Nev. Const. art. I, 8. A protected interest in liberty or property may
have its source in either federal or state law. Elliott v. Martinez, 675 F.3d 1241,
1244 (10th Cir. 2012); see also Bd. of Regents of State Colleges v. Roth, 408 U.S.
entitlement grounded in state law, which cannot be removed except for cause.
Logan v. Zimmerman Brush Co., 455 U.S. 422, 430 (1982). Words such as shall
indicate that a protectable property interest exists, and limited discretion to deny that
interest do not undermine the right itself. Doyle v. City of Medford, 606 F.3d 667,
distribution licenses only to alcohol distributors for the first 18 months after it begins
only interfere with this property interest if alcohol distributors are insufficient to
serve the marketno other grounds exist for the Department to interfere with the
1
Due to the similarities between the Nevada due process clause and the federal due process
clause, Nevada courts may look to federal precedents when analyzing a due process claim under
the Nevada Constitution. Hernandez v. Bennett-Haron, 128 Nev. Adv. Op. 54, 287 P.3d 305, 310
(2012).
24
Furthermore, limited discretion to deny that interest do not undermine the
right itself. Id.; Parks v. Watson, 716 F.2d 646, 657 (9th Cir. 1983). In Parks, a
statute required that a city, when considering a petition to vacate a street, must
determine: if notice had been given, if the affected property owners have consented,
and if the vacation would prejudice the public interest. Id. The court held that the
issuing distributor licenses to anyone other than alcohol distributors, except in one
event: that alcohol distributors are insufficient to serve the market. This is much
narrower and more specific than determining whether an action would prejudice
the public interest, which the court in Parks found sufficiently constrained
The sufficiency meeting held on August 10, 2017 provided none of the
process that is due before a person is deprived of a protectible and valuable property
right. Only three days notice of the meeting was given. No supporting materials
were provided prior to the meeting. There was no opportunity to find out what data
25
Nor was there any opportunity to ask the Director or Mr. Porter, the Departments
economist and expert, how they analyzed that data or the results of the survey. As a
result, the alcohol distributors were unable to meaningfully prepare for the
hearing.
insufficiency. Nothing on the agenda provided notice that there would be special
representatives were, or what the subject matter of their presentation would be. Nor
was there any opportunity to ask any questions of those witnesses. Those witnesses
had unlimited time to give their presentations; the alcohol distributors had only five
minutes each to try to present their case and rebut those witnesses.
Finally and most fundamentally, due process requires a fair hearing, not one
Beach Unified Sch. Dist., 307 F.3d 1064, 1074 (9th Cir. 2002); Matthews v. Harney
County, 819 F.2d 889, 894 (9th Cir.1987). The Department has admitted that the
result of the August 10, 2017 meeting was pre-determined. It is obvious that the
Department conducted the meeting in a manner that was designed only to support
26
Consequently, IADON and Palidin have a strong likelihood of success on the
V.
CONCLUSION
For the foregoing reasons, IADON and Palidin respectfully request this Court
1. Prohibits and enjoins the Department and the Commission and any of
including the procedures and criteria for determining sufficiency that are contained
27
NRAP 27(e) CERTIFICATE
(A) Names, addresses, and phone numbers of attorneys for the parties:
(B) Facts showing the existence and nature of the claimed emergency:
distribution licenses to applicants other than alcohol distributors, if it has not already.
28
The decision to do so is based on an invalid emergency regulation and a hearing
process that was pre-decided and provided no due process. The practical effect of
the Department issuing licenses to other applicants is that those applicants are the
same businesses who operate retail stores, cultivation facilities, etc. Most of them
all or most of their products. This makes a distributor license held by an alcohol
outside distributor.
very difficult for the Department to revoke that license. This will cause IADON
permanently.
C. When and how counsel for the other parties and any pro se parties were
notified and whether they have been served with the motion; or, if not notified
and served, why that was not done.
Counsel for the other parties were notified via email at approximately
4:15pm on August 31, 2017, that IADON and Palidin would be filing this
Emergency Motion. Counsel for the other parties were served with the motion via
email at approximately 9:00am on September 1, 2017.
Counsel for IADON additionally emailed and called the Clerk of the Court
to provide notice of the motion at approximately 4:15 and 4:45pm on August 31,
2017.
29
DATED this 1st day of September, 2017.
30
DISCLOSURE STATEMENT
Pursuant to NRAP 26.1, the undersigned counsel of record certifies that there
PALIDINs stock.
31
DISCLOSURE STATEMENT
Pursuant to NRAP 26.1, the undersigned counsel of record certifies that there
are no parent corporations or publicly-held companies that own 10% or more of the
Wagner, Esq., appeared for IADON in proceedings in the District Court and have
32
INDEX OF EXHIBITS
Working Group
33
CERTIFICATE OF SERVICE
DEIRDRE REID
34
Exhibit 1
Exhibit 1
Kevin Benson
Marijuana establishments do not need to designate their inventory as medical vs. retail
With the passage and approval of Senate Bill 487, marijuana establishments do not need to designate
their marijuana inventory as medical or retail (recreational). Marijuana inventory can be kept as a single
inventory until the point of sale to the consumer.
As stated in the Department's temporary regulation governing the retail marijuana program (Regulation
T002-17), the passage of this legislation makes sections 30 and 31 of the regulation no longer applicable.
Please disregard those sections.
Starting July 1, 2017, this is how the tax structure will work:
First wholesale sale by cultivator: 15 percent excise tax on all marijuana at the first wholesale
sale by a cultivator
o Calculated on the Fair Market Valve at Wholesale, determined by the Department
o Replaces the prior 2 percent excise tax at each sale for medical marijuana
Retail sale to the consumer 10 percent excise tax on the retail sale of retail (recreational)
marijuana to the consumer; does not apply to medical marijuana sales
o Local sales and use tax applies to both retail and medical marijuana sales to the
consumer
This means, starting with July taxes (due in August), the only marijuana establishments that will be
responsible for reporting and paying marijuana excise taxes are cultivators and retail
stores/dispensaries.
1
Before the August 2017 due date, the following new tax returns will be posted to the Department's
Excise Tax Forms page:
If you have any questions, please contact our call center at (366) 962-3707.
2
Exhibit 2
Exhibit 2
STATE OF NEVADA
RENO OFFICE
DEPARTMENT OF TAXATION 4600 Kletzke Lane
Building L. Suite 235
Web Site: http://tax.nv.gov Reno, Nevada 89502
1550 College Parkway, Suite 115 Phone. (775) 667-9999
Carson City, Nevada 69706-7937 Fax: (775) 688 1303
Phone (775) 684 2000 Fax (775) 684-2020
BRIAN SANDOVAL
Governor LAS VEGAS OFFICE HENDERSON OFFICE
JAMES DEVOLLD Grant Sawyer Office Building, Suite1300 2550 Paseo Verde Parkway, Suite 180
Chair. Nevada Tax Commission 555 E Washington Avenue Henderson, Nevada 89074
DEONNE E CONTINE Las Vegas, Nevada 89101 Phone: (702) 486-2300
Executive Director Phone (702) 486 2300 Fax (702) 466-2373 Fax: (702) 486-3377
Statement of Emergency
Regulation to provide criteria for determining whether there is an insufficient number of liquor
wholesale dealers to serve the mariluana distribution market under NRS 453D.210
Voters approved the Regulation and Taxation of Marijuana Act at the 2016 General Election. The
Act is codified in Chapter 453D and provides that the Department shall adopt all regulations necessary
or convenient to carry out the provisions of this chapter, including requirements related to licensing of
marijuana establishments.
The Act legalizes possession of 1 ounce of marijuana and provides for the legal sale by state-
licensed retail stores to anyone 21 or older (adult-use marijuana), In January, approximately $100
million in revenue was included in the State's budget for the next biennium and that budget was enacted
by the Legislature and became effective on July 1, 2017.
NRS Chapter 453D requires licensing of marijuana distributors and prohibits transportation of
marijuana or marijuana products to a licensed retail store by anyone other than a licensed marijuana
distributor. With respect to licensing marijuana distributors, the Act provides:
"For 18 months after the Department begins to receive applications for marijuana
establishments, the Department shall issue licenses for marijuana distributors pursuant to
this chapter only to persons holding a wholesale dealer license pursuant to chapter 369 of
NRS, unless the Department determines that an insufficient number of marijuana
distributors will result from this limitation."
In May, the Department adopted Regulation T002-17 which included rules for licensing and
requirements for liquor distributors to provide information demonstrating their ability to serve the
marijuana delivery market. While NRS Chapter 453D does not require the Department to adopt
regulations to make an insufficiency determination, a Court decision issued on June 20, 2017, prohibits
the Department from making such a determination until it has gone through the regulatory process in
NRS Chapter 233B to establish rules for what number of distributors are necessary to serve the
marijuana market.
As of July I, 2017, certain medical marijuana establishments are licensed to sell adult-use
marijuana and marijuana products to anyone 21 or older. Currently, 47 retail marijuana stores are
licensed statewide. The initial weekend of legal operation of marijuana establishments resulted in well
over 40,000 retail transactions and some establishments report sales of more than double their estimates.
Additionally, some establishments report the need for delivery within the next several days.
Four wholesale liquor dealers applied for a marijuana distributor license prior to the May 31'`
application deadline provided in T002-17. An additional three wholesale liquor dealers have applied for
marijuana distributor licenses since the Court's June 20 Order. However, as of July 5, 2017, for various
reasons, including local government issues, lack of completed applications and zoning review, no
wholesale liquor dealer has met the application requirements to receive a marijuana distributor license.
Notwithstanding the fact that currently no applicants from a wholesale liquor dealer have
qualified to be licensed as marijuana distributors, the Department is unable to make a determination that
an insufficient number of marijuana distributors will result from limiting marijuana distributor licenses
only to persons holding a wholesale dealer license pursuant to chapter 369 of NRS, without adopting
this Emergency Regulation. Without the ability to make a sufficiency determination, the Department
cannot license other marijuana distributor applicants and, therefore, no marijuana or marijuana product
can be transferred to a retail store. Without the retail sale of marijuana, the State will not realize the
revenue on which the State budget relies.
Additionally, media reports highlight the customer relief that they no longer have to purchase
product from the black market. Without the ability to license marijuana distributors to continue the flow
of product to the retail store, a high likelihood exists that consumers will revert to the black market.
Finally, the marijuana industry has invested hundreds of millions of dollars to build facilities across the
state. These businesses have recently hired and trained thousands of additional employees to meet the
increased demand of adult-use. Unless the issue with distributor licensing is resolved quickly the
inability to deliver product to the retail stores will result in many of these employees losing their jobs
and will cause this nascent industry to grind to a halt. Some indicate that without the continued market
they will go out of business.
This Emergency Regulation is necessary to provide for the structure that will allow the
Department to, if necessary, make a determination that will maintain the flow of revenue related to the
legal sale and regulation of marijuana. Additionally, adopting an Emergency Regulation to allow for
such a determination will prevent reversion to the black market and preserve the legal market so that
legally licensed and regulated businesses continue to operate, pay employees and realize the returns
from their investments. It is necessary to implement them on an emergency basis as the Department has
issued marijuana establishment licenses and retail stores began selling marijuana to adults as of July 1,
2017, while at the same time there are no licensed marijuana distributors.
be-Nut t
Deonne E. Contine, Executive Director
Nevada Department of Taxation
I hereby endorse the Statement of Emergency prepared by the Executive Director of the Department of
Taxation.
Explanation Matter in italics is new; matter in brackets [omitted material] is material to be omitted.
Sec. I. The Department will determine that an insufficient number of marijuana distributors
will result from limiting marijuana distribution licenses only to persons holding a wholesale
A. Criteria related to industry demand that includes, but is not limited to,
I) A sample of the historic market demand for marijuana distribution in the last
three months based on survey responses from a sampling of the marijuana and
2) Industry growth expectations based on historical growth from other states when
the legal marijuana market began or growth in taxable sales in Nevada or both.
1
i. Visual inspection of product and packaging to ensure it is the
ii. Vendor invoice provided and includes batch number, lot number
and amount.
iii. Travel plan provided and includes the 20 digit number for the
the product.
vi. Verify the products' batch and lot numbers (or production run
labels.
cultivation/production facility.
time;
g. Ability to handle cash and process IRS paperwork related thereto; and
2
h. Any other criteria the Department determines necessary to protect the
regulation;
S The NRS Chapter 369 wholesaler has a place and method to store
2) The NRS Chapter 369 wholesaler has the capacity to serve the market.
wholesaler, as follows:
3
a. Demonstration that it has vehicles that meet the requirements of the
regulations adopted by the Department and that it has complied with any
c. The NRS Chapter 369 wholesale dealer may provide any additional
a. The NRS Chapter 369 wholesaler has resolved to the best of its ability
any potential conflicts with its federal liquor licensing and the
b. The NRS Chapter 369 wholesaler has made or has the resources for
market; and
4) The Department may consider any other criteria in its discretion to protect the
result from limiting marijuana distribution licenses to only NRS 369 wholesalers will be made
4
in a meeting noticed pursuant to the notice requirements in NRS Chapter 241. The meeting
will be noticed after a request made with 5 calendar days' notice for the marijuana
establishments to complete the survey in Subsection A and for each NRS Chapter 369
wholesaler that has applied for or received a distributor license pursuant to NRS 453D.210(3)
final unless appealed to the Nevada Tax Commission as provided in NRS 360.245.
5
Exhibit 3
Exhibit 3
From:
To LIZILI1W00110110.
Subject: Fwd: Emergency Group Project
Date: Wednesday, June 28, 2017 11:11:46 AM
Forwarded message
From:
Date: Wed, Jun 21, 2017 at 8:51 PM
Subject: Fwd: Emergency Group Project
To:
From:
Date: 1.11111111.1.111W
To:
Subject: e: Emergency Group Project
From:
Date: June 21, 2017 at 6:45:21 PM PDT
To:
Forwarded message
From:
Date: Wednesday, June 21, 2017
Subject: Emergency Group Protect
To:
Hi all,
9) Onsite security.
Thanks so much!
El
B
Exhibit 4
Exhibit 4
Posted: August 7, 2017
Video Conference
Note: Items on this agenda may be taken in a different order than listed.
Items may be combined for consideration.
Items may be delayed or removed from the agenda at any time.
I. **Public Comment In consideration of others, who may also wish to provide public
comment, please avoid repetition and limit your comments to no more than five (5) minutes.
II. Proceeding to consider information and analysis necessary for the Department of
Taxation determination whether issuing licenses only to alcohol distributors will
result in an insufficient number of marijuana distributors pursuant to NRS
453D.210(3). (for possible action)
III. **Public Comment In consideration of others, who may also wish to provide public
comment, please avoid repetition and limit your comments to no more than five (5) minutes.
IV. Adjourn.
Please contact Tina Padovano at (775) 684-2096 to request copies of the support materials and meeting
minutes. The support materials are made available at the Department of Taxation, 1550 College Pkwy,
Carson City, NV and made available during the meetings. Any information submitted in public session will
become public and may be published.
**This item is to receive public comment on any issue and any discussion of those items; provided that
comment will be limited to areas relevant to the meeting subject. No action will be taken on any items raised
in the public comment period. At the discretion of the meeting facilitator, public comment may be received
prior to action on individual agenda items. Public Comment may not be limited based on viewpoint. Prior to
the commencement and conclusion of a contested case or a quasi judicial proceeding that may affect the due
process rights of an individual, the meeting facilitator may refuse to consider public comment. See NRS
233B.126.
Members of the public who are disabled and require accommodations or assistance at this meeting are
requested to notify the Department of Taxation in writing or call 684-2096 prior to the meeting.
Notice of this meeting has been posted at the Department of Taxation: 1550 College Parkway, Carson City,
Nevada 89706; and sent to each County Public Library for posting.
Notice of this meeting was e-mailed for posting to the following locations: Department of Taxation, 555 E.
Washington Street, Las Vegas; Department of Taxation, 2550 Paseo Verde, Suite 180, Henderson, Nevada;
Department of Taxation, 4600 Kietzke Lane, Building L, Suite 235, Reno. Notice of this meeting was
emailed to the State Library in Carson City and to the Nevada Legislative Building in Carson City. Notice of
this meeting was also posted on the internet through the Department of Taxations website at
https://tax.nv.gov/ and at https://notice.nv.gov/.
2
Exhibit 5
Exhibit 5
1 DECLARATION OF KEVIN BENSON
I, KEVIN BENSON, declare under penalty of perjury, that the following assertions are true:
3 1. That my firm was engaged to represent IADON to protect its members' interests with regard to
4 regulations recently adopted by the Department of Taxation related to marijuana distribution
5 licenses.
6 The Exhibits to the Emergency are true and complete copies of documents that I either
7 retrieved from the Department of Taxation's website, received from the Department of
8 Taxation pursuant to a public records request, or downloaded from the State website. Any
9 redactions on those documents were performed by the Department.
10 3. I attended the July 13, 2017 meeting of the Tax Commission at which it adopted the
11 Emergency Regulation. On behalf of IADON and Palidin, I objected to the Emergency
12 Regulation on the basis that, among other things, there was no emergency necessitating its
13 adoption. Despite these objections, the Commission adopted the Emergency Regulation.
14 4. During the July 13, 2017 meeting, the Director of the Department stated that the finding of an
15 emergency was based on media reports and reports from the industry asserting that there was,
16 or would soon be, a lack of marijuana inventory.
17 5. Prior to the August 10, 2017 meeting, I emailed the Department multiple times, requesting
18 copies of the supporting materials for the meeting. None were ever provided.
19 6. Prior to the meeting I checked the Department's website numerous times, and no supporting
20 materials were posted prior to the start time of the meeting.
0 21 7. I attended the entire August 10, 2017 meeting held by the Department on the sufficiency of
CM
cr 22 alcohol distributors. To the best of my recollection, the facts stated in the Emergency Motion
23 are true and accurate. The Department stated at that meeting that it had issued six distributor
24 licenses.
25 8. After the August 10, 2017 meeting, IADON and Palidin filed a Renewed Motion for
26 Preliminary Injunction in the district court. A hearing was held on August 17, 2017. During
27 that hearing, I introduced evidence that the Director's written statement of insufficiency was
28 written before the meeting. Additionally, counsel for the Department freely admitted that the
1 outcome of the Au gust 10, 2017 meeting (i.e., that the Department would declare alcohol
2 distributors to be insufficient) was pre-determined before the meetin g was called.
3 9. IADON members' due process ri ghts were violated because the meetin g did not provide any
4 real opportunit y to prepare or to meanin gfully participate. The data the Department and its
5 witnesses relied was not presented, and no questions were permitted re garding what data was
6 used, how it was anal yzed, etc. The Department, without notice, invited three representatives
7 of the marijuana establishments to give special presentations at the be ginning of the meetin g,
8 all advocatin g for finding insufficiency.
9 10. IADON and Palidin appealed the Department's determination to the Tax Commission. The
10 Commission heard the appeal on August 29, 2017, and denied the appeal. It also denied an oral
11 request for stay of the issuance of licenses pendin g an appeal to the courts.
12 I declare under penalt y of perjury that the fore going is true and correct.
13 DATED this I' day of September, 2017.
14
15
KEVIN BENSON
16
17
18
19
20
21
22
24
25
26
27
28
Exhibit 6
Exhibit 6
NDE - DISTRIBUTIVE SCHOOL ACCOUNT
101-2610
PROGRAM DESCRIPTION
The Distributive School Account (DSA) provides direct state financial aid to school districts and charter schools for K-12 public education in Nevada. The funding formula, identified by
NRS 387.121 as the "Nevada Plan," provides school districts a guaranteed dollar amount of basic state support per student plus additional funds for categorical programs such as special
education, class-size reduction, and reimbursement of certain student transportation costs. School districts and charter schools receive either monthly or quarterly apportionments from the
DSA on the basis of student enrollment. Each school district is guaranteed a specific amount per student, which is developed through a formula that considers the demographic, economic,
and wealth characteristics of the district. Allotments of licensed employees and related costs are determined from tables that recognize the differences in costs between rural and urban school
districts as well as small and large districts. Transportation costs are incorporated into the allocation process.
For purposes of calculating basic support, enrollment includes students enrolled in grades kindergarten through twelve, and students in ungraded special education classes and six-tenths of
the count of students enrolled in preschool programs for children with special needs. Special education is funded on an amount-per-unit basis as established by each session of the Legislature.
Pursuant to NRS 387.1233, school districts and charter schools are partially protected from decreases in enrollment through a one-year "hold harmless" statutory provision, which guarantees
a payment based on the highest enrollment in the current or prior year unless the decrease is greater than 5%, in which case the payment guarantee is based on the higher of the prior two
years' enrollment.
The DSA is funded by a General Fund appropriation, sales taxes on out-of-state sales, income from federal mineral land leases, interest from the Permanent School Fund, and a portion of the
state taxes on slot machines. In addition to the state funds received by the school districts through the DSA, the school districts receive the 2.60% local school support sales tax that is part of
the DSA guarantee; the abated $0.75 per $100 of assessed valuation property/mining tax, one-third of which is part of the DSA guarantee; governmental services taxes; franchise taxes; and
various other local and federal revenues. Statutory Authority: NRS Chapter 387.
BASE
This request supports the ongoing programs in the Distributive School Account, such as the basic support for public schools, class size reduction and special education.
2016-2017 2017-2018 2017-2018 2018-2019 2018-2019
2015-2016 WORK AGENCY GOVERNOR AGENCY GOVERNOR
ACTUAL PROGRAM REQUEST RECOMMENDS REQUEST RECOMMENDS
RESOURCES:
APPROPRIATION CONTROL 1,120,856,513 1,072,053,031 1,324,109,975 1,195,981,181 1,341,946,407 1,135,204,504
BALANCE FORWARD FROM PREVIOUS YEAR 0 1,254,002 0 0 0 0
ADVANCES FROM GENERAL FUND 66,000,000 0 0 0 0 0
RETURN GENERAL FUND ADVANCE -66,000,000 0 0 0 0 0
MEDICAL MARIJUANA EXCISE TAX 571,386 0 1,057,900 2,715,500 1,057,900 3,516,300
RECREATIONAL MARIJUANA EXCISE TAX 0 0 0 5,671,729 0 10,206,787
SCHOOL SUPPORT TAX 137,109,458 131,634,000 143,347,938 149,178,400 146,214,897 156,721,100
ANNUAL SLOT TAX 29,157,413 29,168,200 29,157,413 28,017,000 29,157,413 27,974,000
FED MINERAL LEASING ACT REV 4,014,732 7,000,000 4,014,732 4,000,000 4,014,732 4,000,000
RECREATIONAL MARIJUANA FEES 0 0 0 4,440,000 0 1,195,200
TRANSFER FROM EDUCATION 167,351,188 159,212,000 0 0 0 0
TRANSFER DPBH MEDICAL MARIJUANA 0 1,057,900 0 1,296,509 0 796,533
TRANSFER FROM PERMANENT FUNDS 2,930,594 2,000,000 2,930,594 3,000,000 2,930,594 3,000,000
MAINTENANCE
M200 DEMOGRAPHICS/CASELOAD CHANGES
This request increases student enrollment by 1.05% in fiscal year 2018 and an additional 1.25% in fiscal year 2019.
2016-2017 2017-2018 2017-2018 2018-2019 2018-2019
2015-2016 WORK AGENCY GOVERNOR AGENCY GOVERNOR
ACTUAL PROGRAM REQUEST RECOMMENDS REQUEST RECOMMENDS
RESOURCES:
APPROPRIATION CONTROL 0 0 47,898,692 34,786,454 90,788,910 70,322,107
TOTAL RESOURCES: 0 0 47,898,692 34,786,454 90,788,910 70,322,107
EXPENDITURES:
DSA BASIC SUPPORT AID TO SCHOOLS 0 0 43,531,063 31,753,074 81,847,400 63,541,907
CLASS-SIZE REDUCTION AID TO SCHOOLS 0 0 1,694,429 1,234,521 3,445,919 2,742,062
SPECIAL EDUCATION 0 0 2,673,200 1,798,859 5,495,591 4,038,138
TOTAL EXPENDITURES: 0 0 47,898,692 34,786,454 90,788,910 70,322,107
ENHANCEMENT
E130 SUSTAINABLE AND GROWING ECONOMY
This request extends the transfer of a portion of the Initiative Petition 1 Room Tax funds including interest to the Distributive School Account to fund special education programs. A Bill
Draft Request has been submitted to support this request.
2016-2017 2017-2018 2017-2018 2018-2019 2018-2019
2015-2016 WORK AGENCY GOVERNOR AGENCY GOVERNOR
ACTUAL PROGRAM REQUEST RECOMMENDS REQUEST RECOMMENDS
RESOURCES:
APPROPRIATION CONTROL 0 0 -176,323,737 -21,983,738 -179,850,212 -3,506,738
TRANSFER FROM EDUCATION 0 0 176,323,737 21,983,738 179,850,212 3,506,738
TOTAL RESOURCES: 0 0 0 0 0 0
E999 UNFUNDED
2016-2017 2017-2018 2017-2018 2018-2019 2018-2019
2015-2016 WORK AGENCY GOVERNOR AGENCY GOVERNOR
ACTUAL PROGRAM REQUEST RECOMMENDS REQUEST RECOMMENDS
RESOURCES:
UNFUNDED DECISION UNITS 0 0 -17,587,473 0 -44,139,950 0
TOTAL RESOURCES: 0 0 -17,587,473 0 -44,139,950 0
SUMMARY
2016-2017 2017-2018 2017-2018 2018-2019 2018-2019
2015-2016 WORK AGENCY GOVERNOR AGENCY GOVERNOR
ACTUAL PROGRAM REQUEST RECOMMENDS REQUEST RECOMMENDS
RESOURCES:
APPROPRIATION CONTROL 1,120,856,513 1,072,053,031 1,302,405,529 1,324,140,158 1,335,506,429 1,330,915,015
BALANCE FORWARD FROM PREVIOUS YEAR 0 1,254,002 0 0 0 0
ADVANCES FROM GENERAL FUND 66,000,000 0 0 0 0 0
RETURN GENERAL FUND ADVANCE -66,000,000 0 0 0 0 0
MEDICAL MARIJUANA EXCISE TAX 571,386 0 1,057,900 2,715,500 1,057,900 3,516,300
RECREATIONAL MARIJUANA EXCISE TAX 0 0 0 5,671,729 0 10,206,787
RECREATIONAL MARIJUANA RETAIL TAX 0 0 0 29,520,000 0 39,828,000
SCHOOL SUPPORT TAX 137,109,458 131,634,000 143,347,938 149,178,400 146,214,897 156,721,100
ANNUAL SLOT TAX 29,157,413 29,168,200 29,157,413 28,017,000 29,157,413 27,974,000
FED MINERAL LEASING ACT REV 4,014,732 7,000,000 4,014,732 4,000,000 4,014,732 4,000,000