Nevada’s pot industry not for faint of heart

Nevada’s medical marijuana law took effect this month, but much remains to be done before the budding industry can take root here.

That’s especially true for marijuana growers, labs and dispensaries, which must meet the strictest requirements of any state in the country that has legalized marijuana for medicinal purposes.

On top of that, the businesses operate in an industry that while growing fast is hindered by a troubling discrepancy between state and federal law.

Nevada’s 136-page regulation was recently approved and the Division of Public and Behavioral Health of the Department of Health and Human Services will make the application for businesses available within 120 days, says Marla McDade Williams, deputy administrator.

Williams says the department is expecting about 425 applications for the various businesses, including fewer than 70 dispensaries allowed by the law, comprising 40 in Clark, 10 in Washoe, two in Carson City and one in each of the remaining counties. The law does not specify the number of growers or labs allowed, although the intent is to permit only enough to supply and service the dispensaries.

The application process is not for the faint of heart or fly by night. Each application requires a $5,000, non-refundable deposit and, if accepted, more charges, such as $30,000 registration fee for dispensaries. Applicants must supply five years of tax records, information on all owners and employees, including criminal records, and a detailed budget.

And that doesn’t include what local jurisdictions may charge. Washoe County, which is the only county yet to pass an ordinance regulating zoning and hours of operation, is still deciding what to charge for a medical marijuana business license.

Applicants must also demonstrate they have at least $250,000 in liquid assets at a financial institution. Until a few months ago, that would have been nearly impossible as banks didn’t work with pot businesses, but the U.S. Treasury Department and the Department of Justice in February released guidelines enabling banks to loan and deposit money from the businesses, albeit with closer scrutiny to detect any hint of money laundering activity.

Perhaps the most difficult requirement, though, is providing an address for the prospective business.

“It’s a huge issue, where to locate,” says Tory Allen, a Reno business attorney, who has advised several pot businesses. “I’ve seen a client enter into a valid lease with full disclosure, explained what they intended to do and sometime later had the owner come back and override it, and told them to be out within 30 days.”

That’s because any lease includes a clause giving the landlord an out if the tenant engages in illegal activity, even if that activity is allowed under state law. In 2012, the U.S. Attorney went after property owners in California leasing to medical marijuana dispensaries when illegal activity was suspected. But California’s laws were much looser than Nevada’s, inviting attention, and the DOJ has since clarified it has no interest in prosecuting businesses adhering to state law.

Still, some landlords here are wary. Gary Baker with Reno’s Baker & Co. was in escrow with the buyer of a Carson City commercial condo he’d been trying to sell for years when he found out an adjacent condo had been leased to a dispensary. When other owners found out, the group of 19 condo owners voted to change the complex’s CC&Rs (Covenants, Conditions & Restrictions) to prohibit medical marijuana businesses.

“There is no amount of money that would cause us as an owner or a broker to get involved in that industry and lifestyle,” says Baker. “There’s a line in the sand and people are on either side.”

Others see it the same way.

“Either people are OK with the marijuana issue or they’re not,” says Ken Stark, Stark & Associates Commercial Real Estate in Reno, who has met with several looking for space. “These are sharp business people, and they’re experienced. They’ve been coming from Colorado or California. They’re very sophisticated and well-funded and in some cases they’re teaming up with recognizable Reno names, from physicians to business people.”

But even working with an agreeable landlord can get expensive.

“If you can find a spot, you need a landlord that will hold it for six months since you don’t know if you’re going to get a license,” says Sue Smith of Argent Commercial Real Estate in Reno. “I’ve known landlords that want like $60,000 to do that.”

Other issues remain, including amending the state ethics conduct rules so city attorneys can advise local jurisdictions and lawyers can write contracts for medical marijuana businesses. The Nevada Supreme Court is taking that up at a hearing May 6 and is expected to implement the needed changes.

Business attorney Allen thinks that and other problems hampering the industry will soon burn off and disappear.

“Ten years from now we’ll look back on this,” says Allen, “and say it was much ado about nothing.”