Nevada judge: Even smallest owners of cannabis companies should have been background checked

A Las Vegas judge has ruled that marijuana license winners that have not had background checks on all of their part-owners — even ones with small shares — cannot use the license to open a dispensary unless they correct the issue.

District Court Judge Elizabeth Gonzalez issued a permanent injunction on Thursday, bringing a level of closure to many major issues in a drawn-out legal case so large it’s sometimes called “World War Weed.”

Her order gave credence to many of the complaints brought by plaintiffs who did not win coveted and limited dispensary licenses in 2018 and argued the state’s process for vetting applications was marred by favoritism and shifting standards midway through the process.

Certain actions by the Nevada Department of Taxation, the state agency that issued the licenses, created “an uneven playing field because of the unequal information available to potential applicants. This conduct created an unfair process for which injunctive relief may be appropriate,” Gonzalez wrote.

In the 2018 licensing round, 127 companies submitted 462 applications for licenses that would have given them a rare chance to expand their business in the strictly limited world of legal marijuana. Of that, 61 licenses were distributed among only 17 different companies, and many who missed out cried foul.

Gov. Steve Sisolak said in a press release on Thursday that he is confident the state, which has now created and appointed a Cannabis Compliance Board to regulate the marijuana industry, “will implement lessons learned from this case.”

Democratic Attorney General Aaron Ford, whose office represents the taxation agency under fire, framed the decision as one that brings clarity to a cannabis sphere divided over actions taken in 2018.

“While some litigants have characterized this long, hard fought case as a war, my office’s policy is to do justice, which in this instance means opposing this lawsuit in an open, fair manner to enable the Court to determine the legality of the 2018 retail marijuana competition,” Ford said in a statement.

Gonzalez determined that the state agency violated the will of voters, who legalized marijuana through 2016’s Question 2, by approving applications of companies without conducting background checks on owners who held a share of less than 5 percent.

Four companies could have been blocked by the injunction: Helping Hands, Greenmart, Lone Mountain and Nevada Organic Remedies. But a court filing indicates there is a path forward for getting approval for applicants who were truthful in their application, and Ford's office said that after questions about ownership were resolved for the four companies, it "did not identify any applicant to whom such a restriction would apply."

She also faulted the former head of the marijuana enforcement division, Jorge Pupo, for deleting text messages from a personal phone he used heavily for work after the attorney general’s office had asked him to preserve the evidence.

“The Court finds evidence has been irretrievably lost as a result of his actions,” Gonzalez said, concluding that the evidence presumably would have been detrimental to the state’s case.

Gonzalez also said that an established process of funnelling applicant requests through a single point of contact was circumvented, and Pupo conducted significant conversations directly with certain applicants in violation of protocol. That led to some companies having key advice on how to complete an application that never made it to other applicants.

“The (Department of Taxation) made no effort to ensure that the applicants received the same answers regardless of which employee of the DoT the applicant asked,” she said.

While the ruling found numerous faults with the state’s process, it did not find that any monetary damages could be awarded, nor could new licenses be granted.

“With the anticipated return of tourism after the abatement of the current public health emergency, significant growth in legal marijuana sales is anticipated,” she said. “Given the number of variables related to new licenses, the claim for loss of market share is too speculative for relief.”

The ruling could have implications for a recently approved partial settlement between some of the many former plaintiffs and the state. That agreement calls for reshuffling of licenses and expedited approval of certain dispensaries, but some of the licenses in question could be unusable — at least for now — because of the injunction.

A spokeswoman for the Cannabis Compliance Board said “the CCB is aware of the order and is currently reviewing it.”

But for some plaintiffs who opposed the settlement on the grounds that it didn’t include all parties and didn’t address what they view as the central injustices in the application process, the injunction is vindication.

“We always knew it was unfair and it’s nice to have a judge confirm what we actually knew,” said David Goldwater of Inyo Fine Cannabis Dispensary in Las Vegas. “It’s not an indictment of the people who got licenses. It’s an indictment of the state and the process they went through, and it’s mismanagement on the state’s behalf.”

The Nevada Independent is a 501(c)3 nonprofit news organization. The following people or entities mentioned in this article are financial supporters: Committee to Elect Aaron Ford - $2,000.00; David Goldwater - $2,500.00; Elizabeth Gonzalez - $120.00; and Steve Sisolak - $3,200.00.