UPDATED: Judge’s Ruling Could Freeze Cannabis Licensing Process for Some Nevada Dispensaries
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UPDATED: Judge’s Ruling Could Freeze Cannabis Licensing Process for Some Nevada Dispensaries

A Clark County judge has issued an injunction that stops the state from performing a final inspection for some licensees.

September 9, 2019

Editor's Note: This story was updated at 11:25 a.m. ET on Monday, Sept. 9 to reflect the filing of an amended lawsuit on Friday, Sept. 6.

A group of cannabis companies that were denied retail licenses in Nevada last year filed an amended lawsuit Sept. 6 that alleges corruption in the Nevada Department of Taxation, the state agency responsible for regulating the industry.

The complaint was filed in District Court in Clark County as an amendment to an original lawsuit brought forth earlier this year, according to The Nevada Independent. The amended lawsuit accuses leaders at the Department of Taxation of "engaging in a cover-up of the rampant illegality and corruption that infected the license application process for the recreational dispensaries."

The complaint alleges that Department of Taxation Deputy Executive Jorge Pupo testified that he was offered jobs by cannabis industry executives that won dispensary licenses, and reiterates previous points that some license applicants shared close relationships with state employees. Other allegations state that the department did not keep adequate public records or thoroughly explain its scoring decisions.

District Judge Elizabeth Gonzalez issued a ruling Aug. 23 that threatened to freeze the licensing process for some of the cannabis companies that were awarded retail licenses in Nevada last year.

An injunction issued by the Clark County judge bars the state from performing a final inspection for any licensees who did not identify all prospective owners, officers and board members as required under Question 2, the 2016 voter-approved initiative that legalized adult-use cannabis, according to a Vegas Inc report. Four applicants—Helping Hands Wellness Center, Lone Mountain Partners, Nevada Organic Remedies and Greenmart of Nevada—may not have conducted the required background checks on company ownership after regulators changed background check requirements.

Question 2 mandated that the state “conduct a background check of each prospective owner, officer and board member of a marijuana establishment license applicant,” Vegas Inc reported. Gonzalez wrote in her ruling that the Nevada Department of Taxation violated state law when it performed background checks only on individuals with an ownership stake greater than 5 percent on the license applications that involved multiple business owners, according to the Vegas Inc report.

Gonzalez’s decision comes after she heard evidence and testimony over the course of several weeks during an injunction hearing, and the ruling is expected to be appealed to the Nevada Supreme Court, Vegas Inc reported. While the ruling prohibits the state from performing final inspections to businesses that fall under the injunction, those businesses can still receive zoning permits and begin the buildout of stores—although they cannot receive the final greenlight to operate while the injunction stands, Vegas Inc reported.

Nevada awarded 61 additional adult-use dispensary licenses in December 2018, including 31 in Clark County. In March, 11 dispensaries that were denied licenses filed litigation against the Nevada Department of Taxation to halt the licensing process. The companies alleged that the department was not transparent in the scoring and approval of the license applications, according to an 8 News Now report at the time. Business owners questioned the criteria and overall process used to score the applications, as well as who scored them, 8 News Now reported.

Ongoing hearings have produced testimony from some Department of Taxation officials claiming that the department acted fairly in the licensing process, while others have said that differences between a state statute based off Question 2 and an administrative code based off the statute might have caused confusion for cannabis applicants.

A temporary restraining order was issued in May to keep Thrive Cannabis Marketplace, one of the companies awarded a license in December, from opening, and Thrive co-owner Phillip Peckman and former Essence co-owner Alex Yemenidijan testified earlier this month that businesses with dormant retail licenses are missing out on significant profits while the state is losing tax revenue.